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How to Save for College
Tax-Free
 College
tuition and fees are on the rise. Shockingly, the cost for
4-year private schools now tops $36,000 per year on
average.
But the investment is well worth it. According to the U.S.
Census Bureau, individuals with a bachelor's degree earn
more than double those with just a high school diploma.
The two most popular college savings programs are
529 plans and
Coverdell Education Savings Accounts.
Whichever you choose, be sure to start when your child is
young. The sooner you begin, the less money you will have to
put away each year.
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Example: Suppose you have one child, age six months,
and you estimate that you'll need $120,000 to finance
his college education 18 years from now. If you start
putting away money immediately, you'll need to save
$3,500 per year for 18 years (assuming an after-tax
return of 7%). On the other hand, if you put off saving
until your son is six years old, you'll have to save
almost double that amount every year for twelve years.
Financial Calculator:
College Savings Planner
Use this calculator to
help develop and fine-tune your child's college
education savings plan. |
How Much Will
College Cost?
Based on the survey completed
for the 2010 Trends in College Pricing, the average cost for
tuition, fees, and room and board for 2010-11 was:
$16,140 per
year for 4-year public (in state) colleges and
universities.
This is an
increase of 6.1% from 2009-10 findings.
$36,993 per
year for 4-year private colleges and universities.
This is an
increase of 4.3% from 2009-10 findings.
It should be noted that, on
average, full-time students receive $16,000 of financial aid
per year in the form of grants and tax benefits for private
4-year institutions, $6,100/yr for public 4-year institutions,
and $3,400/yr for public 2-year institutions.
Saving with
529 Qualified Tuition Plans
Section 529 plans, also known as
Qualified Tuition Programs, ar the best choice for many
families.
Every state now has a program
allowing persons to prepay for future higher education, with
tax relief. There are two basic plan types, with many
variations:
1) The Prepaid Education
Arrangement. You essentially buy future education at
today's costs, by buying education credits or certificates.
This is the older type of program, and it tends to limit the
student's choice of schools within the state.
2) Education Savings Accounts.
You contribute to an account earmarked for future higher
education.
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TIP:
When approaching state programs, one must distinguish
between what the federal tax law allows and what an
individual state's program may impose. |
You may open a Section 529 plan
in any state. But when buying prepaid tuition credits (less
popular than savings accounts), you often need to apply the
credits to a specific college or group of colleges.
To read the rest of this
article,
click here or go to
www.eSullivan.net and click on the Newsletter section.
If you have any questions about 529 Qualified Pension Plans or
Coverdell Education Savings Accounts, please give us a call at 301-657-8080.
 As always you can call our offices if you have any
questions about these or any other accounting, tax,
financial planning or insurance related issues, at 301-657-8080.
Regards, Paul Sullivan, CPA
President, Sullivan & Company |
