Saving for the Future
The cost of a college education continues to climb higher and higher each year. Time moves so quickly, that before they are aware, the high school years begin and many parents are faced with an impending fear: How will I pay for college education and expenses?
Your child or children are never too young for you to begin investing for their higher education. Much like saving for your eventual retirement, the sooner you begin to invest for college, the better off you will be. It is not impossible to prepare for these costs. With the right investment strategy, you will see your savings grow and you will be ready to send them off on the next step in their lives.
The average American household has two children. That means the average American couple can expect to spend what may seem like an astronomical amount for those much prized diplomas. Although scholarships and grants help cover some of the costs, they do not always cover the entire amount, and many require a specific GPA to acquire and retain them. There are several options for investing for future education expenses. Here is a listing of some of the options available:
Custodial Accounts
The UGMA (United Gift to Minors Act) and the UTMA (United Transfer to Minors Act) allow you to invest for future education and enjoy special tax advantages.
Savings Accounts
Coverdell Education Savings Accounts (formerly Education IRA’s) are accounts which provide opportunity to save and enjoy tax free growth on your earnings. 529–College Savings Plans also offer tax saving advantages, and you can apply them to any school in the nation.
Tax-Exempt Bonds
Tax-exempt bonds have varying degrees of interest as well as risk. They allow you to achieve savings growth and avoid taxes.
Series EE U.S. Savings Bonds
Series EE U.S. Savings Bonds offer specific tax advantages when used towards college expenses. The interest earned on these bonds does not have to be reported for federal purposes until you cash them in and the interest on certain qualified bonds may be exempt from federal tax as long as they are used towards qualified college expenses.
Qualified State Tuition Programs
You may wish to investigate qualified state tuition programs that allow you to purchase tuition credits directly or make deposits into an account designated for future college costs. The earnings on either of these options grow tax-free until college costs are paid using the funds. The child will then be taxed at their lower rate.
