Baby college fund savings plans are popular in countries with expensive university tuition fees. These plans can take the form of mutual funds or brokerage accounts and offer tax benefits. Prepaid college tuition plans and investment portfolios are also options. Tax deductions for educational expenses may be available, but only for parents and guardians.
In some countries, university tuition fees are quite expensive and the burden of covering these costs often falls on the student’s parents. Consequently, baby college fund savings plans are popular with many parents. People who set up such plans spread the cost of college over a long period of time, but in many places there are also tax benefits for people who start a baby college fund.
In many cases, a baby college fund takes the form of a mutual fund or brokerage account that contains a variety of stocks and bonds. Persons wishing to start such a fund should contact a licensed investment broker or broker employed by a local bank. Securities laws in some areas allow people to create investment accounts online, although people who manage their own accounts do not receive any investment advice from licensed brokers. Generally, a college baby fund must be opened in the name of the beneficiary of the account rather than the name of the parent or guardian who intends to fund the account.
Conventional banking products like certificates of deposit (CDs) have relatively low interest rates, and over periods of a decade or more, CDs and other types of fixed-rate accounts are sometimes outpaced by inflation. Consequently, many people prefer to invest in securities because, although these vehicles do not have principal protections, stocks and bonds have historically grown at a faster rate than CDs for periods of 10 years or more. Some investment companies market investment portfolios that are specifically designed to hold college funds. Investors using online brokerage accounts generally have to make their own decisions about which securities to buy.
In some areas, local education authorities operate prepaid college tuition plans. In general, people who invest in these plans are able to pay future tuition costs based on current tuition rates rather than the costs in effect when classes start. Anyone wishing to open such a college baby fund must provide the plan operator with the name and date of birth of the beneficiary of the fund. Many of these plans must be paid for with single premium payments, although some authorities allow donors to make recurring monthly contributions to the plan.
Depending on national and regional tax laws, many people can claim tax deductions for educational expenses, such as college tuition fees. Anyone claiming such a deduction must itemize the amount of tuition fees on their tax returns. In many cases, parents and guardians can claim tax deductions, but extended family members and other donors are not eligible to claim such deductions. Many nations grant preferential tax treatment to college savings accounts, which means that the funds within a college baby fund grow tax-deferred. Both the donor and the recipient may have to pay income tax on the account if the funds are withdrawn for any purpose other than tuition or other types of college fees.
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