There is no greater joy for a parent than seeing their son or daughter walk on stage and accept their college degree.
A considerable amount of hard work goes into getting to that point in time, a fact which applies not just to your student, but to you as well. Not only do you need to be encouraging through the good times and bad, and not only should you lend as much of your expertise and experience both in terms of hitting the books and being a good person, but you are going to be key in helping your child pay for school.
With skyrocketing tuition costs and a litany of other pressing financial obligations, having to help pay for your child’s education may seem overwhelming. However, with an intelligent approach and the right information, you will be able to put your child in a position to succeed.
Start a 529 college savings plan
These plans, also known as Qualified Tuition Programs, should perhaps be your first recourse when considering putting away money for college. A 529 plan operates in a manner similar to that of a Roth IRA: plan-holders may invest post-tax funds for the purposes of withdrawing them later, tax-free, for use toward college-related expenses. These plans tend to vary by state, so it is worth investigating your options before deciding where you would like to open your 529 plan; Money.USNews.com recommends http://SavingforCollege.com as a viable resource for determining which state’s plan is best for you.
Start a 529 prepaid tuition plan
If you are certain of the school that you would like your child to attend, Money.USNews.com also recommends considering a 529 college prepaid plan, which allows you to buy tuition credits at an in-state college at the current going rate. This allows you to avoid paying an increased cost in tuition that would come about by the time your child is of age, but it is largely only useful if your child attends the school you have chosen.
UGMA and UTMA accounts
The Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA) is a useful alternative for those considering the possibility that their child may not wind up attending college. These accounts do not require that the withdrawn funds be used toward college expenses, ostensibly making them specialized savings accounts. However, the advantageous tax rate makes these accounts well worth considering: per Bankrate.com, the first $1,000 in growth is tax-free, the second $1,000 is taxed at the income tax rate of your child, and the remainder of gains is taxed at your income tax rate. Because the money defaults to the child at either 18 or 21, it is important to instill in a child benefiting from a UGMA and UTMA the value of money and the importance of considering utilizing it toward furthering their education.
Keeping your name on big accounts
TheSimpleDollar.com points out that students lose 20 cents in financial aid for every dollar over $3,000 in savings or checking. Because your student will almost certainly rely on financial aid to get their degree, keeping accounts with more than $3,000 in your name until after graduation could save even more money in the long run.
There are any number of options to consider when saving up for college, but the first thing to remember is that it is never too early to start. If you are expecting, or if you are even only planning on having children one day, explore your options and get started.
This article is presented by Perkins Motors in Colorado Springs, Colorado.