Did you know that you can begin contributing to your baby's college fund even before they're born? But before you start putting money away for your baby's education, you should understand exactly how much it will cost, how you plan to pay for it, and how to save as efficiently as possible.
Ensure everyone is on the same page
Considering a college savings fund for your baby? You and your spouse may have differing opinions on who should be responsible for the full cost of your child's education. Maybe you had to pay your own way through college, with little or no financial assistance from your parents. Or perhaps your spouse was fortunate enough to receive a full academic scholarship. Talk about your own college experiences and decide how you intend to provide for your child's college dreams. Will you expect them to contribute? If so, how much? How much do you intend to contribute?
Understand what college will cost in 18 years
According to Buzzfeed News, tuition has been rising at about 6 percent annually and in 18 years, when babies born today are graduating from high school, a year of higher education at a public school - including tuition, fees, and room and board - could cost $54,000 a year.
The College Board's website has a handy College Cost Calculator that allows you to estimate the cost of your child's future college education (public or private), and tells you what you'll need to save in order to cover the percentage of the costs that you intend to cover yourself.
Start a 529 college savings plan
The 529 plan is a savings plan that is specifically designed to help families set money aside for future education expenses. The 529 is a particular favorite with parents because it comes with tax breaks and benefits that you can read more about on IRS.gov. These plans are offered by almost every state and many educational institutions, and they can be used at any qualified college, university, vocational school, or postsecondary education institution in the nation. Talk to your local bank, credit union, or financial adviser about your options.
Set up an account that allows loved ones to contribute to your child's 529
You may be surprised by how many of your friends and family members will want to make a direct contribution to your baby's education. Websites like GiveCollege.com and GiftofCollege.com allow them to make a direct donation to your child's 529 via check or credit card for a nominal fee.
Read more about the benefits of 529 College Savings Plans and the types of financial aid available to parents and students.
NOTE: As of 2018, the IRS has amended the term “qualified higher education expense” to include a limited amount of annual expenses from a 529 Plan for tuition at an elementary or secondary public, private, or religious school. Source: https://www.irs.gov/publications/p970