Make college achieveable for your kids. Plan ahead so it doesn’t sneak up on you!
College. It is a word feared by all parents, especially those with younger children. Not that you think your child will not be accepted in college – the root of the fear lies within this question: Will you be able to afford it?
All parents have big plans for their child’s future. Although at the moment you might not think there will ever be an end to diapers, bottles or play dates and toys, college is usually a part of The Big Plan.
When planning for college, don’t overlook scholarships, tuition assistance or student loans. Other options that can cut down costs are electing for a community college, living at home or participating in a work study program. Even with the alternatives, you will still need a plan to be in good shape when the acceptance letter arrives in the mail – and it will!
The good news is that it is never too early to start saving for your child’s education. According to John Sestina, author of, Managing to Be Wealthy: Putting Your Financial Plan and Planner to Work for You (McGraw Hill), “Parents should start saving when mom feels the baby kicking. After the birth, they need to begin a regular, disciplined savings deposit with each and every paycheck … even if it is only a few dollars at first.”
Sestina stresses that parents need to ask themselves the following questions as their children get older:
- How many children will go to college?
- What are their current ages?
- How many years until each one enters college?
- How many years will they be in higher education?
- What is the current college cost per year?
- What is the projected increase per year?
Answering these questions will help determine savings needs. “The options are readily available, yet the challenge is developing a plan for the child and the following it,” says Sestina.
Recent tax law changes have paved the way for a number of educational saving alternatives. Tax-free or tax-deferred investments raise your ultimate returns without raising risk levels. With all of the options available today, it may seem confusing at first, but there is one tailored to the needs of your family.
529 College Savings Plan
Tennessee’s 529 College Savings Plan is under the Baccalaureate Education System Trust (BEST) program. The Tennessee Best program is administered by the State Treasury Department and is designed to make college affordable by allowing parents to achieve investment returns above the rising cost of higher education. The 529 plan is available to anyone, regardless of whether or not you reside in Tennessee. Likewise, families can select a 529 from any other state.
“Some states offer more options than others,” says Phil Drudy. “Therefore it is wise to shop around to find a plan that meets your needs and objectives. There are no residency requirements, so you are free to choose a plan offered by any state.”
Drudy does stress that out-of-state plans may not entitle you to the same tax benefits that Tennessee offers.
Also beware of plans sold by brokers, versus those sold directly to investors through Tennessee. These plans may charge higher fees, so be sure to understand how the plan operates.
Another benefit of a 529 plan is that the assets can be transferred between family members. However, there are some disadvantages of a 529 plan. The administrator decides the investment strategy for a 529 plan; you have no say in where it should be invested. If you are more of a risk taker in your investments, a 529 plan may not be aggressive enough for you.
529 Prepaid Tuition Plan
This option allows you to pay today’s college costs for tomorrow’s student. If tuition at your child’s school increases by the time they enter college, you will not have to pay the difference. Of course this only covers in-state college tuition, so if your child decides to go elsewhere, you can still use the money, but pay the difference. This plan can also affect your child’s chances of receiving any financial aid, since the plan would be in their name.
For either 529 Plan, $25 can open accounts. For more information or to learn what is offered in Tennessee, contact the National Association of State Treasurers at 877-277-6496
Coverdell Education Accounts (Education IRAs)
Coverdell plans offer a wide assortment of investment options, such as individual stocks and bonds and mutual funds, yet there are more limits to this account. Perhaps the best feature of the Coverdell is that it can be used for any educational expense, such as preschool or private high school. The downside to the plan is that you can only contribute a certain amount each year. Coverdells can be opened for as little as $25 at banks, brokerage firms and credit unions.
Custodial Accounts (UGMA/UTMA)
Custodial Account investments are diversified like a Coverdell, yet the yearly earnings on the account are taxable. These accounts can be used anytime for anything that benefits your child, from camp expenses to dance lessons. Since the earnings are not specified for education and are in your child’s name, Tennessee allows the child access to the money at 18. Custodial Accounts can be open for as little as $25 at banks, brokerage firms and credit unions.
Series EE Saving Bonds
Backed by the United States government, this option may be more beneficial to new parents or those thinking about becoming parents. When you cash in the bonds, the government pays you back double the amount you gave, plus a small interest, depending on the current conditions of the market, but the process takes 17 years for the bond to mature. Bonds can be purchased in denominations of $50, $75, $100, $1,000, $5,000 or $10,000 and at any financial institution.
With a little research, start planning for college now, and when the time is here you’ll be ready!
MAKING COLLEGE A REALITY:
For further information on the plans visit the following websites:
- www.tuitionfund.com: Tuition Fund is a college savings network that allows parents to use rebates from ordinary purchases to defray tuition costs.
- www.tnbest.org: Tennessee’s Best (Baccalaureate Education
- System Trust). 1-888-486-BEST. Tennessee’s 529 College Savings Plan.
- www.finaid.com: General financial aid information, as well as information on the above mention saving plan.
MORE HELPFUL WEBSITES:
Dates, deadlines, applications and information to college online.
(U.S. Department of Education)
Provides links to student financial assistance and other funding opportunities.
A smart guide to financial aid with information on types of loans, grants and scholarships plus personalized help from financial advisors.
Information about savings plans, mutual funds, stocks, “Stock Watch” articles and links to other Internet investment sites.
Sallie Mae’s site guides families through the application process to college financing.