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Saving options for
college
Julie E. Houston • Bankrate.com
and Kevin McDonald
You may find it hard to believe that one day your
little darling will be all grown up and out the door to college.
When that time comes, will you be ready to foot the bill for school?
Between 1981-1999 the cost of tuition increased more
than 100 percent according to the College Board, a trade association
for colleges and universities. To get the savings ball rolling well
before your tot takes his or her first step, prepaid tuition programs
and Education IRAs may serve your needs.
Prepaid tuition/savings programs
State sponsored tuition programs are spreading faster
than wildfire in the United States. Currently, 40 states have programs
where you pay in lump sums or make monthly installments toward a
community college or university. Your state treasurer's office or
independent agency invests your money into stocks, bonds, mutual
funds and equities to account for inflation. In other words, no
matter how much college costs increase, you're covered.
The price for each program is based on the current
tuition rates, age of the future student, payment plan choice and
the projected earnings on investments. Once your child is ready
for the halls of higher academia, the money can be used at any college
or university in the country. However, you can end up with out-of-pocket
expenses if you choose an out-of-state school or private institution.
To find out more about a program in your neck of the woods, check
out the State
College Savings Plan Overview.
Education IRA
If you are unsure about your child's desires of becoming
a scholar, savings accounts may be the way to go. Junior can take
the cash to Cornell or the nearest culinary school. Though the interest
rates are fairly low, there is the security of knowing your money
isn't riding on the current market trends.
The Tax Relief Act of 1997 allows family members to
open an Education IRA and deposit $500 a year if the child is under
age 18. All distributions are tax-free if used for tuition, fees,
room and board and books. The individual income of the family member
must not exceed $95,000, or on a joint return the income must not
exceed $160,000 to maintain this tax-free status.
If your child is young enough, investing in mutual
funds could be worth the gamble. With an 18-year window, you can
take a few more chances. Your investments may keep up with tuition
inflation if the market is strong.
Your savings alone won't ensure that your child will
even be accepted to college, but one thing is for certain, the sooner
you plan for your child's education, the sooner you can start worrying
about other things, like their teenage years. Ugh!
-- Posted: June 2, 2000
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