Let’s face it. Raising a child will cost you an arm and a leg – there’s no way around this. For this reason, you should plan your finances properly to ensure you don’t get overwhelmed. For instance, your child needs a good education. Luckily, there are simple ways to save enough funds to support your child in a private school. Here are a few golden pointers to get you started.
1. Go for Longterm Savings Using a 529 Plan
Initially, 529 plans were designed to pay for college expenses. However, due to the Tax Cuts and Jobs Act of 2017, the program can pay for private school tuition, which is a big win for your finances. The law allows 529 plans to pay for qualified kindergarten to high school tuition.
The change only allows up to $10,000 per child to cater for K-12 expenses. It’s the best option for taking charge of your finances and saving up for private schools, which account for nearly 25% of schools nationwide and enroll 10% of all PK-12 students. The plan has low maintenance, tax advantages, and account controls.
2. Start Early With a Roth IRA
Typically, Roth IRAs are majorly used for planning retirement. What you might not know is they’re very flexible. For instance, they allow taking out contributions tax-free if the account has been active for at least five years. However, this isn’t true for the profit earned via a Roth IRA account.
You’ll be able to contribute after-tax money, and you aren’t required to pay the taxes afterward on your qualified withdrawals during retirement. As a parent, there’s a possibility to start saving before your child is born. This arrangement creates more time for your money to compound tax-free, which is a smart move to improve your finances.
Start saving early because kids develop and grow very fast. According to The Genius of Play, children start understanding the real world as young as three years by engaging in realistic pretend play. You don’t want to be caught up by time. Also, if you don’t use your savings for educational purposes, you can always use the funds when you retire.
3. Maximize on UTMA or UGMA Account
Did you know you can get tax benefits from custodial accounts developed via the Uniform Transfers to Minors Act(UTMA) and the Uniform Gifts to Minors Act (UGMA)? With such accounts, you can transfer assets to a minor, who will pay a lower tax rate on the earnings. Typically, these accounts come in handy for college tuition.
However, you can also use the funds for private school tuition. It’s a fantastic move to help you plan your finances better for private school. Remember, it will cost you $233,610 on average to raise your child to 18, per the U.S. Department of Agriculture
4. Retreat to a Taxable Account
Here is yet another idea. Retreat to a usual vanilla taxable investment account. The downside is the account offers no unique benefits. Also, your annual realized gains, such as dividends, capital gains, and interest, will be taxed.
Here, it’s best to consider choosing more aggressive investments, such as stocks, to strengthen your finances. However, you’ll need to invest your money for an extensive period for substantial gain. The tax benefit from investing in stocks is that you won’t be expected to pay the capital gains tax. You’ll only be required to pay tax after selling the stocks and realizing a gain.
Raising a child isn’t cheap. Still, children deserve the best of everything. Though expensive, education is a priceless gift to give your children. The good news is that straightforward strategies will help you improve your finances and save for your child’s private school. The tips above will get you started. Act now and give your child a future.