How to Invest for Your Child's College Education

Using money you can put aside and your child's own contributions from allowance and birthday funds, you can create a tidy nest egg for your child's education.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Financial Calculator
• Brokerage Accounts
• Savings Accounts
• Paper And Pencils
• Personal Financial Software

1. Start early and let compounding work for you - that is, earning interest on interest. The more you can save now, the less you will have to set aside later.
2. Buy a mix of investments such as mutual funds, savings bonds, individual stocks and corporate bonds.
3. Look into setting up an education IRA (Individual Retirement Account). Contributions are not tax-deductible, but your investments grow tax-free until you withdraw them.
4. Find out whether the state in which your child will likely attend college offers a state-backed tuition-savings plan.
5. Check out mutual funds that specialize in college-tuition savings. They won't ask for big monthly investments.
6. Ask relatives who regularly send birthday, Christmas or Hanukkah gifts to consider putting a part of the money into savings bonds or other investments for your child.
7. Encourage your child to contribute 10 percent of a weekly allowance or income from part-time work to the investment pool.
8. Give your child a role in making decisions about the investments to learn about and appreciate sound personal-finance habits.
9. Start searching for college grants, scholarships and work-study deals before your child completes his or her junior year of high school.

Tips & Warnings

• In addition to using an education IRA, you may be able to take early withdrawals without penalty from your other IRAs to pay for college costs.
• Your child should avoid taking out student loans unless there is no other way. It's a burden to begin paying back debt soon after graduation.
• If it isn't out of the question, ask your child to look into the active-duty military or the guard or reserve component of the armed services. Enlistees receive the promise of a large college tuition subsidy.