HOY en Delaware LLC
Publicado el 04-06-2011
How to invest in your children’s education
(Para leer la versión en español ir a Noticias Relacionadas).
When you look at the costs of attending college the numbers can look quite horrid. According to The College Board, four years at a state university cost an average of $23,000, while four years at a private university costs an average of almost $90,000. If your child wishes to attend an elite university, costs can be even higher.
Thus, it is not surprising to hear parents say, as they did in a recent survey, that their number one fear is paying for a college education.
Unfortunately, that fear paralyzes them instead of spurring them into action. How do we know this? A recent study revealed that, in the past year, half of the interviewed parents spent more money on vacations than on saving for their children’s education. This does not mean that parents don’t want what’s best for their children. In fact, when it comes to college savings, parents make what can be considered a huge mistake: they put their children first, and save for college instead of saving for their own retirement.
Open a college savings account right now. There are many options available to you, such as a 529 plan, for instance. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. States, state agencies, or educational institutions sponsor 529 plans. Setting up one of these plans doesn’t require that much (minimum to open one can be as low as $500) and earnings are not subject to federal taxes.
Another good savings option is a Roth IRA. They allow limited contributions to be made throughout the tax year and can be withdrawn within 5 years after establishing the account provided you are aged 59 1/2 or older. If your joint income is below $167,000 (for married couples filing jointly) or $105,000 (single), contribute to a Roth IRA right after you’ve contributed to your own 401(k) retirement plan where you have/get employer contributions. Roth IRAs are different from other retirement accounts in that they allow you to make withdrawals at any time (taxes are paid up front, so there are no taxable penalties) provided you meet certain guidelines.
Contributions can be withdrawal at any time without paying a penalty. Earnings are treated differently and may incur a penalty if withdrawn prior to retirement age. In addition, earnings can be withdrawn with no penalties if the monies are geared toward paying for education. You could well set up such an account either to pay for your own retirement or to pay for a college education.
Coverdell Savings Accounts (ESA) used to be known as educational IRAs and were created with the exclusive purpose of paying for qualified education expenses at an eligible institution. You can make tax-free contributions with a maximum of $2,000 from all sources per beneficiary per year.
Yet another reliable way to save for your children’s education is to purchase savings bonds. Investors find these bonds attractive because they’re U.S. Treasury securities backed by the U.S. government and are one of the safest investments. In addition, since savings bonds are free from state and local income taxes, their yield increases. If the parent’s earnings qualify under the lowest eligible category, bonds bought after 1990 can be completely excluded from federal income tax when used to pay your child’s college tuition. Series EE savings bonds can be purchased at any bank or financial institution that acts as a savings bonds agent.
As you can see, there are many alternatives to plan to cover the cost of your children’s college career. The important thing is to start as soon as possible.
For more information and examples on this topic see “Resources for a better financial future” in the Web site of The Aspira Association HYPERLINK "http://www.aspira.org/" http://www.aspira.org/. This publication was made possible by a generous grant from the FINRA Investor Education Foundation.