Invest Child Care Money in Your Child's Future

Next Use for Your Child Care Money: College Investing

Child care worker with little kids

Is your child one of more than 11 million U.S. children under the age of five in child care? If so, the cost is likely a significant line item in your budget.

Reliable child care can be difficult to afford. Full-time center care for an infant ranges from $4,000 to $18,000 annually; for a 4-year-old, it's $3,900 to $11,000, according to the National Association of Child Care Resource and Referral Agencies.

Saving is not an impossible task

Saving for college may seem impossible while paying for child care along with other fixed expenses, such as housing, utilities, and food. However, there is light at the end of the tunnel. When your child begins elementary school and no longer requires full-time child care, you'll see a significant increase in your discretionary income each month.

But before you convert those child care dollars into disposable income, consider investing in your child's college education. After all, you're already accustomed to living without that income.

Investment options

A number of investment opportunities are available that offer tax advantages while you accumulate funds to help pay for future education expenses. One is the Coverdell Education Savings Account (ESA), a trust or custodial account with a $2,000 annual contribution limit that can be used for your child's elementary and secondary education, as well as post-secondary education, such as college, graduate school, or vocational school. You can invest in a Coverdell ESA account regularly, if your income is under a certain amount, with current year contributions accepted until that year's tax-filing deadline.

If you'd like to invest more toward your child's education, consider a 529 college savings plan for qualified higher education expenses. An individual can contribute as much as $70,000 to a 529 plan and treat the contribution as made ratably over a five-year period. For federal gift tax purposes, a $70,000 contribution is treated as having contributed $14,000 (the amount of the federal gift tax annual exclusion) per year for five years. Also, a husband and wife could each make a $70,000 contribution. Even if you don't contribute this maximum amount, it's a good idea to save smaller amounts every month or every paycheck.

A quality education may be one of the most important factors in determining your child's future. It's never too early to begin saving, and dedicating funds you previously used for childcare may be a great way to start.

Before investing in a 529 plan, consider the plan's investment objectives, risks, charges, and expenses. Contact the plan issuer for an official statement containing this and other information. Read it carefully.

An investor should consider, before investing, whether the investor's or designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program.

A $70,000 gift is viewed as an accelerated gift over five years. Any other gifts to the same beneficiary by the contributor in that tax year or in any of the succeeding four years may result in a federal gift-tax liability. If the contributor dies within the five-year period, a prorated portion of the contribution may be included in his or her taxable estate.


Securities are not FDIC insured, are not bank guaranteed and are subject to investment risk, including possible loss of principal.

Neither State Farm®¬†nor its agents provide tax or legal advice.