Resources: Education Saving: Planning For The Education Investment
Planning For the Education Investment
In the wake of rising college costs, there are more options than ever before for those looking for ways to save and fund education. Traditional investment options, such as savings accounts, taxable investment accounts, and U.S. Savings Bonds, have been joined by college savings programs such as 529 plans and Coverdell education savings accounts, which have been enhanced by recent tax law changes. In addition, tax credits and deductions introduced over the past several years are also important considerations.
As you create your college funding plan, it is helpful to think of it as an investment, rather than an expense. According to the U.S. Census Bureau, in the year 2002, the average male college graduate, aged 25-34, earned 65% more than the average male who completed only high school. Among women the same age, college graduates earned 71% more than non-graduates. These additional earnings can easily top $1 million over a lifetime.
Build your Strategy
As you build a strategy that will work for your family in paying college costs, there are many tactics to consider.
With "pay as you go," you can plan to pay college expenses out of your future income and your child can help cover expenses by getting a job.
You can "pay later" by borrowing the money to pay for college, and you and/or your child repay the debt after graduation. Of the financial aid students receive, nearly 60% is in the form of loans, while 40% comes from scholarships and grants, which do not have to be paid back.
Building up savings earmarked for education is the best way to ensure that your child won't be dependent on outside sources like jobs, loans or scholarships to meet college expenses.
You will also want to be aware of federal tax breaks, such as the Hope Scholarship Credit, Lifetime Learning Credit, and tax deductions for student loans, which are aimed at families saving and paying for college.
Many grandparents enjoying a comfortable retirement income want to help fund their grandchildren's college education. If you decide to assist your grandchildren, it's important to involve their parents in the decision-making process. Your desire to pay college bills directly or to set up educational trusts impacts the financial aid application filed for the student.
Your family's circumstances will determine the best plan for covering the educational investment, but the basics remain the same:
- Don't put off saving. Establishing a goal and putting in place a regular savings plan is one of the first steps you should take.
- Minimize taxes. Consider using tax-advantaged savings programs, such as a 529 plan or education savings account. You may benefit even if your child is already in high school.
- Consider professional assistance. Consulting with experienced and knowledgeable financial and/or tax professionals can open up new possibilities and help ensure you are on the right track.
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