Education is is easily one of the top priorities parents have for their children. If you are financially stable and your children have aspirations to achieve a university level degree, you probably still have a lot to worry about.
How will I pay for it?
That’s a big question. If you remember my quote from earlier in this series, you should have some idea of how to prioritize your savings.
There is no such thing as financial aid for retirement.
If your retirement savings is not up to par and you can’t afford to pay for your child’s higher education without going into debt, don’t feel bad. Almost everyone is in the same boat. There is no such thing as financial aid for retirement, but there is such thing as financial aid for education.
Even though I’m going to stress that you worry about your retirement and long-term care first, that doesn’t mean that you can’t help with your child’s education. Just don’t plan on paying for all of it. There are lessons to be learned by your child when they have to choose among schools and compare loan packages, scholarships, grants, and work options.
Just like retirement, it’s never too early to start. Even if you’re just in the process of planning a baby shower. So, take a look at this introduction to two plans that can help you save for college.
Education Investment Accounts & College Savings Plans
Coverdell Education Savings Account (ESA) – Coverdell ESA’s work much like Roth IRA’s. But instead of saving for retirement, the money is used to fund education. Qualified education expenses include K-12 education costs, college tuition and expenses, and vocational school. You can designate anyone under the age of 30 as the beneficiary of the account (there is no age limit for special needs beneficiaries). You can contribute up to $2,000 each year (until the beneficiary reaches age 18) if you are single and make under $110,000/year, or are married, and make under $220,000/year. The contribution is non-deductible. The account offers tax-free growth, tax-free distributions (if you use the money for qualified expenses), and allows you to change the beneficiary any time. You can invest the money you place in a Coverdell ESA in anything you like (e.g. CD’s, stocks, bonds, mutual funds, etc.).
Qualified Tuition Programs (529 Plan) – 529 plans are state sponsored college savings plans. You can participate in a pre-paid college tuition 529 plan, or a savings 529 plan. A savings 529 plan allows you to choose from a selection of investments, kind of like a 401k plan . There are no income restrictions, nor any age limits with 529 plans. Contribution limits are set by each participating state, but are usually very high. 529 plan contributions are non-deductible (some states offer a state tax deduction). Withdrawals are tax-free if you use the use the money to pay for college and vocational school expenses. However, you must attend school as at least a half-time student. You can contribute to both a 529 plan and a Coverdell ESA. Beneficiaries can be changed at any time, making it possible to designate yourself as a beneficiary if there is money left over in the 529 plan.
Investing For Beginners
- An Introduction To Investing
- An Overview Of The Different Types Of Investments
- The Types Of Employer Sponsored Retirement Accounts
- The Types Of Individual Retirement Accounts
- Retirement Accounts For The Self-Employed
- Education Investment Accounts & College Savings Plans
- Regular Taxable Investment Accounts
- Other Investment Accounts