ESA Funding Framework
Save for college
The ESA Funding Framework is a strategy for saving for college expenses using an Educational Savings Account (ESA). It involves investing in a growth-stock mutual fund and taking advantage of tax-free growth. The framework is suitable for families with young children who want to save for college expenses without incurring debt.
- Start saving early to take advantage of compound interest
- Invest in a growth-stock mutual fund for long-term growth
- Take advantage of tax-free growth to maximize savings
- Open an ESAOpen an Educational Savings Account (ESA) and fund it with $2,000 per yearPro tipChoose a growth-stock mutual fund with a low expense ratioWarningBe aware of income limits and eligibility requirements
- Invest in a growth-stock mutual fundInvest the ESA funds in a growth-stock mutual fund with a long-term growth potentialPro tipDiversify the portfolio to minimize riskWarningBe aware of market fluctuations and potential losses
- Monitor and adjustRegularly monitor the ESA account and adjust the investment portfolio as neededPro tipRebalance the portfolio to maintain an optimal asset allocationWarningBe aware of fees and expenses associated with the ESA
A family starts saving for college expenses using an ESA when their child is born. They invest $2,000 per year in a growth-stock mutual fund and take advantage of tax-free growth. By the time the child is 18, they have saved enough for four years of college expenses.
A family waits until their child is 10 years old to start saving for college expenses. They invest $2,000 per year in a growth-stock mutual fund but do not take advantage of tax-free growth. By the time the child is 18, they have insufficient funds for college expenses.
The ESA Funding Framework was introduced by Dave Ramsey as a way to save for college expenses without going into debt. It is based on the idea of investing in a growth-stock mutual fund and taking advantage of tax-free growth.