College Savings Timeline: New beginnings

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For those of you who are about to enter the world of parenthood – Congratulations! Believe it or not, this is the ideal time to start a college savings fund. Since your first tuition payment is 18 years away, you have plenty of time to take full advantage of an investment account like a 529 plan. Earnings will grow tax -free over the life of the account, which could amount to a substantial balance once the time for college arrives.

Here are five steps to get started today:

1. Apply for the child's social security number

   To open a 529 college savings account, you will need the beneficiary's social security number. The easiest way to obtain a social security card for a new baby is to complete a birth registration form that is given to you at the hospital. To complete the form you will need the social security numbers of both parents. If your baby was not born in a hospital or was adopted from a foreign country, you can apply in person at your local Social Security Administration (SSA) office.

   However, if your baby hasn't arrived yet there is no need to wait. Parents can open a 529 account with one of their own social security numbers and change the beneficiary to the child at any time without penalty. This might be a good idea if you expect to receive cash gifts at your baby shower that you can use to fund the account.

2. Decide how much you need to save

   You probably don't have the slightest idea where your baby will go to college, but it wouldn't hurt to make a few assumptions. Setting a savings goal will keep you organized and help you stay on track throughout the years. While we can't predict what the actual cost of higher education will be in 18 years, our World's Simplest College Calculator can give you a good idea what to expect.

3. Research your options

   There are over 100 529 plan to choose from, which can be overwhelming. We recommend starting your search by looking into your own state's plan to see if they offer any tax incentives for residents. However, you may find that an out-of-state plan offers lower costs, so it's a good idea to compare all of your options.

   529 accounts can be opened directly through the plan or purchased from a financial advisor. You will likely pay higher fees with an advisor-sold plan, but you will gain access to their expertise.

Compare 529 plans here

4. Tell your friends and family

   With baby showers, baptisms and first birthdays all common during a child's first year, it is a perfect opportunity to solicit the help of friends and family to fund the account. Those who would have traditionally given a savings bond or cash as a gift should be willing to make a contribution to the college fund instead.

   If you invested a lump sum of $500 today, and made monthly deposits of just $25, in 18 years you would have saved $11,152.21 (assuming an investment return of 6%). Think about that next time you want to splurge on a dress from Baby Gap!

5. Set up regular automatic contributions

   Depositing money into a savings account every month is much easier said than done. Fortunately, most 529 plans offer an automatic contribution option that can link to your checking account. Some even waive their account maintenance fee for customers who sign up for direct deposit.

   A few companies also offer employer-sponsored 529 plans as part of their benefits package. Similar to a 401(k) plan, workers are able to make contributions via automatic payroll deductions, and some even receive matching contributions from their employer. The key is to treat your deposits like any other monthly bill that you have no choice but to pay.

Originally posted: 2014-04-17, updated 2015-06-22