Thursday, August 19, 2010

4 Smart Ways to Pay for College

It is never too late to save for college. Any money you save now for your children, will further reduce their expenses and loan they may have to take when they are actually attending college. Whether your child is in preschool or high school the time to start saving is NOW! I am a strong supporter of a college education. I believe that in today’s corporate America, a college degree is a must, just think what it may be 18 years from now! Here are the four best plans to save for college:

The 529 Plan
Every state offers at least one version of a 529 plan and you don’t need to live there to sign-up. Plans vary so visit to compare your options. Most states offer tax breaks for the 529 contributions, but you need to choose your state’s plan to qualify. In Ohio, visit

No annual contribution limit
Accounts can hold up to $380K (caps vary by state)
Anyone can add to the account
You can transfer the money to other children (or relatives) if one child decides not to attend or gets a scholarship

Risk – you are investing in the stock market
You will have to pay penalties and taxes on the interest if it is NOT used for college expenses

Coverdell ESAs
Parents can contribute up to $2000 in these education savings accounts (ESAs) each year. The money grows tax-free until you withdraw it to pay for school expenses

Lower fees and more investment options than 529 plans
You can use funds for K-12 expenses (supplies, uniforms, or tuition)

Couples must earn less than $220K combined or $110K to be eligible
Congress has to vote to keep the current benefits or the contribution limit may drop to $500 per year and the K-12 expenses will no longer be covered

Roth IRAs
You can use funds in a Roth IRA before the age of 59 ½ to pay for your child’s education without penalty. You can invest $5000 per year if you are under 50 years old and $6000 per old if you are 50 or older

Money grows tax-free
Funds can also pay for your retirement

You should only use your Roth IRA money for college is you have retirement savings elsewhere
Couples must earn less than $177K combined or $120K to be eligible

Savings Accounts, Money Markets, CDs and Bonds
Just go to the bank or online and open these accounts or buy CDs or Savings Bonds

Total flexibility, if your child does not go to college you will not have to pay any penalties or fees
Minimal risk

Low returns on your money
You must pay income taxes on your earnings

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