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Funding A College Education: Where To Start
The beginning of the new year marks the time when many high school students will apply to college and decide where they will continue their education. For students and parents alike, paying for a secondary education is a major concern. About two-thirds ...
Money Making – Money Saving Tips for College Students
Money is something that is difficult to get, but easy to get rid of. However, if you are smart about handling your money, you can get through college or university paying less and making more. While studying, the main source of income for you is your ...
The College Wait List Game
While most parents prepare their child for acceptance or outright rejection, today?s competitive college environment includes a wild card. Helping your child decide what college to attend isn?t easy. Add a wait list to the mix and the difficult proc ...
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Selecting a university is a critical and expensive decision, and in my view it is foolhardy to make before the last couple years of high school. A drawback of the university-based or state-based plans (such as a 529 account) is that they impose penalties if a child doesn't attend a specific university or in a specific state. Who knows what aptitudes, skills or interests your child may develop that necessitate a specific school that is out of your home state. University and state-based plans also impose penalties if the money isn't ultimately used for qualified college expenses; another example where an event that is out of your control and may cause an unneeded expense. But the biggest problem with university and state programs are the financial rule changes they make - after you start the plan.
To me, the university and state-based programs are a lose/lose savings plan for parents. If the cost of tuition rises faster than forecasted, in spite their guarantees, they raise the price and leave you under-funded. Conversely, if tuition rises less than forecasted, then you end up overpaying for tuition. And the same applies to the stock market some plans force you to invest in; when the market fell in 2000 and 2001, many plans broke their promise to guarantee full tuition funding in spite of promises to the contrary.
Another drawback of state-based plans is that your investment options are severely limited to a few mutual funds run by the brokerage firm operating the account. I have evaluated several: and they have high fees and poor returns, and I'm wary of the lack of competition for many of these accounts. The brokerage firms
blame economics for the lack of investment choices, saying that most of the accounts are small and not very profitable for them, so they want as little trading and customer interaction as possible. More reference material for this article is available at http://investing.real-solution-center.com.
The federal college savings plans are better because they allow the widest selection of investments (such as an educational Roth IRA or other education savings accounts), and can be applied to most any accredited university. These accounts offer tax-free growth and withdrawal is also exempt from federal taxes and some states taxes. Realistically, your situation may call for multiple accounts. Rules prohibit you from using these if your income passes certain thresholds.
In my opinion, the best place to start saving college is with U.S. government ibonds from TreasuryDirect.gov. These bonds offer the most flexibility and control, and require none of the paperwork and rules of other savings plans. They accrue a decent rate of interest every month, the principal is adjusted for inflation each quarter, the income tax is deferred, and you don't have any brokerage fees. And when the money is withdrawn for a university on their approved list, the money can be redeemed tax-free. (As for limiting rules: you cannot withdraw the money in the first year, and if you withdraw it within five years, there is a three month interest penalty - so ibonds are not the best savings plan after a child reaches about age twelve). Since ibonds are simply savings not an educational account, the money can be spent for any type of expense that may arise.
The government and brokerage firms keep updating these accounts, so my complaints will hopefully become moot in the near future. But the criteria that you need to watch for are: many investment options, few penalties, no taxes and total control. These will maximize the money you're setting aside for that expensive degree.
About the author:
Francis Kier has an MBA in finance and shares his two decades of experience with investing and personal finance. More of his articles are available at http://investing.real-solution-center.com.
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ScholarShare Announces College Savings Account GiveawayMarketWatch (press release)SACRAMENTO, CA, May 24, 2012 (MARKETWIRE via COMTEX) -- ScholarShare, California's 529 college savings program, announces that they will host their first ever sweepstakes on Twitter, giving all qualified entries the chance to win a $1529 ScholarShare ... |
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