The soup-to-nuts cost (tuition, room and board, extras) of one year at a private college is already in the region of $50,000, bringing the cost of a bachelor's degree to close to a quarter of a million dollars. As one wag has observed, that's like buying a new BMW every year and driving it off a cliff. Wall Street Journal (December 5, 2008)
LINKS
While saving for college, determine how your savings will affect what colleges and universities will expect you to pay. For this purpose, an article in Money magazine (December, 2007, page 43) recommends COLLEGEBOARD.COM.
CUSTODIAL ACCOUNT REMORSE is the regret you may feel about a special type of investment or savings account that you set up for your toddler years ago. You thought you were doing the right thing at the time. But now that tot is a reckless teenager, and you're not sure he'll be mature enough to handle this much money when you hand it over to him at age 18 (or 21, depending on the state). In the article TEEN + WINDFALL = DISASTER? (BusinessWeek, Page 078, December 24, 2007), Lynn Brenne indicates what you can do (note that concealing the account from your child is not possible once your child starts filing his/her own tax return).
"PREPAID PLANS?a type of 529 plan where qualified educational distributions are tax free?allow families to make an up-front payment in exchange for future tuition contracts or credits. They can prepay either the full tuition bill or a portion of it, in one lump sum or over time."
529 ACCOUNTS GO TOTHE HEAD OF THE CLASS indicates that Uncle Sam doesn't usually advise families how to invest their money. But after recent tax law changes, it's clear that the feds now believe 529 college savings accounts are the best option for most Americans struggling to keep up with rising educational costs. Virtually every family with children must now strongly consider putting at least some college savings inside a 529 plan. Here's why: First, these state-sponsored investment accounts [529 Plans]--now offered by 49 states and the District of Columbia--allow parents and grandparents to invest large sums (often $250,000 or more per beneficiary). Moreover, just as with a 401(k), money invested in a 529 is allowed to grow and compound tax free. That offers parents a huge advantage over traditional brokerage accounts, whose gains, dividends, and interest income all are taxed along the way. Finally, 529s are advantageous from a financial-aid standpoint, because none of the money held in a 529 is considered the student's asset when calculating aid eligibility. One key provision that made 529s popular-the ability to withdraw money from these accounts tax free for qualified educational expenses-was to expire in 2010. But the Pension Protection Act of 2006, which President Bush signed into law in August, made withdrawals from 529s permanently tax free when used for qualified purposes, such as tuition, fees, and room and board.
SAVINGFORCOLLEGE.COM claims to be "your best source for objective information about Section 529 college savings plans and other ways to save and pay for college." and goes to add that "We do not sell investments or offer individual investment advice. Instead, we compile and analyze the information that will help parents and financial professionals ease the pain of constantly rising tuition." This website is loaded with advertisements. The founder of this website is a CPA.
WHY PLANNERS HATE UTAH: The state's 529 plan is topnotch but there's nothing in it for your advisor. Contact the Utah Educational Savings Plan: 800-418-2551 or uesp.com.
529 VS. CUSTODIAL ACCOUNTS
Question. For someone who has years of college ahead, is it better to set up a 529 or a custodial account. . Answer.529. Comment For years, parents have been stashing money in custodial accounts to fund their kids college education. They're saved on taxes, too, since a large portion of the bill is paid at the child's lower rate. But recent changes in the law sap so much of the tax earnings from custodial accounts that state sponsored 529 college savings plans, which are tax free if used for education are better deals. Question. Should you "cash out your kids' custodial accounts and put the money in 529s." Answer. There are time when the answer is Yes. See the TIME TO SWAP PIGGYBANKS?
SAVING FOR COLLEGE VS. RETIREMENT ACCOUNTS
The article WHO'S AFRAID OF PAYING FOR COLLEGE? advises parents to "Max out on your retirement accounts before you even start saving for college. There's no financial aid for retirement ... but there's plenty for college." But this article goes on to warn parents to "Switch gears for a few years" because "When calculating eligibility, financial aid officers won't count money that's already in your IRAs, 401(k) or other retirement accounts. But they will count money you put in during the years those aid applications are being filed--that is, from junior year of high school through junior year of college [inclusively]."
CHOOSING THE STATE FOR YOUR 529 PLAN
PICK A LOW-FEE 529 PLAN
THE BEST AND WORST 529 PLANS (Morningstar) notes that, "Nearly every state now has a 529 savings plan, so investors face a huge array of options when it comes to saving for college." They add that, "The simplest, though perhaps not the wisest, solution for many is to stick with the 529 plan sponsored by their home state. About half of 529 plans offer in-state residents incentives, so it's worth finding out what extra goodies are available before leaving home." "That said, investors are by no means limited to their home-state plan. If their state's plan is lousy, it pays to do some comparison shopping. That goes double if their state has a low or no income tax." "To help in that process, we've identified some of the best and worst 529 plans being offered. Investors whose state plan shows up on our 'worst' list might be best served by looking elsewhere. Folks looking for the top options regardless of in-state incentives should give a close look to our 'best' list. "We built our lists around the factors that are crucial to a successful college savings plan: costs, quality of underlying investments, flexibility of investment options, and the fund company's record of treating shareholders well."
DIFFERENT STATES, DIFFERENT 529 PLAN RULES gives questions that should be asked by those who live in a state offering a 529 Plan tax break(there are 31 such states, also the District of Columbia).
