Money: Saving For College

If you have at least one child I’m sure you have at least thought about what to do about saving for their education. Choosing the right option can be a daunting task. There are many factors to consider. This post is not designed to help you choose what option is best for you, but to give you a bit of information on what the options are. I want to focus on three options.

The Pre-Paid Tuition Plan – This type of plan allows you to pay for tomorrow’s college costs at today’s price. Sounds great, right? Well there are some things you should know. First, your child must attend a college that is included in the selected plan in order to receive the full benefit. Also, you will be limited as to how much money you can put into the plan. Finally, the plans are often limited to use for only tuition and fees. This doesn’t mean this type of plan is a bad idea. If you are sure about what school your child will attend then you could use a plan like this to your advantage. If you aren’t even sure they will attend college then this would not be for you.

529 Plans – These plans work much like a mutual fund account. Typically you can use the funds for any college and for any college expenses. There are also some tax advantages to contributing to this type of plan and it can be passed down to siblings. There is a big drawback for this type of plan though. You have to use it for college expenses or pay a penalty to withdraw it for other uses.

These are the two big ones. The rules and options vary from state to state, but generally they work the same way. But there is a third option that you can consider.

Don’t save for college at all. Sounds a bit extreme doesn’t it? Well, consider this: your child can likely borrow money to go to school; you cannot borrow money to retire. What about funding your retirement account instead of funding a college savings? Your retirement accounts will not be counted the same way in the financial aid calculation. This type of savings could put your child in a better position to be eligible for financial aid.

Again, this post was not meant to steer you in any particular direction. My best advice is to find a financial advisor that you can trust and have them lay out all of your options. This way you can weigh the pros and cons of each and find a solution that works for you.