college

College savings for adults

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 IDA 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, CFED's senior program manager. That means a single mom with four children like Hickmon must earn less than $55,165 a year in order 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 at the Corporation for Enterprise Development's site.

2. Prepaid tuition plans a good hedge against tuition hike 

Two unfortunate byproducts of a tanking economy are state education budget cuts and skyrocketing tuition, and prepaid tuition can help, says Mark Kantrowitz, founder of Finaid.org, a financial-aid Web site.

"A prepaid tuition plan is a hedge against that," he says. "If you can invest in a plan before prices increase, you're going to get far more appreciation than you would from investments in the stock market."

One of the precious few savings vehicles that are almost guaranteed to pay off, prepaid tuition plans allow future learners to purchase tuition credits for tomorrow before inflation strikes.

The plan is simple. Instead of paying for tuition at the time of enrollment, prepaid planners purchase credits at a cost equal to or slightly higher than the current rate, then cash them in when they're ready to attend school.

According to Finaid.org, college tuition grows at an average of 8 percent each year. So adults who invest $500 today in a prepaid program can expect their investment to grow tax-free by more than $100 within three years. And that's without the risk of the plan tanking just before you head off to school.

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Offered through 17 states across the nation and through the national Independent 529 Plan, all prepaid tuition plans grow tax-deferred and distributions to pay for college costs are federally tax free. Those offered through the states usually are exempt from state income tax as well.

Tanabe adds that prepaid plans will only work for those that mind the pitfalls. While prepaid tuition plans are one of the safest bets for those attending school in the near future, these plans come with restrictions such as a minimum investment time -- usually three to five years -- as well as limitations on the schools where the money can be spent.

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