College Savings Options

Do you feel behind in terms of being prepared financially to send your child off to college? Are you overwhelmed with the amount options available? Are you sick of hearing or reading about the exorbitant amount of $ it takes to afford college these days?  Do you think your  child will receive a scholarship or grant that will cover the cost for you?

Studies indicate that families are not saving enough for college expenses. A Government Accountability Office survey found that only about 3% of households with children under age 18 are contributing to Educational Savings Accounts or qualified tuition plans.  A study commissioned by student loan giant Sallie Mae found that only about 55% of those who are saving for college feel confident they’ll be able to cover the costs. Most of those who are not saving say the reason is they either cannot afford it or they expect their children to receive scholarships or grants.

As Planners, we can help clients take a realistic look at college costs and the likelihood of receiving financial aid, then develop a plan to cover college expenses through budgeting, investing, and education planning using the strategies below:

529 Plans

529 plans provide two ways for parents to set up college accounts for children before they reach college age. Prepaid plans can lock in the price of covered educational services at today’s prices, thus insuring against college inflation.  Savings plans are a tax-advantaged way to build up a college fund.

Education Savings Accounts (ESA)

Contributions to an ESA are subject to an annual limit. Distributions are tax-free if used to pay for the beneficiary’s qualified education expenses, which include certain elementary, secondary, and college expenses.

Education Tax Credits

Consider the ability to utilize the American Opportunity Tax Credit or the Lifetime Learning Credit for higher education expenses.

Home Equity Loans

A home equity loan may be worth considering for some clients. The terms are normally favorable, and interest will be deductible as long as total loans do not exceed fair market value of the home.

Savings Bonds

Accumulate college funds tax-free by investing in Series EE or Series I savings bonds.