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How to Start a College Fund for Your Child

April 22, 2021
Having a child can be both joyous and expensive. From diapers and daycare to food and clothing, it can be hard to think about saving money for college when dealing with the more immediate, day-to-day expenses. If helping fund a college education for children is in your plans, establishing a fund as early as possible and committing money to it over time is essential.

If you are like many people however, as life happens, so do other financial priorities such as paying off a mortgage, a credit card bill, or maybe even chipping away at your own student loan debt. According to student loan service Sallie Mae, 52% of parents are actively setting money aside for college tuition and on average, families spent $30,017 on college in the 2019 – 2020 academic year.

In addition to starting a college savings fund, you may also want to look into potential scholarship and grant opportunities. There are several ways to kick-start a college fund for your child while still maintaining your own money goals.

Explore College Savings Options

Open a Savings Account

The most common way to start saving money is to open a savings account. At Middlesex Savings Bank we have a number of personal saving account options to keep your money safe until you’re ready to use it. Savings accounts also allow you to earn interest on top of any amount that you deposit.

Most traditional savings accounts offer lower interest rates than other savings options, so it’s important to first calculate what you need to determine what makes the most sense.

529 Plan

A 529 plan is a great way to save for your child’s college education. The right 529 plan will give the option to migrate the beneficiary to another member of the family. For example, if your firstborn decides to take a different path other than college or even gets a scholarship, their 529 plan can be transferred to a younger sibling.

For most parents, a 529 plan is a great college savings option because of the higher contribution rates in comparison with other programs. While rates vary state to state, according to the Massachusetts Educational Financing Authority (MEFA), parents can contribute up to $15,000 in a year to their child’s college fund before incurring a gift tax penalty. In Massachusetts, parents can deduct up to $1,000 per year for single filers and up to $2,000 for married persons filing jointly.

Uniform Transfer to Minors Act (UTMA)

UTMA plans are designed for purchases beyond education savings. When using a UTMA plan, the account is in the child’s name but controlled by a parent or grandparent until the age of 21. Once the child has reached their age limit, the control of the account is transferred to the child to use however they want.

This type of college plan makes sense for parents looking to create a savings account for their child that can be used for more than just college tuition. However, a beneficiary cannot be changed once selected so it is ultimately their decision on how to spend their money.

Every Bit Counts

Over the last few decades, college tuition has tripled and students are graduating with tens-of-thousands of dollars of debt. Consider starting a college fund as early as possible, even if that means setting aside $50 - $100 each paycheck at first. While it may not be realistic for your family to foot the entire college bill for your child, you can help your child start their post-graduate adult life with less debt and financial stress.

It’s also common for family members to want to help with college savings. Grandparents, godparents, and others may want to invest in your child’s college savings, to help them grow and succeed. And once your child starts earning a little bit of spending money themselves from part-time jobs, they can start to contribute to their own college fund – setting aside a little each month and starting the important practice of good spending habits.

If you are a soon-to-be parent, new parent, or just getting around to saving for your child’s college education, Middlesex Savings Bank is here to help. Contact us or stop by a local branch to talk about what college savings options might make the most sense for your family.
For 529 Plans and the Uniform Transfer to Minors Act (UTMA): The financial professionals of Middlesex Financial Group offer securities and advisory services through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser. Middlesex Financial Group and Middlesex Savings Bank are not registered broker-dealer or registered investment advisers. Middlesex Savings Bank and Commonwealth are separate and unaffiliated entities. 

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by Middlesex Savings Bank