With the costs of University education always standing at an all-time high and increasing almost every year, it is clear that the say, “Education is expensive” was never coined from nothing. But how exactly can you escape this hurdle? This article provides tips to help you save money early for your children’s university education but first, here is a quick summary of the approximate tuition fees for colleges in the USA.
Most undergraduate degrees at public universities in the USA cost $25620.At the top-tier universities which are majorly private non-profit institutions,fees and living costs can possibly add up to nearly $60000 every year.You can see how the costs can take up large crunch of your cash.
So, having known the reality about college tuition fees, what should be your plan moving forward in order to avoid many regrets when your child later qualifies for college admission? Here are the top ten ways to begin with.
1.529 College Plans
529 college savings plans are also known as Qualified Tuition Programs(QTP) and are offered by more than 30 states in the USA.The plan requires you to invest after-tax money after which you are permitted to withdraw the funds(plus any investment gains)tax-free for use towards qualified educational expenses including college tuition and books.Various investment options,annual fees,and operating costs are offered by each state.
What happens if your child does not qualify for college admission?You may face tax penalties and fees at the time of withdrawing the funds but the good news is that you can always transfer the account to another beneficiary.You can start making contributions in small increments but you may only be able to make a change to your account once in a year,depending on the specific 529 plan.
- Roth IRA Plan
A Roth IRA can also be used for college savings despite being a retirement savings account.It is a very popular plan in the US.Just like the 529 plans,you contribute after-tax money and any investment gains.You can then withdraw any investment gains later in tax-free form.It allows you to take funds,penalty and tax-free for qualifying educational expenses after five years.
Roth IRA plan is more of a “safe bet” in the sense that if your child does not qualify for college admission,you can still use the funds for your retirement.It is worth noting that Roth IRA has income and contribution limits.For instance,single taxpayers earning over $129000 annually are not eligible and you can only contribute $5500 per year.The contribution is $6500 if you are 50 years and above.
- Prepaid College Tuition Plans
These plans allow you to pay part of your child’s college tuition now,locking in current prices and securing you from possible tuition hikes if your child is still many years away from joining college.They are similar to 529 plans in the sense that the gains are always tax-free.They are currently available in several US states although some have been closed to new enrollment. You can also get a quick online loan for meeting expenses.
4.Coverdell Education Savings Account
Coverdell ESA is tax-advantaged if the money is used for its intended purpose-educational expenses.This plan has little to no effect on your child’s chances of getting federal aid because it is considered your asset-not your child’s.Coverdell ESA can be used for educational expenses including K-12 costs such as private school tuition.
However,it has its limits.You can only make a contribution of $2000 annually per child and eligibility begins to phase out for couples earning more than $190000 every year.Funds may be subject to taxes if they are not used by the time your child is 30 years old.
- UGMA and UTMA Custodial Accounts
With these account types,monetary gifts are held in a custodial account until your child reaches adulthood.They have some benefits which are fewer than 529 plans.Unlike other savings options,these types of accounts can be regarded as your child’s assets,implying that it can affect the amount of federal aid your child qualifies for.
- Gift of College
The gift of college is a program that allows other family members and friends to offer gifts directly to your 529 college savings plan.Registration is free but you pay a 5% processing fee once you receive the gift.All you got to do is to create a profile for your child and family members or friends can then offer a gift.Indeed,it can make a lasting impact on your child’s life instead of receiving gifts such as toys or clothes.
- Fidelity Investment Rewards Signature Visa Card
This is a visa card from Fidelity which enables you to earn 1.5% on the first $15000 spent annually,then 2% in the subsequent years.All your reward earnings are deposited directly into your Fidelity managed 529 savings account.
- Fidelity Rewards American Express Card
You need to have a Fidelity accountbefore looking to reap the benefits of this card.You can get 2% cash back on purchases when you make a direct deposit to your Fidelity 529 account.Every 2500 points are equivalent to a $50 deposit.What is more,family members toocan link their card rewards to go directly into your Fidelity-linked account.This can further boost your rewards.
Upromise registration is free and you can earn cash back for college dining and shopping.In order to earn,you need to register your credit cards,grocery cards,and loyalty cards and then receive cash back on eligible purchases.
Start out on Upromise web each time you are shopping and you will be earning cash back on a percentage of your purchase as you click through their links.You can link your Upromise account to a 529 college savings account.Applying for Upromise credit card will enable you to earn an additional 5% cash back on eligible purchases.
- Leaf College Savings
Leaf college savings is similar to GiftofCollege.com.It enables your family members and friends to give monetary gifts towards your child’s education.The amount of gift card is picked and sent to you through mail, email or Facebook.You can redeem the gift by entering the number on the card.Besides,the gift can be transferred to any 529 college savings account.
The ball is now in your coat,as they say. Adopt the aforementioned tips to save enough money early for your child’s university education even if it demands more sacrifices lest you risk “killing” your child’s university aspirations.