- Personal Finance»
- Paying for College
Financial Maneuvers That Help Pay For Your Child's Higher Education
If you are aspiring to send your child to college, then the cost of such a pursuit is at the forefront of your mind. Covering the expense of your child's college of choice is costly. As a single parent, there is no getting around the massive pressure of paying for any form of higher learning. This expense goes up tremendously if your child should decide to live on campus. But do not be dismay there are several financial maneuvers which can help lighten the burden of paying for your child’s higher education.
Single parents at times must get creative in the pecuniary planning for their child's future. But sometimes engaging the “old fashion” way is just as valid and that is apparent in setting up a minor savings account. Opening up a small savings account is an old fashion financial maneuver in helping fund your child’s higher education. It is available in all states with no pressure of a required sizeable initial deposit. Single parents can take a dollar to the bank and request to open an account. The personal banker will ask for the parent’s identification, social security number of both parent and child, and standard bank information such as address and phone number. Most parents are surprised to learn that this account can be opened with as little as a penny. This account allows for the flexibility of making many small deposits, which makes it one of the best financial tools for the future. The custodian of the savings can make a bi-weekly deposit and will discover, after years of deposit, a substantial amount is saved. The successful use of this account is the ability to keep monetary birthday gifts along with the bi-weekly deposit that will eventually add up to $1000. The build-up to a $1,000 or more is sufficient to open a certificate of deposit (CD) which is another prudent financial tool for your child's future. A CD is a fixed term account with higher interest rate, and when untouched for several years, the savings is substantial.
Another saving option, new to the investment market, is a state plan college account. A favored plan under the state college account is College 529 plan. Here is how it works, you give your money to a licensed state investment representative, usually an investment banker, who in turn will place your money into financial vehicles to yield high-profit returns. This plan offers two types of investment, aggressive investments in stocks and conservative approach to bonds and cash savings account. If you start when your child is a baby, then most of the investments go into assets and when your child gets to high school investments are moved into more conservative areas. The investment activity of the banker is directly related to your aggressive approach to finances. This financial tool requires an initial deposit of $50 and monthly payments with a minimum of $100. As of 2002 withdrawals for any school, debt is taxed free. If funds are used for anything outside of college taxes, and severe penalties apply. The maximum investment allowed per year is $22,000 which means an investment capacity of over $170,000 for several years. In some states, a portion of income tax refunds can be transferred to the state savings plan. What is impressive about this program is that the investment option is not restricted to parents. If your child has a generous uncle or godparents, they can set up the plan in your child’s name. If your child decides not to go to college, then the money goes back to the investor minus 10% tax and other investment fees. Visit www.collegesaving.org for more details of what is offered in your state.
Do you have a college plan for your child(ren)?
Some states, 19 to be exact, offer what they call a prepaid college tuition plan. How these strategy works are parents, make monthly or yearly payments toward the “current tuition rate.” If for instance, the college cost for your child’s desired college is $34,000 a year, payments are made to reach this goal. This plan is only for public colleges and universities and not an option for private ones. The drawback of this method is the cost of higher education rises 5 percent or more every year. Consequently, if you start the plan when your child is young, and tuition is $34,000 you should also have a separate savings of an additional 5 percent or more per year before your child attending college. More importantly parents, this plan also affects financial aid qualifications. Also, with this plan, you can only use income tax money via the mail or direct deposit. This investment is direct payments to the desired college, so early withdrawals are not permissible, and it is not possible to get your money back. All funds go directly to the designated public college or university.
This next financial option, Education IRA, is much safer with very few drawbacks and is more user-friendly for single parents. This IRA option is new but works similar to Roth IRA. Deduction on end-of-year taxes is not possible, but interest earn is tax-free when withdrawal is made for college. The plus side of this IRA is that you can use it at any level or area of your child’s higher education. It is not earmarked. There is, however, a maximum annual amount of $500 per child which will not result in sufficient investment amount for an Ivy League college. So if your child has Harvard aspirations, this financial vehicle should be coupled with another type of savings or investment.
The final college plan is Upromise. This organization partners with a vast array of companies that pay percentage points into a savings account in your child’s name based on the type of purchase you make. For instance, if you purchase at retail within the partnership you will earn points, and these points can be cashed in or converted into an educational investment account. You can sign up for free online and the money raised can go to any higher education school, including trade schools. Some of Upromise partners are companies such as Toys R Us and Coco-Cola. The organization also partners with investment companies to help set up higher education savings account and much more. Go to www.upromise.com for more details.
As a single parent, these maneuvers can go a long way in helping you better prepare for the financial burden of your child’s higher education. I wished that this information was available to me much sooner than later.