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Financing Your Child’s College Education

Financing Your Child’s College Education
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BY MYRA FAYE TURNER

Paying for college is expensive. As a parent or grandparent, you probably already know this. Maybe you have a college fund established already or perhaps you’re just getting started (or thinking about it). I admit, I’m one of those parents that fall in the latter category. Yeah, I know I’m really late. My son Tyler is in his sophomore year of high school and frankly, I haven’t given much thought to financing his college education, not because I’m a slacker, but because I have always imaged he would receive oodles of scholarships.

After all, this is a kid who attended a selective enrollment (meaning he had to take a test to get in) National Blue Ribbon elementary/middle school. A school that consistently ranks as one of the best schools in the city, state and nationally. This is a kid who placed 2nd in his school’s science fair in 6th grade and 1st place in 7th and 8th grade. A kid who went on to place 1st in the regional fair in 7th grade and 2nd in 8th grade. A kid who rounded out his middle school years by winning 3rd place in the state science fair in 8th grade. A kid who now attends another selective enrollment Blue Ribbon school— ranked #1 in Louisiana and #53 by U.S. News & World Report. A kid who has so many awards his shelf overflows. I’m not saying all of this to brag (well, maybe a little!), but I feel with his high GPA and numerous accolades, scholarships are gonna rain down on him like confetti on New Year’s Eve.

That’s what the voices in my head tell me, but in the real world, I need a Plan B. Loans and grants are, of course, viable options, but there are other ways that parents and other well-meaning adults can help finance a students’ education. Grants typically won’t cover all expenses and loans — well, we know student loan debt is out of hand. September is College Savings Month, so if you’re like me and need to start saving for college, this is an ideal time to start. Here are three options to consider.

529 Plan

Probably one of the most popular options is a 529 Plan. Named after Section 529 of the Internal Revenue Code, this saving plan is generally operated by individual states as a way to help parents save for college. You can sign up for a plan in your home state, although some states allow non-residents to participate in a plan. Also, it does not matter where your child plans to attend college. It’s a good idea to compare plans across several states.

As I said, many states don’t require residency status in order to participate, but some do. Here in Louisiana, for example, The START Saving Program require Louisiana residency to participate. The plan is subsidized by the state which means no additional costs to participants (enrollment, maintenance fees, etc.). In my home state of Alabama, the CollegeCounts 529 Fund does not require residency but does have some associated fees. For example, there’s an account maintenance fee of $12 annually, but this fee is waived if either the account owner or designated beneficiary is an Alabama resident.

Most plans require a small monthly investment, with each plan setting the minimum. In Louisiana, for instance, the minimum is only $10. If you start early, you could have a nice nest egg when your child heads off to college.

The earnings are tax-free as long as the funds are used for qualified college expenses. Expenses include tuition, textbooks and room and board. The person that opens the account is in control of it and can ask for the money to be refunded to them if they choose. Savingforcollege.com is a good place to compare the different state plans. The site also has lots of planning tools and general information on where to find money for college.

Upromise

If you’re going to spend money, you may as well get something out of it. Upromise is a way to do just that. You earn cash back for college by purchasing items you probably buy anyway. There are several ways to earn money with an Upromise account:

  • You can shop online with major retailers like 1-800-FlOWERS.COM, Amazon, A T & T, Barnes & Noble and many more —there are currently over 850 partners to choose from.
  • You can register your debit or credit card and earn money every time you dine at participating restaurants.
  • You can book your travel plans through one of Upromise’s partners.
  • You can register your grocery or drug store reward cards from participating stores and when you use an eCoupon, you’ll earn cash back. Participating stores include: Albertson’s, CVS, Rite Aid, Kmart, and Fresh Market.
  • You can also open a no-annual fee MasterCard and receive additional cash back.
  • With Upromise you can also ask your family and friends to help by opening an account. The beneficiary will earn money, whenever the account holder makes a purchase with a linked card.

Coverdell Education Savings Accounts (ESAs)

If your adjusted gross income is less than $110,000 (or $220,000, if filing jointly), you can open a Coverdall Education Savings Account (ESAs) through any bank or IRS approved financial institution. Multiple ESAs can be opened for each child but there is a $2,000 annual cap on contributions, across all accounts. Let’s say a child has three separate accounts — parents, grandparents and aunt, for example. If the parents contribute $1,000 and the grandparents contribute $800, the aunt can only contribute an additional $200, during the calendar year.

The plans are tax-free as long as the funds are used for qualified education expenses. Unlike other accounts, you can withdraw money for elementary and secondary education-related expenses. Once the child turns 18, no additional contributions can be made unless the child has special needs.

If your child decides not to attend college or all of the funds aren’t needed, the “responsible individual” (the account holder) can change the beneficiary to another qualifying family member, as long as that person is younger than 30.

Wherever you are on the spectrum — it’s never too late or too early to start saving for college. Hopefully, one or more of these options will help you reach your goals. If you’re looking for additional information on college financing, please visit these fine sources:

U.S. News & World Report: Saving for College

Federal Student Aid (general information on financial aid)

Federal Student Aid (when you’re ready to actual apply for aid)

 

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