Options for Parents to Pay for Their Children’s College

young studentIt is no secret that a college education is expensive.

In fact, the average price for tuition at a private college according to the College Board for the 2009-2010 was $26,273, a 4.4 percent increase from 2008 and public school was an average of $7,020, up 6.5 percent. Over the next 18 years, the cost of a college degree is expected to increase to a couple hundred thousand dollars.

There is hope however for families who will need to start planning now for those expensive four years.

Here are some brief overviews of different options for new parents paying for their child’s education:

529 College Savings Plans: Named after Section 529 of the Internal Revenue Code, a 529 Savings Plan allows the state or a hired money manager to invest $50 to $300,000 in stocks or bonds or a combination of both, aggressively during the early years of your child’s life and then become more conservative as the child approaches high school and college.

There is also the option of the prepaid 529 plan, where you may pre-pay some or all of the costs of your state’s universities at the current rates. The maximum investment is  allotted to those attending public state universities as only partial credits will be available for private colleges or out of state schools.

Coverdell Education Savings Accounts (ESAs): Previously known as the Education IRA, anyone can invest up to $2,000 a year into stocks, bonds or mutual funds. The money then grows tax-free, as long as it is applied to a child’s educational costs, including elementary and secondary schools, uniforms or even laptops. Single parents whose income exceeds $110,000 or married parents who make more than $220,000 are not eligible for an ESA.

Uniform Gifts to Minors and Uniform Transfers to Minors Acts (UGMA/UTMA): This investment in mutual funds, stock and bonds opportunity allows your child, once they turn 18 or 21, to receive control of the account and are permitted to use the money in any way they deem fit. These are subjected to child taxation laws and may potentially affect the financial aid amount the child qualifies for.

Hope you weren’t too attached to that summer house in the Hamptons, because your child will need you to forgo that and instead write a check for textbooks and tuition.

Via Mint Life

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