Double-digit tuition increases at public colleges and universities across the nation could claim an unintended victim while exposing a weakness in state-run college savings plans. Experts say the plans -- state-run investments that promise to lock in prepaid college credits for future students at current rates -- might need to add fees or reconsider taking new investments if tuition increases faster than the plans anticipated.
In the dozen years since it was introduced in New York, the 529 plan, created to help families save and invest money tax free for future college costs, has attracted 655,000 account holders who have a put $10 billion in the state's 529 plan options. Participants in the program make contributions on a child's behalf. The money grows tax free and withdrawals used for qualified higher-education expenses are exempt from federal and state taxes. Contributions can be made until the balance of all program accounts for the same child reaches $375,000, a figure that has steadily increased from $100,000 when the program was first started in 1998.
For some, saving money for a child's or grandchild's college education seems nearly impossible. Before you give up the battle, however, consider this: A high school graduate will earn an average annual income of $26,416. A college graduate will earn an average annual income of $34,000 to $74,000. For someone who works 40 years, that can add up to an additional $320,000 to $1.92 million in earnings. That's quite a return on an investment in a college education! Once a Coverdell education savings account is established, anyone - a family member, friend or the child - can contribute to the account as long as he or she meets the adjusted gross income limits. A single tax filer can earn up to $95,000 and a married couple filing jointly can earn up to $190,000 and make full contributions. For...
It pays to do your homework before investing in a college savings plan," said OFIS Commissioner Linda Watters. "And to educate yourself about the differences among the many plans offered today, in order to choose the plan that's right for you. "Regardless of how the plan is purchased, investors should have a basic understanding of the plan's benefits, costs and tax implications," Watters said. To help investors select the most appropriate college savings plan, OFIS is suggesting four key questions investors should ask their financial professional before investing in a college savings plan: What are the plan's tax implications? Tax treatment of college savings plan contributions, earnings and withdrawals varies from one state to another. Michigan allows residents who participate in ...
As usual, your column is right on the money with timely advice on how grandparents can give gifts to their grandchildren without spoiling them. We have two girls, ages 4 and 2, and there are three sets of grandparents. My wife and I consistently request that the grandparents contribute to college-savings plans we've set up, and they generally oblige. This holiday season, we're also making a point of asking the grandparents to put the brakes on branded toys and focus on good, solidly rated toys that are fun and educational. As you noted, the key is to keep an open dialogue with grandparents about money matters, which is very important to our family.
Question: Help! I have two kids, ages 5 and 7, and want to start a college fund for them. What would be most beneficial? An education savings account, a 529 plan or a Roth IRA? Please define all the above. Answer: Lately I've received a flurry of queries regarding 529s and other college savings plans. I'll try to address most of them over the next few weeks, starting with the basics.
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