It’s time to start thinking about your kids college expenses. Luckily, you are early in the game (I hope!) and are able to make your 401(k) do double-duty as both a savings vehicle for retirement, and for college!
For those that are new to investing and have decided that mutual funds are the way to go to get the kids through university, the next logical question is how do you go about purchasing them? There are many different ways to go about investing in mutual funds, and you have several different options to choose from.
One of the most popular ways to buy mutual funds is directly from the companies. The type of fund you want to look for is a no-load mutual fund. No-load funds are free from fees and additional costs that load funds tend to have. Since you’re going directly through to the fund company, you will save a transaction fee that you would normally have to pay through a broker, and since you aren’t paying any fees, all of your money goes towards investing.
Going about investing directly is easy. Once you’ve chosen the company you want to deal with, you simply fill out an application, enclose a check for the amount you want to invest and mail it in. It couldn’t be easier.
Another popular way to buy mutual funds is online through a broker or through a mutual fund superstore. Most of these online superstores like T. Rowe Price or Wells Fargo (there are many others, as well) don’t charge any transaction fees for their services because the fund you end up buying will reimburse them. Be careful though, these online superstores often sell funds that do carry transaction fees or they carry load mutual funds that can come with some steep fees of their own. Make sure you read all the fine print and know what you’re investing in before you buy it.
Of course, the most common way of buying mutual funds is through your work’s retirement program. Your 401(k) account is most likely tied to mutual funds so you may already be a seasoned mutual fund investor and not even know it. To find out more about the funds your retirement plan invests in, you can visit the website of the fund that your 401(k) invests in.
If you have signed up for a 529 College Saving Plan, then you’ve bought into mutual funds, but it is not likely to do double duty for you in case it is not spent entirely by your kids. These plans are made for families who are trying to help their kids through college. Their main benefit is the tax laws that are used for withdrawals from the plan. In most cases, if money is taken out for education expenses, it’s tax free. This is an ideal plan for most families who are worrying about paying for college.
A final way (and probably the best way) that you can invest in mutual funds is through a financial advisor. While this way would be a bit more costly since you would have to pay the advisor, you are bound to make the best mutual fund investment choice for you that will surely help you meet your goals.
Buying mutual funds for family goals in this day and age is easier than it has ever been. But be careful, make sure you crunch the numbers and make an educated choice and you can be well on your way to getting your kids through school AND obtaining financial freedom!