Saving for College
It's never too early to start saving for college and below are some examples. Also, saving reduces your reliance on an uncertain financial aid system and planning for college costs helps control your educational destiny.
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- 529 College Savings Plans are educational savings plans operated by a state or educational institution designed to help families set aside funds for future college costs. Earnings grow tax-deferred and distributions are tax-free when used for qualified post-secondary education costs. They are named after the Section 529 of the Internal Revenue Code which created these plans in 1996. 529 plans can be used to meet costs of qualified colleges nationwide. For an example of Connecticut's plan visit CT Higher Education Trust. See Governor Malloy's recent New College Savings Plan here.
- Corporate 529 Plans are company 529 employee benefit plans tied to payroll deductions.
- Coverdell Education Savings Accounts (ESA) are tax-advantaged investment accounts designed to encourage savings to cover future
educational expenses found in Section 530 of the Internal Revenue Code. Earnings grow
tax-deferred and distributions are tax-free when used for qualified post-secondary
education costs. ESAs can also be withdrawn tax-free for primary and secondary education
- Custodial Accounts are accounts created by a bank, brokerage firm or mutual fund company that is managed
by an adult for a minor that is under the age of 18 to 21 (depending on state legislation).
- Prepaid tuition plans allow prepay tuition and fees at a state college or university at current plan prices.
Payments are made now or a series of payments over time and the program promises to
pay future tuition and fees for a certain number of credit hours or semesters at specified
colleges or universities. State-run programs are geared to families intending to
send their children to public in-state institutions.
- Traditional & Roth IRAs (individual retirement accounts) are savings plan for retirement. Roth IRAs involve making after-tax contributions
so that withdrawals are tax-free in retirement whereas Traditional IRAs contributions
may be tax-deductible and withdrawals are taxed in retirement. Early withdrawal penalties
are waived when Roth and traditional IRAs are used to pay the qualified post-secondary
education costs of the owner, spouse, children or grandchildren. However, taxes may
be due on the withdrawals.
- Tuition reimbursement by companies allow employees to be reimbursed for college coursework usually after
the employee shows proof with a transcript of successful passing of the course(s).
Check with your employer to see if they offer such a benefit.
- U.S. Savings Bonds are registered, non-callable, non-transferable bonds issued by the U.S Government
that are exempt from state and locals taxes and federal taxes are deferred until the
bond is redeemed. Additionally, if the money received at redemption is used to pay
tuition expenses for the holder, a spouse or a dependent in the same year, the interest
earned may be exempt from federal taxes as well. Face values range from $50 to $10,000.
- Annuities are retirement products that may be used to help one increase savings, protect savings,
or generate a stream of income.
Disclaimer: The above are options for college savings, not financial investment advice.