Compare College Savings Plans

Did you know that the average yearly cost of college tuition is $11,354 for public colleges and $27,516 for private colleges!? The costs for a good college education have gotten ridiculously high my opinion. Maybe your child will be one of the lucky ones to get a full-ride with a great scholarship but odds are that they won’t.

There are ways for you to recude the costs of funding your child’s college education. Choosing the right college savings plan is important and a decision that should be made very early in your child’s life. Let us help you decide which college savings plan is right for you.

Compare College Savings Plans:

• The 529 College Savings Plan: The most popular plan of choice.

Investment Choices: Most 529 college saving plans offer fewer than 10 investment choices in an stock or bonds mutual fund that adjusts as you child ages.

Contribution Limits: Contribution limits vary by state with current maximums ranging from $100,000 to $305,000

Tax Benefits: Any earnings grow tax-deferred and qualified distributions are also tax-free. Withdrawals only qualify as tax-free if used for college expenses (Tuition, Room & board, Mandatory fees, Books, computers (if required). Contributions to the 529 college savings account are tax deductible in 29 states and D.C.

Financial Aid Treatment: A 529 Plan is the parents’ asset so only 5.65% of the value counts against financial aid.

When Should Choose this College Savings Option: This college savings plan is best for families in a high tax bracket and who have lots of money to put away.

• An UGMA / UTMA Custodial Account: UGMA Stands for Uniform Gift to Minors and UTMA stand for UniformInvestment Choices:Transfers to Minors

Investment Choices: There are a wide range of investment options for this type of account.

Contribution Limits: There are no contributions limits for this type of account but gifts over $11,000 per child ($22,000 if both parents contribute) are subject to a gift tax.

Tax Benefits: The tax benefits are low. If the child is under age 13, the first $800 of income is not taxed. The next $800 of income tax is taxed at the child’s tax rate. All other income is taxed at the parents’ tax rate.

Financial Aid Treatment: The account is ultimately considered your child’s asset so federal aid asset it at a 35% tax rate.

Who Should Choose this college savings option: Families that don’t need financial aid.

• The Coverdell Education Savings Acount: Also known as the CESA Plan. Formerly known as the Education IRA.

Investment Choices: There are a wide range of investment options through your brokerage for this type of account.

Contribution Limits: The Coverdell Education Savings Account has a maximum contribution limit of $2,000 a year.

Tax Benefits: Earnings are withdrawn tax-free as long as they are used for qualified education expenses including elementary and high school expenses.

Financial Aid Treatment: Same as the 529 College Savings Plan.

Who Should Choose this College Savings Option: Everyone. Those with high elementary and high school expenses should also strongly consider this option.

• A Taxable Brokerage Account:
  

Investment Choices: There are a wide range of investment options through your brokerage for this type of account.

Contribution Limits: There are no contribution limits.

Tax Benefits: None unless you invest in tax efficient funds.

Financial Aid Treatment: The parents’ keep ownership of this type of account.

Who Should Choose this College Savings Option: Families that hope to get financial aid.

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Other Things to Consider When Selecting a College Savings Plan:

• Don’t Forget to Compare the College Savings Plans Rates.
  Annual expense rates for a college savings plans range from a wopping 2.82% (Alabama’s Higher Education 529 Plan) to .4% (Utah’s Educational Savings Plan).
• Compare Local Tax Breaks
  Remember, some states don’t offer a deducation.
• You Don’t Have to Choose Your State’s Plan!

All the best in your College Savings Plan Hunt. Be smart and help your money work for you!