Three ways parents can start investing for college

It's never too early to start saving for your child's education. Credit: Getty Images
It’s never too early to start saving for your child’s education.
Credit: Getty Images

Whether you’re starting a family or have a child in high school, chances are the cost of college is not far from your mind. Investing, especially if you’re still in the family-planning stage of life, can be a great way to maximize your savings.

Here’s a rundown of some ways to grow your money for education:

529 College Savings Plan: This tax-advantaged educational investment account helps you stash away cash for college (or other post-high school trade schools). A 529 allows money to grow tax-free, and withdrawals are tax-free as long as the money is used for qualified expenses. Even if you don’t have kids now, you can still open an account under your own name now and simply change it later. Many 529 plans give the option of picking investments from a menu of funds, or selecting a general age-based plan where your money is automatically managed according to the date at which you expect to start paying tuition.

Each state offers its own 529 plan. You’re free to use a plan from any state, though keep in mind that each state has its own guidelines for tax deductions on contributions, up to $13,000 per contributor each year. If you’re not an experienced investor, you might feel more comfortable in an age-based plan.  If you are comfortable selecting funds, you may be able to get a better return with your own management.

Your action plan: First, check to see if your state offers a write-off on contributions. If it does, that’s likely your best deal. If not, shop around and look for a 529 plan that offers Vanguard funds, which are low cost. Learn more about the options in your state: New York, Pennsylvania or Massachusetts.

Coverdell Education Savings Account: This is another kind of tax-advantaged account where money can grow tax-deferred and withdrawals are tax-free for qualified expenses. Unlike with 529 plans, funds can also be used for elementary and high-school expenses, including uniforms. One drawback is that you can only put away only $2,000 per child per year and contributions are not tax-deductible.

Regular Investment Account: If you want to get a head start on general saving, a regular investment account is another option that is a better than just storing money in cash savings. With a long-term goal like college for a young child, you can afford to take more risk to grow your savings. Unlike with special education accounts, there is no tax advantage — but there are also no qualifications or limits for withdrawing funds whenever you need them.

These are just general guidelines to help you get started, so do some research to see what the best plan is for you. The earlier you start, the more likely you (and your children) will be able to handle the cost.

Jon Stein is the founder and CEO of Betterment, a leading online investing company that delivers smart, personalized financial advice paired with low fees and a superb customer experience. As a special offer, Metro readers can start a Betterment with the first 90 days free. Got money questions? Hit us up at metro@betterment.com.


News
Entertainment
Sports
Lifestyle
International

Putin fields question from U.S. fugitive Edward Snowden

Edward Snowden, the fugitive former U.S. spy agency contractor who leaked details of intelligence eavesdropping, asked Russian President Vladimir Putin a question on Thursday during…

Local

Boston hospitals apply lessons learned in Marathon bombings

The bombs at last year's Boston Marathon showcased the city's medical talent but also taught valuable lessons in responding to a mass disaster.

National

Rapper affiliate of Wu-Tang Clan 'cuts off own…

Rapper Andre Johnson, who has performed with New York outfit the Wu-Tang Clan, is in a critical condition after reportedly cutting off his own penis…

International

Canadian charged in 'Heartbleed' attack on tax agency

OTTAWA (Reuters) - Canadian police have arrested a 19-year-old man and charged him in connection with exploiting the "Heartbleed" bug to steal taxpayer data from…

The Word

Lawsuit accuses 'X-Men' director Bryan Singer of raping…

A new lawsuit accuses director Bryan Singer of sexual assault against a minor.

Movies

The Cannes Film Festival announces its 2014 lineup

The lineup of the 2014 Cannes Film Festival was announced this morning, promising the latest from a slew of usual (and some unusual) suspects.

Television

‘Survivor: Cagayan’ recap: Episode 8

Sure, it's called Survivor. But this season should really be called 'The Tony Show.'

Television

Jim Rash talks 'The Writer's Room' and amazing…

For Jim Rash, as the fifth season of "Community" comes to a close, the second season of "The Writer's Room" begins.

MLB

MLB video highlights: Red Sox beat White Sox…

Red Sox walk 15 times in extra innings win

NBA

Kris Humphries on free agency, future with Celtics:…

Kris Humphries on free agency, future with Celtics: 'I hope to be back'

NBA

Celtics turn attention to NBA Draft, improve lottery…

Celtics turn attention to NBA Draft, improve lottery odds with loss

NFL

2014 NFL Mock Draft: Updated, new April version

2014 NFL Mock Draft: Updated, new April version

Wellbeing

This Week in Health News: breastfed infants trying…

Are breastfed infants trying to prevent mom from having another baby? Theory: The act of breastfeeding not only brings mom and baby closer together –…

Wellbeing

This Week in Health: chocolate may prevent obesity…

Can chocolate prevent obesity and diabetes? Location of study: U.S. Study subjects: Mice Results: The positive health benefits of chocolate have been studied increasingly more…

Wellbeing

Unexplained infertility may be caused by lack of…

Researchers have identified a protein on the egg's surface that interacts with another protein on the surface of sperm, allowing the two cells to join.

Tech

5 surprising facts about Google Glass

Your sex life could get more interesting.