College Savings Plan Options

How can you save money for your child's college education, especially during a recession? Chances are if you have a little one, you may not have given much thought as to how much college tuition costs just yet, but experts agree that getting started early with your savings goals is the key to being successful when it comes to savings. But how much do you need to save? When should you start? What are the best programs out there?

Saving for College


From college savings plans to getting your family budget in order, we have asked the experts the best way to save for your child's education.

Put parents first

You may think that the first step in saving for your child's education is setting up an account for your child, but many experts agree that in order to get a good start on saving you need to have your own savings in order first. This means contributing to your own retirement plan and paying off bad debt (like credit cards). Pay attention to things like your credit score which may play a role in the future when it comes to your own savings needs or borrowing for your children.

"It makes sense to set aside funds for a child's education," says Greg Womack of Womack Investment Advisors, Inc. "However I believe parents shouldn't forego their plans in savings for their retirement to fully fund a college fund. A person's lifetime income needs during retirement require a large financial commitment; and many people will find themselves short of that goal."

Womack recommends parents have their retirement goals being met before committing larger amounts to a college account.



Select your savings account

There are so many different types of accounts available for college savings that for many parents (and grandparents) deciding which one to choose can be just as confusing as understanding when to start and how much to save. The most common types of college savings plans include:

529 plans – This account grows tax-free and allows for tax-free withdrawals for education expenses. With a variety of state plans research which plans offer the best rates and potential tax deductions for contributions.

Coverdell Education Savings Accounts (ESA) – This cannot exceed $2000 a year. This is not tax deductible, but does grow tax free until distributed, and can be used for room and board, books, and elementary and high school tuition as well.

Savings Account or CD – Financial professional Penny Ritter with AXA Advisors in Jacksonville says this is an easy and relatively safe way to save money over time, but reminds parents that interest earned will be taxed. "With direct deposit you may be able to automatically route a portion of your pay into the account."

Roth IRA – If you make under $100K a year you can open a ROTH IRA and make contributions. "Not only is this important for saving for your own future, but in case your 529 contributions fall short, you can withdraw money, completely penalty free, and use it for a child's college education," says Thrive CEO Avi Karnani of www.justthrive.com.



Start small

Ritter suggests parents start saving when the baby is born, and says even if you don't think you can afford to save, start small. "Adjust your spending habits, and gradually increase the amount you save."

Automatically contributing to savings accounts directly from your paycheck, investing in windfalls (inheritance, tax refunds, bonuses), and increasing the amount you save each year are all ways to help increase your college savings. "If you save $100 a month this year, you should save at least $105 a month next year," explains Ritter, who says increasing the amount each year by at least 5% is a good rule to follow in order to keep up with college tuition inflation rates.

Julie Murphy Casserly, a successful Chicago-based Certified Financial Planner and founder and CEO of JMC Wealth Management, has been featured on XM Radio's "Oprah and Friends" with Jean Chatzky, among other programs says, with your next pay raise, "Take ½ to 1/3 and put it in monthly to your kids 529 plan to get tax deferred and tax free gains when used for higher education." She also suggests using credit cards like American Express linked with Fidelity that 1.5% of anything you charge goes back into your college savings plan.

Next page: Financial aid and calculate what you can afford

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