This is from my segment on Atlanta & Company on June 8, 2009.
Having kids – it used to be midnight feedings and diaper changes that kept parents up at night. Now it’s the cost of a college education. An average private university education today costs around $100,000. For children just entering kindergarten that cost will be around $250,000 by the time they enter college. Multiply that by the number of kids in the family and you can see why parents can’t sleep at night.
That’s why it’s important for parents to start saving for their children’s education early and regularly.
529 Savings Plans
529 Savings Plans are special savings accounts and investments designated only for college expenses. They are becoming increasingly popular and easy to find and manage. Here are the key features:
- Contribute after tax dollars and they will grow tax free as long as the distributions are made for college expenses.
- The federal government doesn’t offer a contribution tax deduction but many states offer a state income tax deduction for contributions in their state plan.
- No matter what state plan you enroll in, the money can be used to attend any accredited college in any state.
- There are no income limits or annual contribution limits.
- The parent or guardian is the custodian of the account and the child is the beneficiary. Thus the account is considered part of the parents’ assets for financial aid purposes and calculated at a lower rate.
To learn more about the benefits of 529 plans check out http://www.savingforcollege.com/
529 Prepaid Plans
529 Prepaid Plans allow parents to pre-purchase a future college education at today’s prices. These are state based and each has it’s own set of rules and regulations as to how soon and how much you can contribute. These plans are most recommended for parents who are fairly certain their child will attend college in a certain state. While these plans were popular they are no longer as popular and many states are no longer participating.
Coverdell Education Savings Accounts
Another college savings plan created by the government is a Coverdell Education Savings Account. Like a 529, the contributions are not tax deductible but the earnings are tax free if used for education expenses. Unlike a 529, a Coverdell Education Savings Account can actually be used to pay for any education expense from K-12 and college. Qualified expenses even include academic tutoring, books, supplies and equipment. There are income and contribution limits but this account could be a great complement to a 529 plan.
Tips for Saving
- Begin saving early – the earlier you start saving, the more time your money has to grow.
- Don’t worry about the amount – many parents delay saving for college because they feel they need to invest a larger amount. Just start saving something. As your kids grow and your income grows, save more.
- Get your kids involved – you’re saving for your kids, so don’t keep them in the dark. Show them how much you are saving and your progress. Get them involved, so when your kid asks you for the latest and greatest new shoes or gadget you can say you are saving for college.
- Put your own oxygen mask on first – as they tell you on every airline flight, take care of yourself before you take care of your child. Make sure you are saving for your retirement before you save for college. There are loans for college but there are no loans for retirement.
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