With higher education tuition increasing at double digit year over year percentages an effective saving plan for the education of your children is becoming more important than it was before. Most families will discover that their future higher education costs will be much more than they have saved for the education of children. This leaves many kids to be faced with obtaining financial assistance to pay part of their education. The aim of this article is to explore the pros and cons of 4 common investment options when saving for college. This article will also understand why some of these options are better than others when considering part of the training of your children may be funded by financial aid.
529 College Savings Plan: - A 529 college savings plan is a fairly new investment option for college saving. It only allows anyone to save for college. There is a long list of benefits of a 529 college savings plan, but perhaps the most important is that your earnings grow tax free if used for qualified education expenses. Moreover, the maximum amount you can contribute to a 529 plan of up to several hundred thousand dollars depending on your state. In case you do not use the money for college, you can still Withdrawal your earnings, but you have to pay taxes and a penalty of 10%. The penalty does not apply if the child receives a scholarship, or your child dies or becomes disable.
529 plans typically can be purchased through a broker or mutual fund company, but one disadvantage is that the investment choices can sometimes be limited. Since receiving financial aid is based on a calculation that considers your heritage children, another great advantage of a 529 college savings plan is that the money the plan is classified as heritage parents because less that 6% of the value counts against your child's financial aid eligibility.
Uniform gifts to minors Act / Uniform Transfers to minors law
(UGMA / UTA Custodial Account): - The advantage of a / UMGA UTA Custodial account is that there is no limit to the contribution, and is easy to set up financial institutions. However, limitations far outweigh the benefits. The first limitation of a / UMGA UTA Custodial account is that these types of accounts offer very little tax advantage. If your child is under 14, only the first $ 800 of income is tax free, the next $ 800 is taxed at your child's tax rate and then there is no tax benefit at all. The other big limitation is that the account must be established in the name of your child. Therefore, if your child needs financial support all activities will be reviewed at a rate of 35%. Therefore, this type of account is not recommended for those who may need financial aid.
Coverdell Education Savings Account (CESA) - A Coverdell Education Savings Account is very similar to a 529 college savings plan. The main difference is that with a Coverdell education savings account you can only contribute $ 2,000 per child for qualifying and your adjusted gross income must be less than $ 110,000 if single and less than $ 220,000 if married filing jointly. The account is classified as good of a parent in a less that 6% of the value counts against eligibility for financial aid for your kid.
Finally, parents should consider planning for college to be a very important process. The above three alternatives can make this process much easier and financially sound.
Copyright (c) 2005, by Jay Fran. This article may be freely distributed provided the copyright, author information and active link below live is published with the article.
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