Saving for College
It pays to save for college.
Education after high school is one of the most important investments a family can make. Like any other investment, such as a home, it requires careful planning. The following plans offer easy, practical ways to save money for college:
Tomorrow's College Investment Plan (the Texas 529 Savings Plan)
This is an education savings plan sponsored by the state of Texas. For more information, go to: www.texastomorrowfunds.org.
For information on state-sponsored tuition plans in other states, visit the National Association of State Treasurers Web site at http://www.collegesavings.org..
Education IRAs (Education Savings Accounts)
Taxpayers may withdraw funds from a regular Individual Retirement Account (IRA) without penalty for their own higher education expenses or those of their spouse, child, or even grandchild, but Education IRAs offer additional opportunities.
For each child under the age of 18, families may deposit $2,000 per year into a special Education IRA in the child's name.
- Earnings in the Education IRA are tax-free, and no taxes will be due upon withdrawal if the money is used to pay for post-secondary (after high school) tuition and required fees (minus grants, scholarships, and other tax-free educational assistance), books, equipment, and eligible room and board expenses.
- After the child reaches age 30, his or her Education IRA must be closed or transferred to a younger member of the family.
- A taxpayer's ability to contribute to an Education IRA is phased out when the taxpayer is a joint filer with an adjusted gross income between $150,000 and $220,000, or a single filer with an adjusted gross income between $95,000 and $100,000
- There are a few restrictions. For example, a student who receives tax-free distributions from an Education IRA may not, in the same year, benefit from the Hope Tax Credit or Lifetime Learning Tax Credit.
For additional information on Education IRAs, visit the federal Internal Revenue Service (IRS) Web site at http://www.irs.gov/pub/irs-pdf/p970.pdf.
Final Thoughts
You don't have to save the entire amount by the time your child enters college. What you've already saved can be supplemented by part of your earnings during the college years, the student's earnings, grants, scholarships, loans, and even tax credits.
Lastly, these are not the only ways you can save money for college, but they are a good place to start. You may wish to speak with your financial institution (bank, credit union) or a financial counselor or investments counselor regarding other opportunities that may be available to you.
Remember: Save as much as you can afford and do it systematically. Always keep in mind the bottom line—college is affordable!
