Saving for college is an expense that most families have. Not everyone has enough extra money every month to save much for college, but even setting aside a few dollars each month can add up and help alleviate the high cost of your children’s future education. As the cost of college rises, it becomes more and more important to save money to help prepare your children for life. Luckily, there are several college funding options to help save money effectively for college.

College funding options

The United States offers several different options for college savings plans. Each plan has their own drawbacks and advantages, and some will fit families better than others.

529 plan

The 529 plan is a college savings plan that anyone can open for anybody. You do not have to be the parent of the child to open this savings account. The plan allows you to place up to $13,000 as an individual or $26,000 as a married couple into the account each year. The money you place into this account has no gift-tax consequences. The total amount of money you can place into the account is $350,000. All income earned from this plan is tax-free, and you do not have to pay taxes when you withdraw the money.

Coverdell education savings account

An education savings account is another way to save for college expenses. You don’t have to use these funds just for college. You can use them for any educational expenses, including school fees. Withdrawals are tax free, but if your income is too high, you may not be able to open this kind of account.

Prepaid tuition plan

In a prepaid tuition plan, you agree to lock in your student’s educational price with a school right now. These plans help you receive a lower rate on college tuition, but they do have some drawbacks. Your child may have to attend a particular school, and if they end up not getting accepted to that college, then your prepaid tuition plan no longer applies.

Stock portfolios

You can also save for college expenses using your own stock portfolio. When a child is young, investing in riskier stock investments is a great way to earn returns on your initial investment. As your child gets older, you can then withdraw the funds to a less aggressive portfolio so that the money will hold its value until you need it.

Tax Credits

When your child’s college years arrive, there are ways that the government will help with tuition fees. These benefits and tax credits even apply for bad credit or other past income troubles. You can take advantage of both the American Opportunity Tax Credit and the Lifetime Learning credit to deduct the interest you pay on college fees up to $2,500 per year if your income is less than $70,000 as a single person or less than $140,000 as a married couple.

Tuition insurance

Another way to save on expenses if your child has an injury that prevents them from attending school temporarily or permanently is to get tuition insurance. With tuition insurance, if your child is unable to attend school because of injuries, you can get up to 60 percent of the cost of tuition back with tuition insurance.

All of these savings plans help parents save for their children’s school and prevent the high cost of college from overwhelming students or parents. Parents can also cut back on school expenses by having their student apply for scholarships and financial aid to cover the cost of tuition that the parents do not pay for.

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