15 Best College Savings Plans For Babies

It’s pretty well known that the earlier you save for an enormous expense like college, the better off you’ll be in the long run. The study also shows it’d reduce the chance of your child needing extra money like student loans.

If a parent or guardian wants to help pay for their child’s college, what other best way than to consider the best college savings plans for babies in 2024?

In this article, we would go over the best college savings plans for babies in 2024. We would also answer any other questions you may have.

This is to ensure you make the best decisions towards saving for college for your babies. Keep reading.

Why Consider The Best College Savings Plans For Babies In 2024?

#1. Less stress

If you wait until you’re a senior in high school, you only have a few options: student loans, paying for it yourself, or not going. None of these are good choices, and doing any of them can cause a lot of trouble in your house.

#2. Peace of mind

We can plan and map out where we want to be in 3, 5, 10, or more years, or we can leave it to chance and hope for the best. Even if things don’t go exactly as planned, planning for the future gives us a lot of peace of mind. The alternative is to worry about how you will make things happen all the time.

#3. Stay out of debt

We’ve already talked about how the average college graduate leaves with more than $30,000 in debt and will probably only make $50,000 a year. When we or our kids have that much debt, it’s like tying a rope to a cinder block, putting the other end of the rope around their leg, and pushing them overboard.

#4. Let your money work for you

When you start saving early in a 529 account, the interest you earn builds up over time. If you pick the right investments, you could get up to 10% interest per year on your money.

#5. Give yourself and your kid’s options

If you save $18,000 or more for your child’s future, you give them choices. They don’t need to give up. If they save even more, they will have more choices. You made it possible for them to follow their dreams and passions, which is priceless.

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What to Consider with College Savings Plans For Babies In 2024?

First, it’s important to know about the different kinds of college savings accounts. Each type of plan has its good points and bad points. As you think about your choices, keep in mind that one of these accounts might work better for you than the others.

Also, it’s important to remember that you don’t have to stick to just one type of account. Before you decide on a saving plan, you should consider-

Tax-free withdrawals on money contributed
Tax-free withdrawals on earnings
Annual contribution limits
Income restrictions to opening an account
Ability to change the account beneficiary
Accept contributions from third parties
Post-tax contributions

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Are The Best College Savings Plans For Babies In 2024 Safe?

If keeping your money safe is the most important thing to you, find out if your state has a Section 529 pre-paid tuition plan. With these state plans, you can pay for tuition now and get an equal amount of money for tuition in the future.

The state that gives you the plan sometimes guarantees this. Your money is probably safe, but it’s unlikely that these plans will do better than the stock market.

Prepaid tuition plans are not backed by the federal government, but some state governments do. Some states, though, don’t promise them. Check to see if your prepaid tuition payments have guarantees. If they aren’t, you could lose some or all of your money.

If you’re willing to take more risk in exchange for a possible higher rate of return, you should find out if your state has a Section 529 investment tuition plan. This is also called an Education Savings Plan. These plans give you choices from investment firms you can trust. If the market goes up, your investment will go up too, but if the market goes down, it can also go down.

When you have an Education Savings Plan, the custodian usually gives you a list of investment options to choose from. If you don’t like taking risks as much, you can choose to invest in bond mutual funds and other “less risky” securities.

Can The Best College Savings Plans For Babies In 2024 Be Withdrawn At Any Time?

When you think about your risk tolerance, you should ask yourself how long it will be until you need the money. From 1991 to 2024, the average tuition and fees at four-year public schools will have gone up by more than twice as much.

When you think about how quickly costs are going up, it can make sense to get a Prepaid Tuition plan, especially if your child is still young. By locking in lower rates now, you can save up enough money before your child starts school.

This is also true if you are thinking about an Education Savings Plan. If you have more time, you might be able to invest more aggressively at first and then change how the 529 invests as your child gets closer to college age. You might want to talk to a financial expert who can help you come up with a plan that fits your risk tolerance and available time.

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Are The Best College Savings Plans For Babies In 2024 Worth It?

You should start thinking about college if you have kids. The National Center for Education Statistics says that more than half of school-aged kids will go to college. It’s a good idea to try to get your kids to go to college.

On average, college graduates make 66% more than those who only have a high school diploma or GED (also according to the NCES). The How America Saves for College 2016 study from Sallie Mae was just released. They found that about 57% of Americans are saving for their kids’ college right now, which is more than in the past. They also said that the average amount saved for college was about $16,000.

Trust me, you don’t want your kids to turn 18 and wonder where the money is going to come from. Since the National Center for Education Statistics says that a 4-year degree from a public college cost at least $18,000, you don’t want to leave that to chance! The BEST thing you can do right now is to choose one type of college savings account.

You also don’t want to put yourself or your kids in debt because of student loans. That has been a big story in the news for years, and good reason. Debt.org says that the average college student owes more than $34,000 in student loans.

Considering that, according to statistics from the NCES, the average college graduate earns just under $50,000 per year, that’s a lot of debt to pay off.

As such, the best college savings plans for babies in 2024 are worth it.

The best time to start your child’s college fund is between birth and age 5. After all, the longer you save, the more money you will earn in interest.

But it’s not too late if you waited until they were older. It’s better to save something than to save nothing.

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How Much Will You Need For The Best College Savings Plans For Babies All Together?

Doing the math is the best way. So the first thing you should do is find out where your child or children want to go to college. If they are young, they won’t know what to do.

We know that tuition in your state is much cheaper than tuition in another state. We also know that going to community college first for two years makes it even cheaper. You can also choose whether to pay for all or some of their college.

Maybe you pay for their tuition and books while they work part-time and pay for their living costs. If they stay close to home, it makes sense that they can save money. Since we know some averages, you can safely assume that it will be between $18,000 and $40,000, which is a wide range.

And if you want them to go to an Ivy League school, you’ll have to go WAY up. The Average Published Undergraduate Charges chart on CollegeBoard.org is a great way to compare the prices of different colleges.

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15 Best College Savings Plans For Babies In 2024

#1. 529 Plan

It’s a Roth IRA used only for education. After you pay taxes on your money, you put it to work. You can invest up to $14,000 every year, which is a lot. Then it grows without paying taxes by entering into mutual funds.

When you take it out, you don’t have to pay taxes on it as long as it’s used for school. One bad thing about this plan is that the details can change from state to state. So, if your state has a state income tax, you should make sure that you won’t have to pay state tax when you use the money.

Another problem is that you can only change your investments once a year right now. If you can’t use the money for school, you’ll have to pay your tax rate plus a 10% penalty to get the money.

The US Securities and Exchange Commission, which is part of the government, has some more information about 529 plans. But this type of college savings account is the best one, in our opinion. All around, it ranks as one of the best college savings plans for babies in 2024.

#2. Coverdell Account for Saving for College

This saving plan is like the 529, but you can only invest in a smaller number of things. Like the 529, you put money in it after you’ve already paid taxes, and when you use it for school, you don’t have to pay taxes on it. The most you can put into it each year is $2,000, which is less than you can put into a 529 plan.

It can also be for private schools beginning with elementary school. Only for people who make less than $110,000 on their own or less than $220,000 as a married couple. The Coverdell Account for Saving for College is one of the best college savings plans for babies in 2024.

#3. College Plan Paid in Advance

This is a pay-up-front plan, which not all colleges or states have to offer. Instead of saving money in a bank account, you pay tuition now for use in the future. The only real benefit here is that if you pay now, you pay today’s rates instead of what they will be in the future. But if we do some simple math, we can see that college tuition goes up about twice as fast as inflation.

InflationData.com says that inflation rates have ranged from 1% to 3% per year. That means that college costs are likely to go up by anywhere from 2% to 6% per year. If you can get close to 10% on your college savings in a 529 account, it’s easy to see why prepaid plans aren’t a good choice.

One benefit of this plan is that you can often transfer it to another member of your immediate family. This is helpful if one child decides not to go to college. Most of the time, though, if you ask for a refund because you don’t have a child in college, you’ll have to pay both your tax rate and a 10% penalty. It is one of the best college savings plans for babies in 2024.

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#4. Using a traditional or a Roth IRA

This kind of college savings account doesn’t seem like a good choice to me. If you cash out to pay for school, the IRS probably won’t charge you the standard 10% penalty. However, they may charge you tax.

You may owe income tax on at least part of the amount distributed, but you may not have to pay the 10% additional tax. It is one of the best college savings plans for babies in 2024.

#5. Savings Account and Savings Bonds

If for some reason you can’t do any of the other things, this is your absolute last resort. Each month, you need to give more. You’ll also have to put money in for a much longer time if you want to catch up to the others. Put money into trusted savings bonds.

At TreasuryDirect.gov, you can use your computer to buy savings bonds from the government. They are no longer given out on paper. Putting money into savings bonds is a good idea because the government backs them and it is very little to no risk.

On the other hand, the interest you earn isn’t very high. At the moment, each Series EE savings bond earns a fixed rate of 0.10 percent per year. Savings accounts and savings bonds are one of the recommended college saving plans for babies in 2024.

#6. UGMAs and UTMAs

These are other types of custodial accounts. Their full meanings are the Uniform Gift to Minors Act and the Uniform Transfers to Minors Act. They hold almost the same kinds of assets, like cash, stocks, and mutual funds, but UTMAs can also hold real estate.

You can put as much money as you want into a UGMA or UTMA account. However, this is best for a child you trust to be responsible. When your child turns 18, he or she will be able to legally use the money in the account for college or anything else. It is a smart move and is one of the recommended college saving plans for babies in 2024.

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#7. Invest in Mutual Funds

You can invest as much as you want, and the money doesn’t have to go to college. However, what you earn gets taxed every year, and capital gains get taxed when shares get sold. The mutual fund’s assets can make it harder for you to get financial aid. Mutual funds are not very popular, but they are one of the recommended college saving plans for babies in 2024.

#8. Life Insurance

Bryan Bentley, a financial advisor with Talon Wealth Management in Roseville, California, says that this is a college savings plan strategy that high-net-worth families often use to save tax-free money for multiple goals, including college. It’s smart and one of the recommended college saving plans for babies in 2024.

Permanent life insurance is the same as regular life insurance. However, some of the money from your premium goes toward the death benefit. Other goes into a savings account that doesn’t get taxed.

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#9. Home Equity Loans

It sounds risky to take out a home equity loan to pay for your child’s college, and it can be. “This is a common way of doing things, whether it’s on purpose or not,” says Bentley, who isn’t necessarily for or against the idea.

A family’s home is often their biggest asset, so the equity in it is often used to pay for college. Some families choose to pay down their mortgage instead of starting a separate college savings plan. They do this so they can use the equity if they don’t get enough money from financial aid or scholarships.

A college fund, it’s not the best choice, especially if you still have years to save money for school. But if you haven’t saved enough money and need a way to pay for tuition, room, and board, it might work. It is one of the recommended college saving plans for babies in 2024.

#10. Capital One Kids Savings Account

Capital One’s Kids Savings Account is the best savings account for kids. This plan pays interest on any amount in the account. It has great mobile banking tools, lets kids set multiple savings goals, and can get turned into a youth checking account with a debit card.

With this plan, any amount owed gets interested, there are no minimum balances and no fees. To top it off, there is also a top-rated app for mobile phones that has controls for parents.

However, to save for more than one goal, you need to open more than one account and the checking account doesn’t give back ATM fees. Capital One has given youth banking more thought and work than many of its competitors. Not only did it make two types of accounts for kids and teens, but it also put money into making mobile apps for kids and parents that are specific to these accounts.

Capital One pays 0.30% APY no matter how much or how little your child has in their savings account. Even though it’s not the best rate you can get on a youth account. It’s useful because there’s no minimum or maximum balance. It is one of the recommended college saving plans for babies in 2024.

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#11. USAlliance Financial

USAlliance’s MyLife Savings for Kids account is hard to beat for parents who want to open an account for their child at a very young age. It’s our top choice for young children because savers under 13 get a birthday bonus every year. This plan is one of the best college savings plans for babies in 2024.

USAlliance’s MyLife Savings for Kids is the best account for young savers. It gives people under 13 a $10 birthday bonus every year and has a high-interest rate. The sooner you give your child one of these, the more “birthday bucks” they’ll get. They’ll also get a very competitive 2.00% APY on balances up to $500. There aren’t many youth accounts that pay more than 1% right now.

USAlliance also has a checking account for teens called MyLife Checking for Teens. As your child gets older, they can add a more advanced account. At 13, they can open a MyLife Checking account and choose whether to get an ATM card or a debit card. In the meantime, they can keep their MyLife Savings account and keep earning a high-interest rate on savings of up to $500.

#12. Alliant Credit Union Kids Plan

Your child can start saving right away at Alliant Credit Union. It has a good interest rate, no fees, and a great mobile banking app for kids and parents. Then, as your child gets older, Alliant’s Teen Checking offers even more helpful features. This makes it one of the recommended college saving plans for babies in 2024.

Alliant’s Kids Savings Account is a great option for Stage 1, and its Teen Checking Account is an even better option for Stage 2. Alliant is our pick for the best savings account for teens because they offer competitive interest rates. They also offer a well-designed mobile app for both kids and parents.

A child of any age can open an Alliant Kids Savings Account. You can also open for your child to save towards college. Alliant will pay a good 1.40% APY (as of August 2024) whenever the account balance is more than $100.

When your child turns 13, they can get an Alliant Teen Checking Account and an ATM/debit card. This is one of the best checking accounts for young people in the country because it pays more interest on checking balances than most others. The account also has an APY of 0.25%, which is better than the 0% that most teen checking accounts pay.

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#13. Spectrum Credit Union’s

Spectrum’s youth savings account has an interest rate so high that it looks like a mistake. This gives the credit union our top score for the most interest a kids’ account can earn. With bank interest rates being so low right now, it’s hard to believe that Spectrum’s youth savings account has an APY of 7%. This makes it one of the recommended college saving plans for babies in 2024.

Spectrum doesn’t have a checking account for teens. Parents can keep saving in this account for college until they’re 21. This is longer than most banks will let them keep it. It also lets people over the age of 13 choose to get an ATM card. When you have more than $1,000 in your account, it goes back to the Primary Share Savings APY of 0.30%.

#14. The Northpointe Bank Kids’ Savings Account

The Kids’ Savings Account at Northpointe Bank isn’t as fancy as some of the others. But one thing it has going for it is a high-interest rate that is available with fairly high balances. This is why we chose it as the best savings account for young people who save a lot.

For kids and teens with a lot of money to put in the bank, it’s hard to get a good interest rate on all of it because the highest annual percentage yields (APYs) are only available on accounts with low maximum balances. Northpointe Bank takes a different approach. Instead of fancy account features, it gives great interest rates on both low and high balances. This makes it our pick as one of the recommended college savings plans for babies in 2024.

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#15. Education Savings Account (ESA)

Education savings accounts (ESAs) are savings accounts backed by the state government. They help you pay for your child’s education. With the money saved in an education savings account, a student can pay for a variety of college costs. ESAs are one of the recommended college saving plans for babies in 2024.

It lets you save $2,000 per child per year after taxes and watch the money grow from year to year. Growth will depend on how you choose to invest, but you can still expect a big rise. Plus, you don’t have to pay taxes on the money you save as long as you only use it for qualified education costs.

Frequently Asked Questions

What 529 plan has the best results?

CollegeAccess 529 in South Dakota
SMART529 WV Direct College Savings Plan in West Virginia
Wisconsin Edvest
The Path2College 529 Plan in Georgia

What kind of account should I set up for my baby?

As you save more money, you might want to look into a brokerage account or passbook savings account for other kinds of expenses. You could also set a monthly goal for saving in this account and have it happen automatically.

What should I spend money on for my child?

A 529 Plan to Save for Your Baby’s Future.
Custodial Accounts for Coverdell Education Savings Accounts (ESAs).
Treasury Bonds of the U.S.

Is a 529 plan better than an account for saving money?

Even though a high-yield saving or investment account gives parents who want to save more freedom. It doesn’t have the tax benefits that a 529 college savings plan does. With a 529 plan, your contributions grow tax-free, so it’s best to start putting money in as soon as possible.

When should you start putting money away for a child?

You should consider this right after they are born. Still, some things will happen over time, like getting a credit card or learning how important it is to save up for bigger things. But if you open the account right away, the money will have more time to grow and multiply.

How do you start a baby’s college fund?

Choose a plan. You must decide between a savings plan and a prepaid plan.
Pick a person to help. This will probably be your child, but keep in mind that you can change the person who gets the money at any time without paying a fee.
Start a bank account. You can open most accounts online.
Make a list of investments.

Conclusion

When their kids are first born, many parents don’t think about them going to college. But that’s the BEST time to start saving money for it.

So, you and they can both avoid having to take out those scary student loans. But there are a lot of choices, so what kind of college savings account is best for your child?

We gave you the 15 recommended college saving plans for babies in 2024 in our list above.

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References

money.usnews.com– Ways to save for your Child’s college education
cnbc.com– Where to save your money when saving for kids’ college
withfrank.org– Recommended college saving plans for babies

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