Various Options Available to Save for college

If you haven’t already done so, you should begin saving for college immediately. You have a variety of options available to make the most of your savings.

Understand your options:

• Learn about investing
• Be aware of special options for education savings:
  • Education IRAs, also called Coverdell Education Savings Accounts
    • Tax-deferred
    • Save up to $2,000 a year per student
    • Earnings can be withdrawn tax-free to be used for education
  • Custodial account
    • In student’s name
    • Taxed at student’s (rather than parents’) tax bracket
  • Prepaid tuition plans
    • Save money for college, typically in a specific state
    • Rises in value at the same rate as college tuition
  • 529 College Savings Plans
    • Tax-deferred accounts
    • High contribution limits
    • No parental income restrictions

Consider this when making your decision:

• The age of the student to attend college: The younger the student, the more aggressive you can be. As the student gets closer to college, start sheltering your returns to ensure you have access to the funds when you need them.
  • Five or more years before college starts: Mutual funds – managed by a professional fund manager. You purchase shares in a mutual funds like you would with stocks.
  • Less than five years before college starts:
    • Traditional savings accounts
    • Money market accounts
    • Certificates of deposit (CDs)
• Your risk tolerance: Investments have various degrees of risk. You need to decide if you will be comfortable investing in something that may decrease in value in the short term while you wait for it to increase over the long term. You may prefer an investment with guaranteed returns.
• Investing in the parents’ names or the student’s name: Be aware that the student’s assets are weighed more heavily when financial aid eligibility is determined.
• Tax benefits: If the asset is in the student’s name, the income may be taxed at a lower rate than the parents’ tax rate. Many savings plans grow tax-free until withdrawal.

You need to save:

• While financial aid is available to help, the primary responsibility of paying for college is with the student and the student’s family.
• College costs are rising.
• The more you save, the less you need to borrow.
• Money in savings grows, and grows quickly.

Start now:

• Pay yourself first. When you pay bills, write a check to yourself, and deposit it into a savings account.
• Check with your employer about direct deposit, which lets you set an amount to be deposited into your savings account automatically each pay day.

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• Saving for Kids College Education

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