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How to Save for Kids

Once little tykes enter the picture, it can be tempting to think their needs (in particular, saving for college) trump your own-- not so fast.

“There are loans available to pay for college. There are no loans to pay for your retirement,” points out Gail Buckner, a retirement planning specialist for Franklin Templeton Investments. That said, if you’re maxing out your retirement plans, there are things you can and should do to ensure your children’s financial futures too:

1. Get life insurance. As a general rule, buy 6-10 times your income to ensure that, if one of you dies, the surviving spouse and kids will have enough to live comfortably. “There are two types of life insurances: term and cash value,” says Kimberly Lankford, author of Kiplinger’s Ask Kim for Money Smart Solutions. “Term is the least expensive option, and it’s the best solution for most families. It provides coverage at a very low price. A 30-year-old can buy a $250,000 term insurance policy for just about $210 a year.”

Cash value life insurance, on the other hand, includes both insurance and an investment account. The premiums, though, can cost 10 times more than term insurance; most families are better off investing the difference themselves. However, Lankford adds, “Cash value policies are good if you need insurance for more than 30 years—the maximum length of term policies—or if, for example, you own a business; worry about a big estate-tax bill; or have a special-needs child who will always require your support.”

2. To start saving for junior’s college tuition, invest $100-$200 per month in a 529 plan. You can even open an account before your child is born; just use your own Social Security number when it asks for the beneficiary. Then when you get a Social Security number for your baby, switch the beneficiary information over to them. Limit is $12,000 per year, earnings and withdrawals are tax-free, and you can even use it for yourself if you decide to go back to grad school.

3. We’re not saying your offspring will grub over who gets what when you pass away, but to ward off that remote possibility, hire an estate planner. You can find one at the National Association of Estate Planners and Councils at NAEPC.org or the American College of Trust and Estate Counsel at Actec.org. For wills or estate software, go to Nolo.com.

-- Judy Dutton

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