| ext">With higher education tuition increasing at | | | | the value counts against your kid’s financial aid |
| double digit year over year percentages an effective | | | | eligibility. |
| saving plan for your kid’s education is | | | | Uniform Gifts to Minors Act/Uniform Transfers to |
| becoming much more important than it has been | | | | Minors Act |
| before. Most families will discover that their future | | | | (UGMA/UTA Custodial Account): - The benefit of a |
| higher education costs will be much more than they | | | | UMGA/UTA Custodial Account is that there is no limit |
| have saved for their kid’s education. This | | | | on the contribution and it is easy to set up at most |
| leaves many kids to be faced with obtaining financial | | | | financial institutions. However, the limitations far |
| aid to pay for a portion of their college education. | | | | outweigh the benefits. The first limitation of a UMGA |
| The goal of this article is to explore the pros and | | | | UTA Custodial Account is that these types of |
| cons of 4 common investment options when saving | | | | accounts offer very little tax advantage. If your child |
| for college. This article will also explore why some of | | | | is under 14, only the first $800 of income is tax free, |
| these options are better than other when considering | | | | the next $800 is taxed at your child’s tax |
| a portion of your kid’s education may be | | | | rate and after that there is no tax benefit at all. The |
| funded by financial aid. | | | | other big limitation is that the account has to be set |
| 529 College Savings Plan: - A 529 college savings plan | | | | up in your child’s name. As a result, if your |
| is a fairly new investment option for college saving. It | | | | child needs financial aid all of the assets will be |
| allows just about anyone to save for college. There | | | | reviewed at a 35% rate. Therefore, this type of |
| is a long list of benefits of a 529 college savings plan, | | | | account is not advisable for those who may need |
| but perhaps the most important is that your earnings | | | | financial aid. |
| grow tax free if you use it for qualified education | | | | Coverdell Education Savings Account (CESA): - A |
| expenses. Additionally, the maximum amount you can | | | | Coverdell Education Savings Account is very similar to |
| contribute to a 529 plan can go as high as several | | | | a 529 college savings plan. The main difference is that |
| hundred thousand dollars depending on your State. In | | | | with a Coverdell Education Savings Account you can |
| the event you do not use the funds for college, you | | | | only contribute $2000 per child and to qualify your |
| can still withdrawal your earnings, but you will have to | | | | adjusted gross income must be less than $110,000 if |
| pay taxes and a 10% penalty. The penalty will be | | | | single and less than $220,000 if married filing jointly. |
| waived if your child receives a scholarship, or your | | | | The account is classified as a parent’s asset |
| child becomes disable or dies. | | | | so less that 6% of the value counts against your |
| 529 plans can typically be purchased through a broker | | | | kid’s financial aid eligibility. |
| or mutual fund company, but a disadvantage is that | | | | In the end, parents should consider planning for |
| investment choices can sometimes be limited. Since | | | | college to be a highly important process. The above 3 |
| qualifying for financial aid is based on a calculation that | | | | alternatives can make this process much more easy |
| considers your kids assets, another big benefit of a | | | | and financially sound. |
| 529 college savings plan is that the money in the plan | | | | Copyright (c) 2005, by Jay Fran. |
| is classified as a parents assets so less that 6% of | | | | |