Four short-term savings strategies for adult learners |
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Offered through every state and the District of Columbia, 529 college savings plans come with the same federal and state tax advantages as prepaid plans. But students can choose from any accredited 2- or 4-year institution in the country. And they can be used for any qualified educational expense, such as books and room and board -- not just tuition.
Though 529 college savings plans aren't entirely risk-free
investments, most plans, such as the Virginia Education Savings
Trust, offer conservative bond and money market investment options,
giving short-term savers the tax advantages with limited risk.
4. Higher education
CDs have pros and cons
Those who crave choice without gambling on their investment should
stick with risk-free, low-gain savings vehicles, says Tanabe, the
college finance writer.
"Since adults usually have a good sense of when they'll be attending school, they can purchase a bond or CD timed to their enrollment date and gain a little bit that way," Tanabe says. "You want to make sure you have that money in two or three years, so stay away from stocks and mutual funds."
One risk-free way returning adults can keep the federal
tax benefits that accompany 529 plans without limiting their choice
of schools is to buy a CollegeSure CD offered through the College
Savings Bank in Princeton, N.J.
Acting as a compromise between prepaid plans and 529
college savings plans, CollegeSure certificates of deposit have
annual percentage yields tied to the rise in college costs.
Invest $37,208 -- the amount required to buy one year
of college today -- and you'll be able to attend your first year
for that price at any accredited institution in the country regardless
of how much tuition has risen since buying the CD.
The catch is that CollegeSure only saves money for
those attending pricey private schools. For undergrads at private
schools like George Washington University in Washington, D.C., where
the 2007-08 tuition price was $39,240, a CollegeSure CD bought for
$2,032 less is a steal even if cashed in the next year.
For those attending schools such as the public University
of Florida, where tuition and fees for one year come to $3,094,
CollegeSure account holders can use their money to pay for a year
of school, then spend the rest on other qualified educational expenses
like room and board or a computer.
If there is CollegeSure cash left after educational
expenses, account holders can either roll over their money for the
next school year or pay a 10 percent penalty on account earnings
and pull their money out for noneducational expenses.
For example, parents who invest $100,000 in a CollegeSure
CD but have tuition and educational expenses that total only $40,000
would lose 10 percent on any earnings generated on the remaining
$60,000.
No matter which savings vehicle you choose, Tanabe says the biggest financial risk for adult learners isn't choosing the wrong savings plan. It's taking on debt for a degree that doesn't pay off.
"Delaying college for a few years while you save is much less risky than taking out a loan for a degree that might not increase your income," Tanabe says.
The first step to risk-free college saving is simply
making sure that the degree is worth the financial investment, she
says. "Before looking at how to save, you really need to consider:
What's the payoff to getting this degree?"
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