|
|
 |
|
WOMEN'S & CHILDREN'S | Family Maternity Center | Pregnancy Resource Center | Pregnancy Library | Finances | Get Smart: States rescue parents with college funding plans
Get Smart: States rescue parents with college funding plans
Nearly three out of four parents are now saving for their children's college education, according to the College Savings Plans Network, an association of state college savings programs. The problem is that many people are using low-interest tools such as passbook savings and certificates of deposit to get the job done. With the cost of a four-year public education expected to reach $100,000 in 18 years, it's hard to see how these instruments will pay the freight.
The good news is that 44 states now offer some kind of state-sponsored program to help consumers pay for college. Anyone can set up a child's account by contacting the College Savings Plans Network at 1-877-277-6496. In many ways these plans are a terrific boon to parents.
The donor pays current income taxes on the contributions, but the earnings are sheltered. The income tax bill is deferred until the money is withdrawn. Then it is taxed at the child's tax rate. Some states allow families to deduct the full or a partial amount of their contribution from their state income taxes.
Is a prepaid tuition program for you?
This kind of program allows you to pay for tomorrow's tuition at today's rates at any of the state's eligible colleges or universities. If your child opts out of your state's system, the state will pay an equal amount to the private or out-of-state school. Usually you can purchase amounts of tuition in the form of units either through a one-lump sum purchase or monthly installments. It works by pooled investors' money and long-term investments to meet or exceed the state's tuition increases.
What about a college savings plan?
Savings plans allow participants to save money in a special college savings account on behalf of a particular child's higher education expenses. Contributions can vary. The plans offer a variable rate of return, but some programs guarantee a minimum rate of return.
Some facts you should know about these plans: - Participating in a state-operated plan does not guarantee that your child will be accepted to a participating college. All of the entry requirements must be met as for any other student.
- If your child doesn't go to college, you can hold the investment until a later date when the child may decide to go. Or, you can transfer the benefits to another member of the child's family. You can also get your money back, but you will pay a refund penalty unless your child receives full scholarship or in the event of death or disability.
- If you make a contribution to a qualified state tuition program, then you can't contribute to an Education IRA during the same year.
- Most programs allow you to use funds for room, board, fees, books, supplies and equipment in addition to tuition.
- In both prepaid tuition and savings plans, you can use funds anywhere in the United States at accredited colleges. But keep in mind that using the funds doesn't eliminate extra tuition for out-of-state students.
Date last reviewed: October 2002.
Back to top
|
|
|
|
|
|
|
|
|
 |
|
|
|
|
|
|
|
|
|
|
|
|
|
 |
|