Accessible College Savings Plans: the Future’s Lifesaver
Saving is a sure way of investing for the future, whether for buying a property or for your college education. However, the state programs that sponsor savings plans don’t make it easy or cheap. This is because they’re layered up with fund management fees and commissions.
There are a number of fund options available like aged-based fund management that can cut market risks. This can empty college funds before the student gets closer to college age. In fact, a Chicago-based financial information rating company is ranking plans throughout the US. The company aims to find the most appealing plans for college savers and strong investment options with reasonable fees and capable oversight.
Here are some of best college savings plans available:
529 College Savings Plan
The 529 plan is a tax-advantaged savings plan meant to encourage savings for future college costs. These costs include tuition, books, and other education-related expenses. 529 college savings plans are operated by a state or educational institution designed to help families in setting up funds for their kids’ college.
The costs of getting a college degree are increasing nonstop which outpaces the household salary of a median family.
So, Section 529 of the Internal Revenue Code created educational savings plans in 1996. These plans are used to meet the costs of qualified colleges nationwide. But families have other financial goals such as paying off debt, investing for retirement and saving for emergencies. They also take care of their elderly parents which make it quite hard for them to save for their kids’ college education.
Prepaid Tuition Plans
Availing prepaid tuition plans allow parents and families to pay in advance to lock in on the current tuition rates at eligible public or private universities and colleges. These plans help them manage future tuition costs, excluding the costs for room, board, and other extra expenses. Parents can choose a mode of payment like a one-time payment of the total school fees or a regular installment plan.
Prepaid tuition plans are applicable for community colleges and 4-year universities in 11 states. Meanwhile, several hundreds of private colleges are offering prepaid tuition fees. When parents avail a prepaid tuition plan, the contract covers 1 to 5-year tuition for community college. It also covers a 4-year university or a combination of both.
UGMA and UTMA Accounts
The most common trusts for minors are custodial accounts such as UGMA and UTMA accounts. The Uniform Gift to Minors Act (UGMA) allows a minor to own securities such as stocks, mutual funds, annuities, bonds, and life insurance policies. The Uniform Transfer to Minor Act (UTMA) is the same although other types of property such as fine arts, real estate, royalties, and patents are transferred through inheritance.
The donors who are usually parents appoint a custodian or trustee who’s either a bank or a brokerage. His/her role is to control and manage the trust until the age of trust termination is met. This can be used to finance the kid’s college education.
Under the US law, Roth IRA or Individual Retirement account is an untaxed retirement plan as long as certain conditions are met. Tax reduction is allowed under the US tax law on limited amounts of retirement savings. Parents or grandparents who want to have their children or grandchildren attain a college education can fund it through Roth IRA.
Deposits in Roth IRA receive no tax deduction and these accounts can grow tax-deferred. Thus, withdrawals from Roth IRA are exempted from withdrawal penalties if funds would be used for qualified education expenses such as tuition, books, fees and room and board.
Are you ready to save for your kid/s’ college? Once you’re ready, just choose from these college savings plans to help you finance your kid/s’ future for college. Weigh the best option and start saving one-third from your monthly household income.