Scholarship of Mom & Dad

          When I started attending my local community college to continue my education, my parent didn’t have much money to help. I can remember working a part-time at Autozone to make some money to pay for my books each semester and borrowing student loans to cover my tuition. It was tough, but it taught me how to work hard and pay my own way. I do have a desire now that I have children of my own to help pay for their education. I don’t think we will have enough to fully fund everything they need, but it will be a decent amount to help. I’m actually thinking that maybe a balance between the parents and the child paying for college may be the best way. I know that most of us want to be able to give our kids some money for school. Well, if they were starting today would you be able to give them $30,000 to get started? Do you think you will have that money lying around in 10, 15, or 18 years to give to them when they start school? It’s not likely that we will if we keep doing things as we usually do.

At this point, if you have been following the previous posts, you are working on getting rid of debt, starting retirement etc. I want you to know that before starting this step, you need to make sure that you have completed all the steps before this one. We absolutely need to be financially stable before we start setting up college funds for our kids. We want to set them up for success so they can enjoy life, not to pay for our lives because we are broke during retirement. Let’s make sure we establish our financial future so our college graduates can enjoy theirs.

So, what options do we have for funding our children’s college? Well, there are several, I personally use the college advantage 529 plan for my boys.

So I have compiled a very simple list of a few options we have, and their key points.

The college fund operates much like a 401k or Roth in regards to opening an account, selecting investments an allowing time to make us some money. Investing as little as $25 per week, earning 8% annually until they reach 18 can become $48,000 towards college.

529 Plan (Recommended)

• All contributions & earnings can be used tax-free (if used towards education)
• Contributions are tax deductible (up to a certain amount per your state)
• What if my kid doesn’t go to college, what happens to all that money??
• Can be moved to another sibling, or parent continuing their education
• Unqualified withdraw - earnings will be subject to taxes, incur a 10% penalty and account holder must return tax deductions
• Limited investment options (preset funds only, NO individual stocks, bonds etc.)
• Fund election changes must wait 12 months 

Prepaid Plans

• Pay for schooling in advance
• Similar advantages of the 529 Plan
• Because you are paying ahead, the tuition is more expensive than it would be if you were attending at the time you set up the account. 
• Must be purchased several years prior to enrollment
• Can be transferred or refunded if child elects to attend a different school

Coverdells

• All contributions & earnings can be used tax-free (if used towards education)
• Unqualified withdraw - earnings will be subject to taxes and incur a 10% penalty 
• Limited contributions (Max contribution $2,000 per child, per year)
• Beneficiary must be under 18 years of age

Roth IRA

• $5,500 per year max (under 50 years old)
• Earnings grow tax-free (post-tax contributions)
• Doubles as a retirement asset, if the child does not use for college
• No penalty for withdraws for qualified educational expenses
• Not treated as income for dependent (more financial aid)

Custodial Account

• Money is in a trust for minor
• Manage account until the child is 18, or 21 years old
• Child receives money for anything (not just educational expenses)
• Earnings are taxed annually 
• Can’t be transferred to another beneficiary 

Life Insurance 

• (cash value as college savings) I have heard this mentioned before…NO.
• I don’t think this one is even worth considering

           I have had several people ask about college savings, so I wanted to compile a simple list of account types. I hope this helps provide a brief overview of what is available. I did not cover every detail about all the options, but this should help point you in the direction of the option that best meets your needs. Now let’s get proactive and start saving a little now, to help give our kids a big head start towards their education.