The cost of education has been increasing over the years in Kenya, making it difficult for many families to afford quality education for their children. As a result, it is essential to start saving early to secure a bright future for your child. An education savings plan is one of the best ways to invest in your child’s future education. In this article, we will explore the various education savings plan options available in Kenya.
Types of Education Savings Plan Options
Education Savings Accounts (ESAs)
An ESA is a tax-advantaged savings account that allows you to save money for your child’s education. The account is set up in the name of the child, and contributions can be made by anyone, including parents, grandparents, or other family members. ESA contributions grow tax-free and can be withdrawn tax-free for qualified education expenses.
Unit Trusts
A Unit Trust is a type of investment fund that pools money from many investors to purchase a diversified portfolio of assets. It is an excellent option for long-term savings as it provides a higher return on investment than a regular savings account. With Unit Trusts, you can choose to invest in equity, fixed income, or a mix of both. This option is suitable for parents who want to invest in a diversified portfolio and benefit from long-term returns.
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Education Endowment Policies
An education endowment policy is a long-term savings plan that combines investment and life insurance. It provides guaranteed returns on investment and financial protection in case of death or disability of the policyholder. The policy is taken out for a fixed term, usually 10-15 years, and the maturity amount can be used to fund the child’s education.
Education Savings Plans
An education savings plan is a savings account offered by some insurance companies in Kenya. The plan allows you to save a fixed amount of money over a specified period, and the maturity amount can be used to fund your child’s education. This option is suitable for parents who want a fixed investment period and a guaranteed return on investment.
Education Trusts
An education trust is a trust fund set up by parents or grandparents to provide for their children’s education. The trust can be funded with cash, investments, or other assets, and the beneficiaries are usually the children or grandchildren. The trust is managed by a trustee who is responsible for investing the funds and ensuring that the funds are used for educational purposes.
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Frequently Asked Questions
How much should I save for my child’s education?
The amount you need to save for your child’s education depends on various factors such as the cost of education, the age of your child, and the duration of the course. It is essential to start early and set a realistic savings goal based on your budget.
Can I withdraw money from an education savings plan for non-educational purposes?
Withdrawing money from an education savings plan for non-educational purposes may attract penalties and taxes. It is recommended to use the funds for their intended purpose to avoid penalties.
What happens if I die before the education savings plan matures?
In the event of the death of the policyholder, the education savings plan will pay out the maturity amount to the child or beneficiary named in the policy. Some plans may also provide additional financial protection to the family.
Can I change the beneficiary of an education savings plan?
Most education savings plans allow you to change the beneficiary at any time. You need to contact the provider and follow their procedure for changing the beneficiary.
What are the tax benefits of education savings plans
Education savings plans in Kenya offer various tax benefits, depending on the type of plan. For instance, contributions to Education Savings Accounts (ESAs) are tax-deductible, meaning that you can claim a tax deduction on your contributions. The contributions to unit trusts and education endowment policies are also tax-deductible.
Additionally, the interest earned on the savings plans is tax-free. This means that any growth on your investment is not subject to tax, providing you with a higher return on your investment.
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Conclusion
Investing in your child’s education is one of the most important decisions you can make as a parent. An education savings plan is an excellent way to start saving early and secure your child’s future education. With various education savings plan options available in Kenya, it is essential to consider your financial goals, budget, and investment preferences to choose the best option for you and your family. Remember to start early and set a realistic savings goal to ensure that you can provide your child with the best education possible.