Category: 

How Do I Start a Baby College Fund?

Article Details
  • Written By: K. Kinsella
  • Edited By: Shereen Skola
  • Last Modified Date: 21 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
A recent study suggests that former acne sufferers are more likely to retain a youthful appearance as they age.  more...

December 9 ,  1979 :  The eradication of smallpox was certified.  more...

In some countries, college tuition fees are quite costly and the burden for covering these costs often falls upon the parents of the student. Consequently, baby college fund savings plans are popular for many parents. People who establish such plans split the cost of college over a lengthy period of time but in many places there are also tax benefits for individuals who start a baby college fund.

In many instances, a baby college fund takes the form of a mutual fund or a brokerage account that contains a variety of stocks and bonds. People wishing to start such a fund must contact a licensed investment broker or a securities agent employed by a local bank. Securities laws in some areas enable individuals to create investment accounts online although people who administer their own accounts do not receive any investment advice from licensed brokers. Typically, a baby college fund has to be opened under the name of the account beneficiary as opposed to the name of the parent or guardian who intends to fund the account.

Ad

Conventional bank products such as certificates of deposit (CDs) have relatively low interest rates and over periods of a decade or more CDs and other types of fixed interest accounts are sometimes outpaced by inflation. Consequently, many people prefer to invest in securities because while these vehicles have no principal protections, historically stocks and bonds have grown at a faster rate than CDs over periods of 10 years or more. Some investment companies market portfolios of investments that are specifically designed to hold college funds. Investors who use online brokerage accounts typically have to make their own decisions about which securities to buy.

In some areas, local education authorities operate pre-paid college tuition plans. Generally, people who invest in these plans are able to pay for future tuition costs based upon the current tuition rates rather than the costs that are in place when the classes commence. Anyone wishing to open such a baby college fund must provide the plan operator with the name and date of birth of the fund beneficiary. Many of these plans have to be paid for with single premium payments although some authorities allow donors to set up recurring monthly plan contributions.

Under national and regional tax laws, many people are able to claim tax deductions for educational expenses such as college tuition fees. Anyone claiming such a deduction must detail the amount of the tuition fees on their tax returns. In many instances, parents and guardians can claim tax deductions but extended family members and other donors are not eligible to claim such deductions. Many nations afford preferential tax treatment to college savings accounts which mean that the funds inside a baby college fund grow on a tax-deferred basis. Either the donor or the beneficiary may have to pay taxes on the account proceeds if funds are withdrawn for any purpose other than tuition or other types college fees.

Ad

You might also Like

Recommended

Discuss this Article

Logicfest
Post 2

@Vincenzo -- I think you meant "retirement fund" in that last graph. I'm sure of it, in fact, and you make a good point. But think about this. There are times when those emergencies are quite dire and college funds have to be raided.

Let me give you an example. Let's say that a parent loses a job and the mortgage falls 90 days past due. The bank is threatening to foreclose. That is a time when it might be essential to raid a college fund and take care of that debt.

The important thing to do after such emergencies is to pay the borrowed money back into the college fund. And that is where people often mess up

-- they raid the college fund and never pay the money back. Perhaps they can never get in a position to pay it back. Perhaps they just shirk a bit. Whatever the reason, the true failure is in never getting that money back in that fund.
Vincenzo
Post 1

The most important way to start one of these is just to start one. A lot of parents wind up swearing they will start a college tuition fund and never do it.

Even a lot of those that do start such a fund wind up raiding it during "emergencies," thus rendering the funds next to useless.

So, start that fund and never touch it no matter how tough things get. That way, it will be there for that baby when the youth gets ready to go to college.

And if junior doesn't want to go to college? You've got a good retirement fun, ace.

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email