College Saving Plan

College Saving Plan
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Children grow fast and before we realize it they may be on their way to college faster than we expected. A College Saving Plan is important and no parent wants to disappoint a child who has worked hard through high school with inability to take them to post-secondary education. College education will offer the child great rewarding opportunities in their future careers. It is important to have a College Saving Plan early.

Saving in parents bank account

The traditional College Saving Plan in banks and financial institution is one of the ways to save for college. Parents of dependent students are required to fill a FAFSA form detailing their own income, assets, mortgages and other details for themselves and for their parents (unless they are dependent). The federal government requires details of the family's Expected Family Contribution EFC when considering students for financial aid and federal loans.

529 Saving Plan  

529 Saving Plan was introduced to encourage parents to save for college education for their children and dependents early and regularly. Different states have their own arrangements with different benefits for each state. There are no restrictions as to which state the parent can save. It is wise to check different states to know their arrangements and the benefits. The parent can be a resident in one state, save in another state while the child attends college in another state.
There are two 529 Plans-:

- Pre-paid: This is buying of future total or partial tuition units to pay for education costs in the future safeguarding against increase in tuition costs. This is administered by the states, education institutions or brokerage firms. 
- Saving: This is administered by states. This is saving in investments mainly the mutual funds which minimize tax and also investing in stocks. Investing depends on the time between the investment and the time the child goes to college. Some investments are long-term and others are short-term and they have varying return on investment and different levels of risk.

A private college can have their own College Saving Plan. There are many benefits and tax advantages of a 529 College Saving Plan some of which are-:

- State tax benefits
- Deductable from state tax income returns
- No tax on withdrawals for paying of eligible education costs
- Transferable to other beneficiaries
- Earn tax-free interest
- Parent/Donor maintains control of the account
- Low monthly contributions (minimum)
- Used to pay public and private colleges

Coverdell Education Savings Account This involves saving USD 2,000 per year for each beneficiary. The beneficiaries have control of the funds. The balance not used will be released to them when they reach 30 years. Fortunately the savings can be used to open an account for another beneficiary. There are more investment options than in most 529 Plans.

U.S. Treasury Saving Bonds & other instruments are safe investments which are less risky with return on investment guaranteed by the U.S. Government. They do not lose value.

Last modified onTuesday, 02 April 2013 16:08
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