Saving for College: Ages 6-12

The Benefits of Early College Savings

As a parent, contemplating your child's college expenses can be daunting, especially when they are still young. However, initiating a children's education savings plan during the ages 6-12 can ease future financial stress.

This important time lets you build a strong financial foundation. It helps your child go to college without the burden of overwhelming debt. Starting when your child is between the age of 6-12 offers significant advantages by extending the accumulation period. Even modest early contributions can transform into substantial amounts over time. 

When should I start saving?

Short answer: It’s never too early to start investing in your child’s education. This chart outlines a clear roadmap to help you maximize your savings and ensure you’re set up for success:

3 Effective College-Savings Tools

529 Plans

529 plans are state-sponsored investment programs specifically designed for educational savings, offering two distinct options: prepaid tuition plans and education savings plans. Prepaid tuition plans enable you to purchase units or credits at participating colleges and universities for future tuition at today's prices, which can be a strategic way to manage future educational costs. On the other hand, education savings plans allow you to open an investment account to save for a variety of future college expenses, including tuition, mandatory fees and room and board.

Benefits:

• • Tax Efficiency: Gains accumulate tax-free and withdrawals are tax-free for eligible educational expenses. 
  • State Incentives: Many states offer income tax deductions or credits for contributions. 
  • Flexibility: Accounts can be transferred between relatives. 
  • Accelerated Gifting: Contributors can make a substantial initial deposit by combining five years' worth of the annual gift tax exclusion.

UGMA/UTMA Accounts

UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act) accounts are custodial accounts that allow assets to be held in a minor’s name without the need for an attorney to establish a trust. These accounts are used to gift or transfer assets to minors and the funds can be used for any purpose to benefit the minor, not just educational expenses.

Benefits:

• • Flexibility: Funds can be used for any purpose to benefit the minor. 
  • Control: Once the minor reaches the age of majority (18 or 21, depending on the state), they gain control of the account.

Considerations: 

• • Financial Aid Impact: Assets in these accounts are considered the minor's property, potentially affecting financial aid eligibility.

Coverdell Education Savings Accounts

Coverdell Education Savings Accounts (ESAs) are tax-advantaged investment accounts designed to cover educational expenses from kindergarten through college. These accounts offer flexibility in funding various educational needs.

Benefits:

• • Broad Coverage: Covers expenses from kindergarten through college, including tuition, fees, books, supplies and technology. 
  • Tax-Free Growth: Contributions grow tax-free and distributions are tax-free for qualified expenses. 

Limitations:

• • Contribution Limits: $2,000 per year per beneficiary. 
  • Age Restrictions: Contributions can only be made until the beneficiary turns 18 and funds must be used by age 30. 
  • Income Limits: Higher-income earners may be restricted from contributing. 

Strategies for Maximizing Your College Savings

A comprehensive approach is crucial for effective college savings for children aged 6-12. Diversifying investments across 529 plans, custodial accounts and traditional savings accounts balances risk and reward. This diversification capitalizes on market growth and mitigates potential losses, ensuring steady savings growth.

Setting a monthly savings goal is crucial for consistent saving habits. Estimate college costs based on tuition rates and institution type, then divide by the months until your child turns 18 to determine monthly savings needs. Small contributions accumulate significantly over time due to compound interest. Automate savings with monthly transfers from your checking account to stay on track effortlessly.

Involve family and friends in your college savings journey. Share your goals and invite contributions to your child's education fund during occasions like birthdays and holidays. Creating a savings fund that others can contribute to not only grows savings but also engages your support network in your child’s future education. Consider age-based portfolios to maximize growth potential over time.