Saving for a child’s college education can be a financial burden for many families. With today’s economy the way it is, you need to plan ahead. Saving money out of your monthly earnings may not be an option unless it is done before any taxes are taken from your checks.
The 529 college savings plan has now made it easier for parents to start saving for their child’s education as soon as they are born. The 529 college fund does have to be started before the child turns fifteen years of age per government regulations. There is no better time than the present to start saving.
The 529 college savings plan is similar to the 401K plan as far as being deducted from your earnings. You have to have a qualified beneficiary to open the 529 college fund. This can be a natural child, stepchild, grandchild, neice, or nephew. You can set up the account and allow others to contribute or they can set up their own accounts. The qualified beneficiary test will apply to anyone setting up the 529 college savings plan.
If your child decides not to further his or her education, you can transfer the money to another qualifying beneficiary. If you choose not to transfer the money, you can request a payout with a 10% percent penalty and you will be required to pay federal and state taxes on all contributions that came from payroll deduction.
The 529 college savings plan is the easiest way to make sure you have the funds available when your child is ready for college. Loans for college can drain a family’s budget and you cannot count on scholarships and grants. You will never know what will be available when your child is ready to attend college. The economy does not look bleak, but it does not look promising right now.
This means that you have to make plans. The best plans are utilizing the 529 college savings plan and knowing for sure, you will be able to send your child to college without a loan. If they do qualify for a scholarship or a grant, you can still use the money for things that they need for school that the grants and scholarships do not pay.
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Although no one would argue about the necessity of going to college (or some type of higher education facility after high school), many families aren’t prepared to deal with the rising cost of a college education. When your children are young, you think you have all of the time in the world to come up with a plan for paying for their educations. Then, before you know it, little Johnny is headed of to college.
Paying for your child’s college expenses doesn’t have to destroy your financial future. You just need a plan. Examining the basic components of college planning will give you all the direction you will need as your create your own roadmap to your child’s college days.
Start Early. Like retirement planning, saving for your child’s college expenses is best started as soon as possible. In fact, I’ve had friends who have started their baby’s college fund as soon as they found out that they were expecting. Now, before you think that my friends must have too much money, you should know that they aren’t rich. They aren’t making huge contributions to their baby’s college fund. They just understand that their savings will have much more time to grow if they start saving as soon as possible.
Be regular. Saving for any long-term goal is much easier if you make a routine out of it. Direct deposit, for instance, is a great way to start your college savings and then forget about it. Whether you make your contributions weekly or annually at tax time, the important thing is to develop some type of normal contribution process.
Check out your state’s tuition savings program. Every state has their own program to encourage taxpayers to save for college; a quick Google search should direct you to your state’s information. Some even offer tax savings for their participants. There are drawbacks, too, however. If, by some lucky circumstance, your student ends up getting a scholarship to pay for his education, some programs will penalize you for withdrawing the money for anything other than college expenses. You’ll have to decide for yourself if the tax benefits outweigh the potential problems.
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Staring into the face of an upcoming college tuition bill can be a frightening experience. Whether the bill is yours or belongs to another family member, having to find money in your budget for a college education can be quite a challenge. For this reason, financial experts suggest that you plan paying for college well in advance.
So what do you do if you weren’t able to come up with a plan for paying for college ahead of time? Don’t give up all hope of that college education. You still have some options to help you get through this huge expense.
Federal grants are sometimes available for students who meet certain income requirements. Complete your Free Application for Federal Student Aid (FAFSA) as soon as possible. Once it’s been processed, you’ll receive a Student Aid Report. Your university will use this report to determine if you are eligible for any grants.
Scholarships are another great way to pay for college. Don’t get caught up in the stereotype that the student in your family has to have a perfect academic record or be a star athlete to get a scholarship. Many scholarships are available that are not centered on academic or athletic records. Some scholarships are awarded based upon talents, interests, ethnicity, and in some cases, financial need. Your child’s high schools guidance counselor will be able to help you with your search for scholarships that are appropriate for you.
Look to an employer for help with college expenses. Many employers include tuition reimbursement programs as a part of their benefits package. By working part-time while attending school, your student could earn a little extra cash and make themselves eligible help with their school bill.
The last resort for speedy help with education expenses is taking out a student loan. As far as debt goes, student loans are usually preferable over other types of debt. Student loans are often available at a much lower rate of interest than other consumer loans. And since a higher education could ultimately increase the borrower’s earning potential, a college education could be considered an investment. Be careful, however, not to borrow more money than is required to complete your degree. Students are often tempted to borrow more than they must have for school and then become saddled with huge amounts of debt.
With these ready sources of assistance, you can be sure that there is a way to help cover education expenses for your student. Be prepared to do some research and a lot of paperwork and your student will be ready for classes this fall.
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