Your children will have more sources of money for college than you will have for your golden years, so don’t sacrifice your retirement savings.
Even modest savings can pack a punch if you give them enough time to grow. Investing just $100 a month for 18 years will yield $48,000, assuming an 8% average annual return.
With tuition costs rising faster than inflation, a portfolio tilted toward stocks is the best way to build enough savings in the long term. As your child approaches college age, you can shelter your returns by switching more money into bonds and cash.
Federal, state, and private grants and loans can bridge the gap between your savings and tuition bills, even if you think you make too much to qualify.
Investing in mutual funds puts a professional in charge of your savings so that you don’t have to watch the markets daily.
Qualified withdrawals are now free of federal tax and most plans let you save in excess of $200,000 per beneficiary. Plus, there are no income limitations or age restrictions, which means you can start a 529 no matter how much you make or how old your beneficiary is.
You may be able to take two federal tax credits — the American Opportunity Tax Credit and Lifetime Learning Credit — in the years you pay tuition.