Four short-term savings strategies for adult learners |
| By Christina Couch • Bankrate.com |
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Working adults weighing their money-saving options for an encore college appearance shouldn't exclude prepaid tuition and savings plans.
Adult learners frequently overlook prepaid plans like those that take advantage of Section 529 of the U.S. tax code, says Kelly Tanabe, author of "501 Ways for Adult Students to Pay for College."
"When adults think about saving for college, they
tend to think a 529 plan only applies if you're sending a child
to school," Tanabe says. "Even if you only have a few years, a (prepaid)
plan can be a good vehicle because it's guaranteed and your money
isn't taxed."
To be sure, many older workers contemplate continued education and quickly hit the books after deciding to return to school. But for those who plan several years ahead, below are four easy methods of saving for college.
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| 4 ways to save for college |
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1. Matched savings accounts offer flexibility of use
Denise Hickmon, a 40-year-old administrative assistant from Washington,
D.C., found a way to quadruple her money without risking a penny.
She invested $1,000 in an Individual Development Account, or IDA,
a matched savings program offered through the nonprofit Corporation
for Enterprise Development, or CFED, and gained an additional $3,000
to help pay for her final semester at Catholic University.
"I make about $38,000 a year and have four children, so I couldn't pay for tuition on my own," Hickmon says. "I was applying for scholarships, but the money was running out. The (IDA) program helped me to graduate."
Available in more than 540 locations across the United
States, IDA programs help low-income families build long-lasting
financial assets by matching savings of up to $1,000 to be used
for education, career training, a down payment on a home or as start-up
capital for a new business.
IDAs are funded by a wide range of nonprofit organizations,
private companies and government agencies, with the Department of
Health and Human Services being one of the largest. These savings
instruments emerged in the early 1990s as a way for low-income households
to break the cycle of poverty.
Modeled after 401(K) matched savings programs, IDAs
are offered in 19 states, according to the Federal Deposit Insurance
Corp. They also are administered through a wide array of community
and economic development groups like the Washington, D.C.-based
CFED, various local governments and select financial institutions,
including banks and credit unions.
Before receiving the savings match, IDA enrollees are required to make regular contributions to the account for a minimum of six months and take free financial literacy classes that teach basic savings and asset management skills.
Once enrollees have reached their savings goal or the $1,000 maximum, the program sponsor matches it with 100 percent to 600 percent of the initial amount and sends the money directly to the school or bank.
Though eligibility requirements vary from program
to program, most IDAs cater to families with limited assets, usually
totaling $10,000 or less, and with collective incomes of approximately
200 percent of the poverty threshold or less, says Rochelle Watson,
the CFED's senior program manager. That means a single mom with
four children like Hickmon must earn less than $55,165 a year to
open an IDA, according to CFED rules.
IDAs "serve more than 80,000 savers per year,"
Watson says. "We keep a lot of people out of debt."
A directory of IDA programs across the nation is available
on the Corporation
for Enterprise Development's site.
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