Just when I thought babies couldn't get more expensive (you want me to spend how much on clothes they'll grown out of in a few months?!), there's the largest expense of them all looming 18 years away. College. Gulp. Right now, the cost of college is somewhere between an arm and a leg...I don't even want to try to guess how much it will cost when Claire is ready. So that's why my husband and I started saving. Before she was born. Seriously.
Let's be clear - we haven't stopped contributing to our retirement accounts or taken out a second mortgage on our house to finance her education. And the personal finance blogger in me wants to remind you there are scholarships and loans for college, but not for retirement! Always contribute to your retirement first. But we have a small amount that we're using to start growing her college savings.
But what vehicle is the right way to save? Where will you be able to get the best rate or not be hammered by taxes? I'm not an expert and I still haven't decided what the best route is for us, but here are some options:
Traditional savings account - I'm hoping you all have at least one of these (smile and nod). This is an easy way to stash some money where you have complete liquidity (easy access), but poor interest rates. I really like ING Direct - they have pretty good rates and you can have multiple sub accounts that you can label for certain things, like "Baby C's College Fund" or "Mommy Needs a Massage Account". What? Never mind.
529 - the 529 is a tax-advantaged account (meaning funds are exempt from federal tax and possibly state tax in select states) that sets aside money to pay for higher education. You can have a prepaid 529, meaning you purchase education "credits" at today's prices (i.e. 4 years at Smart Kid University for 2011 tuition, even if they won't attend until years later) or a savings account (just keep pumping money into it). It's a good idea to find the different 529 options available for your state and see what any rules and restrictions are before investing. 529.com is a great website to find out more information.
Other resources I love that are not savings accounts but help with college costs are Upromise and Ugift.
Upromise is a rewards program from Sallie Mae that turns your every day spending into contributions to your child's college fund. It's free to register, and it's surprising how quickly the money starts to accumulate! Ugift is a way for family and friends to help - they can contribute to your child's 529 plan!
Anyone else have some good college saving strategies?
Pssst - no one was paying me for any endorsement. Anything highlighted is something I use and love, and I just wanted to pass it on.