Enrolling in a trade school or college is considered by many to be the next step after a student graduates from high school. Saving for college can start early, and there are various vehicles for families to explore.
Finding ways to pay for higher education has long been a goal for students and their families. In fact, due to the high cost of college, some families start setting aside funds for their children's college education soon after their children are born. No matter the situation, taking steps to plan and save helps to make schooling more affordable.
One option is a 529 college savings plan. A 529 is a specialized savings account for college and university costs. Most plans can be opened by a U.S. citizen or resident alien age 18 and older. The individual opening the account can be a parent, grandparent, cousin, or even a friend. The student is the beneficiary of the account. Four-year schools, community colleges and vocational/trade schools accept 529 accounts as payment sources. The only requirement is that the school must participate in the U.S. Department of Education student financial aid programs.
Another option is an education savings account (ESA), also known as an Education IRA. Financial experts at Ramsey Solutions say an ESA works like a Roth IRA, but it is designed specifically for education expenses. Individuals can invest up to $2,000 after tax per year, per child. The account grows tax-free. The rate of growth varies based on investments in the account. An ESA also can be used to pay for kindergarten through 12th-grade private school tuition, school supplies, tutoring, or textbooks. It also can be transferred to a sibling if the money is not needed for a particular student.
A third option is a UTMA/UGMA plan. This plan is different from ESAs and 529s because it is not specifically designed for college savings. The Uniform Transfer/Gift to Minors Act account is in the child's name but is controlled by a guardian until the child reaches age 18 or 21. This mutual fund account can be used to save for college with reduced taxes, or funds can be used for other expenses, such as a car or housing.
In addition, advanced placement (AP) classes allow high school students to take college-level courses that can be converted into college credits. Each AP class reduces the need to pay for a class in college. In addition, performing well in AP classes may make students more attractive to colleges and universities, helping students to earn academic scholarships.
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