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Twelve Months of Financial Milestones Working with Financial and Legal Advisors Taking Control of Your Financial Future How Much Money Will
I Need to Achieve
How Should I Manage
My Money to Reach |
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taking CONTROL
OF YOUR FINANCIAL FUTURE
Headlines about the soaring costs of higher education may have you worried about how you will afford an education for yourself, or for your child or children. Those worries may be even stronger now, especially if you lost a parent, spouse, or other significant contributor to your own or your child’s education. Don’t be discouraged. The six-digit costs that make the headlines are for some of the most elite schools in the country. There are many excellent schools that cost much less. How much should you expect to pay? You can get an estimate on one of the free online calculators. Use your browser to search for “college savings calculators.” If you or your children are close to college
age and • Scholarships
and grants – These forms of assistance do
not have to be repaid and thousands • Loans – Students and/or parents can borrow money for college costs from federal government programs, state government programs, college/university programs, and from banks or other financial institutions. Keep in mind these loans are complex and can take years to repay. If you’re not comfortable with the complexities, ask a knowledgeable friend or advisor to help you compare costs and select the best option. Talk with your high school guidance counselor or advisor about specific sources of financial aid, and the financial aid officer of the college you are considering. There are many helpful books in the library that offer tips on applying for financial aid and list grants, loans, and scholarships available from federal, state, college, and private sources. For current information on available federal loan programs, call the Federal Student Aid Information Center at 1-800-433-3243 or go online at www.studentaid.ed.gov. Check if your bank or credit union makes student loans or personal loans for college costs. If your children are still young, you have time to save money for their education and can take advantage of the numerous tax-advantaged plans that make it easy to do so. Some of the available plans include: • 529 College Savings Plans – These are offered by each state, but you may use a plan from any state. Anyone, not just a parent, can contribute, but the parent or guardian controls the account until the child goes to college. The child can then withdraw funds tax free to pay for tuition, fees, and other expenses. Contribution limits, determined by each state, can be quite high. Two excellent online sources of information about these plans are www.savingforcollege.com and www.collegesavings.org. • Coverdell Education Savings Accounts – These accounts can be used to pay for kindergarten through 12th grade expenses as well as college expenses. Withdrawals are tax free for qualified education expenses. The maximum annual contribution to each child’s account is $2,000. Contributions may also be made to 529 Plans for the same child in the same year. • Roth IRAs – Although these are not designed specifically for college savings, they can be an excellent choice if you are eligible. (Eligibility is determined by annual income). As a general rule, individuals whose earned income falls within certain federally-prescribed limits, can contribute up to $3,000 annually to a Roth IRA. This amount is scheduled to increase to $4,000 in 2005. Earnings grow tax deferred and contributions can be withdrawn for college costs without penalty. • Uniform Gifts to Minors Act and Uniform Transfers to Minors Act Accounts (UGMA/UTMA) – These accounts refer to statutes in many states that enable adults to make gifts of property, such as money, securities, or life insurance, to a custodial account for the benefit of a minor child. The tax advantage of these accounts is that the income earned is taxed at the child’s rate. The child has complete control of the money in the account when he or she reaches age 18 or 21, depending on the state in which the account is established. This means he or she can use the money to pay for college or for anything else, such as a new car. In the past, many UGMA/UTMA accounts were established as college savings plans before Congress passed laws allowing 529 plans, Coverdell accounts, and Roth IRAs. For most individuals, the tax and other features of these newer savings vehicles make them more attractive than UGMA/UTMA accounts. You are responsible for choosing how you want
your money invested in these college savings accounts. One rule
of thumb is to focus on growth-oriented investments, such as stocks
or stock mutual funds, if you have children who are 10 or more years
away from college. As college years grow closer, you can switch
to more conservative investments, such as bonds or money market
funds, which will be less volatile and therefore more likely to
protect the value of your savings if the stock market goes down.
Be sure you understand the risks of every investment you choose
and are willing to accept them.
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Paying for College
