College is an essential step for those that want a shot at a successful career. The average public college's yearly tuition currently falls somewhere between $8,000 and $11,000, private colleges are usually $20,000 -$30,000 and that doesn't include books, housing, food or other fees. Financial aid and loans can help when the time comes, but a lot of people don't qualify for financial aid and incurring debt is never a good option. Some people hope to offset the cost with scholarships, but nobody can count on that. With enough planning and saving, parents can make their lives a lot easier when their kids leave the nest for higher education.
Coverdell Education Savings Account (ESA):
-A Coverdell Education Savings Account restricts the amount that can be contributed to the account (maximum of $2,000 per year for married couples making less than $190,000/year).
-ESA's are used like health savings accounts because the money can be withdrawn and used at any time to cover elementary or secondary school expenses well as higher education expenses.
-Parents who open ESA's have many investment choices and total control over how their money is invested.
-At the end of 2010, provisions will be changed to exclude withdrawals for elementary or secondary education.
-The money in ESA's must be used before the beneficiary turns 30, at which point the money will be distributed to the beneficiary at a 10% tax rate.
Custodial Account:
-A custodial account is a savings account in a child's name that is controlled by their parents.
-Custodial accounts are easy to set up and easy to contribute to.
-When the child reaches legal adulthood, they gain control over the account.
-Custodial accounts are taxed yearly based on how much the account earns. They are also taxed when the money is withdrawn.
-Parents can't switch beneficiaries on the account
- Money in the account is considered the child's asset which can hurt their chances of being approved for financial aid.
529 Prepaid Tuition Plan:
-This is the best option for parents whose children will be attending public schools in the same state where they live.
-Allows parents to pay tuition at current rates for school in the future.
-There are lower contribution maximum limits on the account.
-There is a time limit placed on the funds, it must be used 10 years after the child graduates high school.
-The money saved can be withdrawn tax-free as long as it is used for tuition only.
-Excess money saved can be put into other 529 tuition accounts to cover tuition for other relatives.
529 College Savings Plan:
-The 529 College Savings Plan is the most common solution for parents to save for their child's college.
-There are no income restrictions on these plans, but there is a lifetime maximum contribution limit of between $235,000 and $300,000 depending on the state where the account is opened.
-Money in these accounts accumulates tax-free and can be withdrawn tax-free as long as it is used for approved educational expenses: tuition, room, board, books, and computers.
-Money saved with a 529 savings plan can be used at any accredited college or university in the country.
-Parents stay in control of the account and can choose what to do with any excess money.
- Investment options are defined by the state where the account is opened.
-Penalties are applied for withdrawing money early or using the money for anything other than higher education.
Courtney Buell is a writer at Professional Marketing International. Prior to joining PMI, Courtney obtained a bachelors degree in Humanities and wrote for various print and online publications in Salt Lake City. Professional Marketing International helps people achieve their dreams.
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