This article is reprinted by permission from NerdWallet. The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. Raising kids is expensive: On average, the expenses of one child from birth to age 17 add up to over $300,000, according to the latest data from The Brookings Institution. And that doesn’t even account for the massive expense of postsecondary education.
A new NerdWallet survey found that 1 in 5 parents of children under 18 (20%) haven’t started saving for their children’s college education, but want to. Here’s how to begin.Consider opening a tax-advantaged account When choosing an account for college savings, look into tax-advantaged options. One such option is a 529 account, which is specifically designed to save for education expenses. A 529 plan allows your savings to grow tax-free, and some states even offer a tax deduction on your contributions. The downside of a 529 account is that if you withdraw the earnings for anything other than qualified education expenses, you will be penalized. You can change a 529 beneficiary to another member of the family, so if your child decides not to go to college, you can pay for qualified education expenses for another child or even yourself, but there’s the risk that you won’t need the funds for education at all. There are also limited investment options with a 529. Another savings option is a Roth IRA, which is traditionally used as a retirement account, with earnings that grow tax-free. Contributions to a Roth IRA are limited to $6,000 a year — $7,000 if age 50 or older — for the 2022 tax year. There are also income restrictions, and contributions can’t exceed earned income. So, unless your child earns money, you’ll likely have to use your own Roth IRA to save for your kid’s college. Contributions to a Roth IRA can be withdrawn at any time, but earnings are usually subject to a penalty if you withdraw them before you turn 59 1/2. If you made the first contribution to your Roth IRA at least five years before, you can also withdraw the growth for qualified education expenses. The benefit of using a Roth IRA …