How to Invest in Savings Accounts or Funds for College
College is a major expense and it keeps getting more and more expensive. By the time your children are attending college, the financial outlay may seem prohibitive. Fortunately, you can save for college through a Coverdell IRA, also called an Educational IRA, as well as a 529 plan. Both plans offer the opportunity to invest in stocks, bonds and mutual funds in order to grow your money more quickly. To maximize your savings, you can invest in both types of accounts.
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Instructions
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Open an account with a brokerage firm. The cheapest way to do this is with a discount brokerage firm, where you manage your own account, but there are also full-service brokerages where a professional manages the accounts for you. Look for a brokerage that allows you to open both an educational IRA and a 529 plan.
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Choose your investment distribution. You can invest in stocks, bonds or mutual funds. Mutual funds make it easy for beginners to invest because they spread the risk out. If your child is very young, you can choose investments that have higher risks, because those are more likely to earn more in the long run. As your child approaches college age, though, you'll want to invest in safer investments, such as bonds. Most educational IRAs and 529 plans offer pre-selected investments based on your child's age.
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Set up automatic payments. Most brokerages allow you to set up automatic money transfers into your account, which makes it easier to invest.
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Maximize your investments. Each type of educational savings vehicle has limits on the amount of money that you can contribute. The educational IRA has a total investment cap, while a 529 has a per-person investment cap. The total amount you can save through the educational IRA is much lower than the 529 plan.
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Tips & Warnings
Grandparents can also contribute to educational savings plans. If they are interested in helping save for education, let them know how they can make a direct contribution to the educational funds.
Some credit card programs allow you to earn money back towards your child's education. Apply for this type of credit card to start earning rewards.
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