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