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When should you start saving for college?

Childhood goes from crib to kindergarten in the blink of an eye. Before you know it, college will be next. But you'll be ready!

Short answer: The earlier, the better

The earlier you save, the more time your money has to grow. This is the magic of compounding—when your returns earn more returns and so on.

Here's an example

Let's say you start saving for college when your child is born. You invest in an account and save $25 a week for the first 9 years of his or her life but then stop—for a total investment of $11,700. If your account earns 6% a year, you'll have about $26,750 at the end of 18 years.

Now let's say you wait 9 years before you start to save, and then save the same $25 per week until your child is 18. Factoring in the $11,700 investment and 6% return, you'll have accumulated about $15,800 by the time he or she goes off to college.

As you can see, you'll earn almost $11,000 more for college in the first scenario, thanks to the power of compounding!

Saving earlier means you'll have more for college

A bar chart showing that the earlier you save, the more money your child will have for college by the age of 18.

This hypothetical illustration assumes an annual 6% return. This illustration does not represent any particular investment nor does it account for inflation or taxes.

… But it's never too late

Even though the benefits of saving early are dramatic, there's still value in starting now—even if your child is in high school. The dollars you save won't have as much time to grow, but they're still dollars you won't be borrowing.

If you choose an account that gives you tax benefits—whether it's immediate tax deductions or tax-free withdrawals—you'll be in an even better position.

And don't forget, your child will be in college for several years. So consider leaving your money in the account as long as possible to let it grow.

The clock is ticking!

Ready to get started? There's no time like the present!


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REFERENCE CONTENT

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Compounding

When earnings on invested money generate their own earnings. For example, if you invested $5,000 and earned 6% a year, in the first year you'd earn $300 ($5,000 x 0.06), in the second year you'd earn $318 ($5,300 x 0.06), in the third year you'd earn $337.08 ($5,618 x 0.06), and so on. Over longer periods of time, compounding becomes very powerful. In the example above, you'd earn over $800 in the 18th year.

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Tax-deductible

Contributions you can subtract from your income on your tax return, resulting in a lower tax bill.

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Tax-free withdrawals

Money you can take out of your account without owing any federal income tax, even if some of it has never been taxed.