MoneyTips Guide to College Savings Finance blurbs of note: “Money spent on good-quality gear is always money well spent.� - Tahir Shah -----------------------------------------------------------------------------------------------------------------------May 17, 2016 College costs are spiraling to the point where a four-year major college education is approaching or exceeding the cost of your house. Like many Americans, you may not be able to foot the entire cost of a college education, but a prudent savings plan can reduce the amount of aid your child will have to seek and ultimately, how much debt they will graduate with.
What are the best methods for saving for college? Here are a few: 529 Plans 529 plans, named after Section 529 of the tax code, are investment accounts that are operated by states that allow anyone to contribute to funds for your child's education, building up funds tax-free as long as they are used for education. They are great for allowing kids to contribute early to their own education funds. 529s offer several investment options with varying degrees of risk and return. Many states let you select an automatic mix of primarily stocks in the early years, shifting to bonds or similar conservative investments closer to withdrawal time. Accounts may be opened for under $100 in some states, and there are no income or age limits. 529s can also be switched to a sibling if plans change, such as with a scholarship offer. You stay in control of the money, determining the amount and timing of withdrawals. Your 529 does not have to be with the state you live in, nor does the university your child attends. However, there may be fewer investment options and higher fees for out-of-state use. 529's are considered gifts for tax purposes and are subject to gift tax limitations ($14,000 annually or $28,000 as a couple). You can make five years worth of contributions at one time if you prefer. There is a lifetime maximum, typically between $200,000 and $300,000.