Parents often comment that their kids grow up in the blink of an eye. Those who put off starting to save for a child's college education early enough could be in for a shock later, according to H&R Block, the tax- and financial-services company. The cost of university tuition is crawling upward at a rate of 6 percent to 7 percent each year, says the company. That's approximately twice the rate of inflation.
Putting away $500 each year into an education IRA is one option for parents. Anyone can contribute to it, and, although the contribution isn't tax deductible, the earnings from such an account are tax-free.
"Just putting $500 a year into an education IRA for a newborn would grow to over $20,000, assuming an 8 percent return, by the time the child turns 18," says Brenda Schafer, an analyst at H&R Block.
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