Moving from child care costs to saving for college
When the kids no longer need child care services, consider dedicating that money to college funding.
Is your child one of the millions of children in child care? If so, child care expenses are likely a significant line item in your budget. Reliable child care can be difficult to afford. According to recent research, the cost to send a child to daycare averages $340 per week and if a nanny is hired, that cost averages $612 each week.
Saving for college may seem impossible while paying for child care along with other fixed expenses, such as housing, utilities and food. However, there is light at the end of the tunnel. When your child begins elementary school and no longer requires full-time child care, you may see a significant increase in your discretionary income each month.
Saving for college
Before you convert those child care dollars into disposable income, consider investing in your child's college education. After all, you may already be accustomed to living without that income. We have a college savings calculator that can be utilized to help determine how much to save for your child’s college education. Keep in mind, the average cost for both tuition and books can vary greatly depending on the school selected.
Investing for college
There are different investment options available that offer tax advantages while you accumulate funds to help pay for future education expenses.
Coverdell Education Savings account (ESA)
One option is the Coverdell Education Savings Account (ESA). The ESA is a trust or custodial account with a $2,000 annual contribution limit that can be used for your child's elementary and secondary education, as well as post-secondary education, such as college, graduate school or vocational school. You can invest in a Coverdell ESA account regularly, if your income is under a certain amount, with current year contributions accepted until that year's tax-filing deadline.
529 college savings plan
If you'd like to invest more toward your child's education, consider a 529 savings plan for qualified higher education expenses. Depending on the 529 plan you choose, in certain states it could be used in primary or secondary school as well. Even if you don't contribute the maximum amount allowed by your state, it's a good idea to save smaller amounts every month or every paycheck.
A quality education may be one of the most important factors in determining your child's future. It's never too early to begin saving, and dedicating funds you previously used for child care may be a great way to start.
