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Saving for Your Children’s Education
Posted by Cobb Energy
Posted on Wednesday, July 06, 2005 [8:20:15 AM]
Category: Financial News
 
Saving for Your Children’s Education You want your children to have bright futures and successful careers. A key stepping-stone to these goals is a college education.

But college expenses have been rising rapidly. Last year, the cost of education rose 14 percent at public colleges while inflation was 1.2 percent. Depending on where you live, paying for a college degree could cost more than buying a house!

To ease the burden of paying for a college education, consider one of these savings vehicles:
* Coverdell Education Savings Account
* Uniform Gifts/Transfers to Minors Act (UGMA/UTMA)
* Traditional IRA or Roth IRA

Be aware that setting up a savings vehicle can affect your child’s eligibility for financial aid. Coverdell Education Savings Accounts and UGMA/UTMA accounts have a larger effect on a child’s eligibility than other savings vehicles mention in this article because assets held in these accounts are considered to be owned by the child.

Which one is right for me?

Which college education savings vehicle is best for you will depend on your specific situation (see chart). If you are confident your child will attend college, the Coverdell Savings account may be optimal since it is specifically designed to cover college tuition and allows your child to receive tax-free withdrawals for qualified education expenses.

However, the contribution limit of a Coverdell account is low, and if you’re beginning to save later than you’d hoped, it may not allow you time to grow the savings needed to cover your child’s expenses. In this case, an UGMA/UTMA account may suit you since the contribution limits are greater. A traditional or Roth IRA should be a last resort since you can always borrow money for college but you can’t borrow for retirement.

Though not discussed in detail in this article, states offer Section 529 plans to help parents pay for college. Because they are offered at the state level, the tax advantages, fees, investment options and restrictions vary widely. Furthermore, these plans have come under scrutiny in recent months because of high expenses and possible funding problems.

To learn more about Section 529 Plans and other savings vehicles mentioned in this article, visit www.savingforcollege.com.

How much should I be saving?

To help you gauge how much you want or need to save, access the College Planner calculator online. You can do so at apps.collegeboard.com/fincalc/college_savings.jsp

Source: NRECA’s Benefits Department. Written and researched by Senior Writer Omar Bassal.

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