Page 27 - EQ Magazine Issue #3
P. 27
COLLEGE SAVINGS RESOURCE
How to Save for Your
Child’s College Education
By: Kristen Kuchar
hether you hope to fund part or all of your save about $19,784.
child’s college education, here’s how to get Here are some ways to start saving for your child’s
Wstarted. education, and tips to help them fund their education in
other ways as well:
When families talk about college, the subject of money
is never far behind. Seeing so many graduates College Saving Plans
overloaded with student loan debt, with 19% of 529 College Plans
borrowers owing more than $50,000 upon graduation,
can be pretty scary for parents and students alike. More than 30 states offer a 529 college savings plan,
also known as Qualified Tuition Programs (QTP). Here’s
As parents, you think the best thing you can do for your how they work: You typically invest after-tax money into
children is to encourage them to go to college and get a the plan, and you’re then allowed to withdraw the
good education — and, hopefully, that will help them funds (and any investment gains) tax-free for use toward
land good jobs with higher earning power than if they qualified education expenses, such as college tuition and
had high school diplomas alone. But that’s an expensive books. Each state’s plan offers various investment
goal. It’s especially daunting considering that many options, annual fees, and operating costs. Contribution
parents are still paying off their own student loans, limits vary, but tend to be quite high compared to Roth
while their children born today could end up paying up IRAs.
to four times the current price for tuition if inflation
keeps up, according to finaid.org. If your child doesn’t end up going to college, you may
face fees and tax penalties when withdrawing the funds,
though you can often transfer the account to another
beneficiary. You can usually begin contributing in small
increments, but, depending on the specific 529 plan,
you may only be able to make a change to your account
once a year.
Roth IRA
A Roth IRA is a popular type of tax-advantaged
retirement savings account, but it can also be used as a
college savings vehicle. Like 529 plans, you contribute
after-tax money, and any investment gains can be
withdrawn later tax-free — most often, after age 59-
1/2, for retirement.
But Roth IRAs also allow you to take out funds tax- and
penalty-free to pay for qualifying educational expenses
But where do you start saving for your child’s education? after five years. (You can also tap a Roth IRA without
The option for many is to not start at all. Only 36% of penalty to make a down payment on a house.) That
middle-income families and 29% of low-income families makes it an appealing way to hedge your bets: If your
are putting money away for their kids’ college fund, child doesn’t go to college, you can still use the funds
according to a study by Sallie Mae. The study also found for your retirement.
that the average family is planning to save around
$38,953 per child for college, but on average will only However, there are income and contribution limits.
26 | www.equitymovement247.com
