Setting goals is often the first step to achieving your hopes and dreams for yourself and your family. Making a plan, however, is crucial to making those dreams a reality.
This is especially true when it comes to a college education for your children. Starting a college savings plan when your children are young sets you on a path for success and can help you reduce the need for expensive student loans down the road.
Establishing a college savings plan early and contributing to it often is the key to reducing, or even eliminating, student loan debt. According to the Project on Student Loan Debt, the average student-loan debt increased 24 percent to $23,200 in 2008, up from $18,650 in 2004.
According to FinAid.org, parents who put aside just $50 per month from the time their child is born can grow a nest egg of more than $20,000 by the time that child turns 18, assuming a 7 percent return on investment. Increasing those contributions to $100 per month can yield more than $43,000.
While there are a number of college savings vehicles to choose from, savers should keep in mind that a 529 plan is a tax-free and, in some cases, state tax-deductible option. Operated by a state or educational institution, a 529 plan is an education savings plan designed to provide families with an easy way to save.
Most offer online enrollment with minimal initial investment, as low as $25. Additionally, contributions can be made by more than just a child's parents. Anyone can contribute to an account or open one on behalf of a child.
Many states offer a 529 plan and each state's plan is different. Morningstar, a leading provider of investment research, provides analysis on the majority of the nation's 529 plans and rates them based on a variety of key factors. Additional sources for information on 529 plans are SavingForCollege.com as well as CollegeSavings.org.
An example of a top-rated Morningstar 529 plan is CollegeAdvantage, Ohio's college savings plan. Account owners can contribute to a CollegeAdvantage account for as little as $25 and accounts are available to any U.S. resident and funds can be used at any college in the country.
"Saving with a 529 plan offers parents, friends and family members an affordable and attainable way to save for their loved one's future college expenses," said Richard Norman, interim executive director of Ohio Tuition Trust Authority. "Many times, just beginning the process can help families feel like college is a realistic and achievable goal."