College Financing Plans

As we reach our mid-twenties to thirties, many men and women are marrying and raising families. College costs are already in record highs throughout the United States. National averages put the cost of college at $5,500 for tuition alone. Private colleges are well over $20,000 per year. Add in board, meals, parking, and books, and the rates become astronomical.

According to Sallie Mae's college cost calculator, the national average for a year of college twenty years from now is going to be well over $21,000. This is the national average! In states where college tuitions are already $15,000 to $20,000 per year, you can expect the yearly tuition to cost you upwards of $60,000. Are you prepared?

The best way to start preparing for your child's college education is by saving now. In order to have saved $200,000 in twenty years is by setting aside $100 per week. This can be manageable to many families. You can invest this money into specific college savings plans.

529 College Savings Plan

The 529 plans allow anyone to contribute money to a child's college future. The accounts are tax free and many states and the federal government allow tax deductions for those families who utilize them. There are two different 529 plans. The first allows you to lock in a specific college at today's rate. This keeps the cost from ever rising, but it requires your child to attend that specific college you choose when the child is born. The alternate is the 529 tax-free savings plan that can be used on all college fees. A minimum investment of $25 is required.

Coverdell ESA

The Coverdell EAS Plan allows you to save $2,000 per year towards your child's college tuition. The $2,000 yearly investment is completely tax-free. There is a cap of $220,000, however.

Savings Bonds

Though they do not gain a huge amount of interest, savings bonds are an alternate way to save for your child's college education. Savings bonds are purchased for half the face value and then must mature for a number of years. To receive the full benefit, you must wait thirty years before cashing them.

UGMA

A UGMA account is an account that is set up in a child's name and cannot be withdrawn until the child reaches the age of 18. A UGMA account allows the first $750 to be tax free. If the balance goes above this, it is taxed at the children's tax rate.

Regardless of the method you choose, it is important to begin saving now for your child's college career. Costs are rising drastically, so by the time your child reaches the age of 18, odds are high that you will not have close to the necessary amount unless you have been incredible pro-active about saving from the time of birth.