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Saving Money for CollegeMoney Tips that make sense for your College Saving Plan! The cost of a college educationWith the cost of college tuition easily surpassing $50,000 for four years, paying for college has become an issue of concern for many families. And one to be planned for. Just as its important to be prepared and have savings for retirement, if you’re planning to fund your child’s education (even in part) you need to have a plan and start saving, even if your pride and joy was only born yesterday. According to the College Board, in 2005/2006, the average tuition for four years at a public university (for an in-state resident) was $25,500. The average tuition for four years at a private college was $98,500. Assuming a 6% average annual increase in tuition, in 18 years tuition for four years at a public university (for an in-state resident) will be nearly $69,000 and tuition for four years at a private college will be more than $265,000. That means that you’ll have to save nearly $150 a month (assuming an 8% investment return) to pay for your child to attend an in-state school, or nearly $550 a month for him to attend a private college. Combined with the necessity of saving for retirement and saving for emergencies , saving that much money every month for college can be daunting. Fortunately, there are ways you can make each dollar you save stretch farther. To explore them, read on . . . or click here. Making your dollar stretch farther for college education One of the best ways to make every dollar you save for college education stretch farther is to take advantage of available tax breaks, including: 529 plans A 529 plan, formally known as a qualified tuition program, allows you to defer taxes on savings for college expenses. Learn how to open a 529 plan today! Click here. Coverdell education savings accounts A Coverdell account is similar to a 529 plan, but it’s designed for saving for primary and secondary education expenses, not college. If you’re thinking of sending your child to a private school for elementary, middle, or high school, expenses can easily amount to $20,000 per year for the most prestigious private academies. Learn how to open a Coverdell education savings account! Click here. U.S. savings bond While savings bonds likely won’t yield the kind of returns that investment in a mutual fund might, if you purchase a bond for your child, you can redeem it tax-free to pay for college tuition and fees. (The tax-free redemption applies only to families below a certain income level, $94,700 in 2006.) To learn more about purchasing U.S. savings bonds and tax-free redemptions for college expenses, click here. IRAs Individual retirement accounts, designed originally as tax-advantaged retirement savings accounts, can be tapped without penalty to pay for qualified college education expenses (for you or your spouse or your children or grandchildren). But while you may be able to avoid early withdrawal penalties, your withdrawals may be subject to taxes. To learn more about using IRA funds for college expenses, click here. Hope scholarship and lifetime learning credits The Hope scholarship credit and Lifetime learning credit can enable you to directly reduce the amount of income tax you owe. Under the Hope credit, you can claim a 100% credit for the first $1,100 you pay toward your dependent child’s college education and a 50% credit for the next $1,100. If you’re an independent student, you may claim the Hope credit for yourself. This credit is available to families with less than $90,000 in income (and individuals with less than $45,000 in income). The Hope credit is only for students in the first two years of academic study. If you claim the Hope scholarship credit in any given tax year, you cannot claim the Lifetime learning credit. But if you’re no longer eligible to claim the Hope credit (because you’ve completed more than two years of post-secondary academic study), you may be able to claim the Lifetime learning credit, which allows a credit of 20% on education expenses up to $10,000. The same income limits apply to the Lifetime learning credit as to the Hope credit. Income tax deductions student loan interestWhether you or your dependents are still in school or not, if you’re paying interest on school loans, that interest may be income tax-deductible. Even if you don’t itemize your deductions, you may reduce your taxable income by up to $2,500 in student loan interest. The bottom line: you don’t have to carry the entire burden As much as you probably want to be able to pay for your child’s college education, you don’t have to carry the entire burden yourself. You and your children can get loans come college time, and most schools have work-study programs to help your children finance part of their education. There are also a number of scholarships available to qualified students – which beat loans because they don’t have to be paid back with interest. Encourage your children to look into the different scholarships programs that may be available to them. To search for other ways to help finance your kids’ education, on the links below.
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