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Financial Literacy - College funding
MONEY MAKEOVER
Step up savings
To send their teenagers to college, this Kansas family will invest in a 529 plan and still preserve their retirement fund.
Smart ways to pay for college
 The plan

For ease of management I would recommend choosing the 529 plan. It looks like their home state 529 plan might be a good option for them. The account fee is waived for Kansas residents and there is a fairly good selection of funds to choose among. The Kansas 529 plan also offers a state income-tax deduction. The deduction is limited to $3,000 per year per beneficiary or up to $6,000 for a couple filing jointly.

The Kansas 529 plan's in-state minimum investment is also affordable, at only $250. However, in this case, I would like to see the Roes get a jump on this plan by making an initial deposit of $3,000 into an account for each of their children. This kick-start deposit will give them a margin of error in case the costs they need to pay are higher than anticipated. This will be a great start to fulfilling their college savings goal. Also, the dent it will put in their savings won't be too large and will allow them to maintain adequate emergency funds.

With this as a start they can keep the plan rolling by making monthly deposits of $400 into the accounts. They should set up an automatic payment from their bank account into this 529 plan on a monthly basis. When you do this there is no temptation to spend the extra money on something else, and the discipline of considering this a fixed monthly expense will help keep the plans flowing. While this amount of savings might be a little more than they need, things often turn out differently than projected and this would be the safety net.

Short time frame, safe investment
When they pick an investment option for their monies, they need to think about safety. They should pick one of the less risky investment options in the plan. This should be regarded as a savings vehicle more than an investing vehicle. They do not have much time to recover from any market setbacks so they need to have minimal equity exposure.

Each year they should do a checkup on this plan. They want to know if they are on track to achieve their goals. They can do this by using one of the college savings calculators or financial aid calculators that are online to recalculate their progress. If their calculations show that they are ahead of their goals, and the goals have not changed, they can cut back their contributions.

If they find that they have overfunded their son's plan, they can name their daughter as beneficiary of the balance after he has completed his studies. As they enter the final years of paying for college, they can draw down the balance of any 529 plans and pay the remainder out of current income.

Look for free money
Lastly, they should not forget to try to take advantage of the huge number of scholarships that are also available. Take advantage of any guidance offered through the local high school's placement office. Their placement office should help your child search for, and fill out applications for, many different types of scholarships.

While the Roes have waited until their business has become more established to start thinking about their children's education, they are not too late for making an adequate plan. If they start today and make regularly scheduled deposits into their 529 accounts, they should have a secure source of college funding for their children.

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-- Posted: Sept. 17, 2007
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