Strategies for Establishing College Funding

It is common for parents and students to struggle when it comes to establishing a college fund.  Even with the best intentions, most people fall short on the amount of money needed to attend college.  After all, when you add up daily expenses, emergencies, and other standard bills compared to the amount of money coming in, the numbers are often lopsided.  While not overly complicated, there is a right and wrong way to set up a college fund. For this reason, we have provided some proven strategies that will make this process not just easier but the outcome more successful.

For starters, to establish a college fund you need to consider all possible sources of financial aid.  One such possibility is with 529 plans, which were named after a tax code associated with the IRS.  Today, each state offers one or more 529 plans but the criteria and rules vary from one state to another.  However, when qualifying, this particular strategy could be very beneficial for helping you get into the college or university of choice.  Because there are so many different factors involved with 529 plans, it would be to your advantage to meet with a financial advisor to choose the one that would ultimately be best for your situation and needs.

Another strategy that goes with establishing a college fund is to look at prepaid tuition plans.  Although not offered through all state universities, there are some schools that have this innovative program available.  In this case, college expenses would be paid over the course of several years and in installments that you could afford.  However, if you find yourself in the position, the entire amount of the prepaid tuition plan could be paid in one payment but prior to starting college.  Although several benefits exist, the one that most people appreciate most is that you have the opportunity to lock into a rate that would never change.  Then, any tax deferred earnings or distributions would be excluded from your gross income if used for college expenses.

We also wanted to mention Coverdell Education Savings Accounts.  Initially, this type of college savings account was called an Educational IRA but regardless of name, as a parent you would have the option of making college contributions for your child until he or she reaches age 18.  Now, the amount of contributions are limited but for the money that is contributed to this particular type of college savings, you would enjoy the tax deferred setup and the ability to withdraw money tax free.

Two possible strategies for establishing college funding are known by acronyms UTMA and UGMA, which stand for Uniform Transfers to Minors and Uniform Gift to Minors Act respectively.  Both of these accounts are set up as custodial savings whereby the account would be opened in your child’s name.  However, by having these two accounts establishes, money could be transferred to either account for each child and on a per  year basis but without a gift tax exemption or lifetime estate being affected.  There are some complex factors associated with both of these college savings accounts so spending time to familiarize yourself with each would be imperative.

The last strategy for establishing college funding that we wanted to mention is loans but not the conventional student loan.  Instead, a Parent Loan to Undergraduate Students or PLUS loans are offered by the federal government making it possible for you to borrow all of the money needed for your child to finish his or her undergraduate degree.  This would include money not only for tuition and books, but also room, board, and a variety of other expenses associated with college.  Stafford loans are also low interest loans.  Then, the Federal Perkins Loan is also set up with low interest but in this case, the money could be used for both an undergraduate and graduate program.

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