Tips of How money can be saved for college planning
The cost of college seems to going up every year and for many families the cost of tuition and all the additional expenses that come along with a college stay creates a financial burden felt long past paying for the college.
Very often retirement savings gets put on hold in order to pay for a child’s school and that can potentially change the future retirement outlook dramatically.
Time Is On Your Side
The earlier you begin to save money for educational expenses, the higher the chances of meeting your financial goals may be and it becomes more and more important to understand how each option available affects your own personal financial life, affects the likelihood of obtaining financial aid as well as the risk of each option.
We have put together an overview of potential places where savings for college can be accumulated.
- State-sponsored versions of these plans are now available in all 50 states, and you aren’t limited to the plan of your own state.
- In a 529 Plan, you set aside after-tax dollars on behalf of a beneficiary, and earnings grow on a tax-deferred basis.
- Distributions are not taxed, if taken for qualifying education expenses.
- As the account owner, you maintain control of the account and may change beneficiaries, subject to restrictions.
- In addition to state-sponsored plans, private colleges also may set up a form of Qualified Tuition Plan that allows tuition to be prepaid.
Loans or Withdrawals from Permanent Life Insurance
- Parents often find it convenient to fund part of college costs by taking loans or withdrawals from permanent life insurance contracts – i.e., life insurance with a cash value. In most contracts, loans may be taken tax free.
- These policies can also be structured to help borrow money from banks and other institutions and therefor become a great leveraging tool.
Traditional IRA Withdrawals
- If you have a Traditional IRA, you can make penalty-free withdrawals for purposes of paying qualifying colleges expenses for your child, grandchild or spouse (or even yourself).
- Ordinary income tax will apply on the amount withdrawn.
Roth IRA Withdrawals
- If you have a Roth IRA, you can make penalty-free withdrawals for qualified higher education expenses once your account has been in place for at least five years.
- There is no income tax due on the amount withdrawn.
Regular investment account
- You can open a regular investment account and although there is no tax advantage by doing it this way it gives you great control of the money and you have the ability to decide what you want to do with this money.
- Today, more and more students are applying for financial aid.
- In most cases, students must demonstrate financial need to qualify for this type of assistance.
 Before investing in a 529 plan, please consider the investment objectives, risks, charges and expenses carefully.
 Some states allow a state income tax deduction for 529 plan contributions.