College Savings Plans
What are the best
college savings plans?
There are a variety of options, and at first glance
they can be a bit overwhelming. There are a number of options
to suit your specific needs.
The one
thing that is universal with all these savings plans is that you
have to fund them with money out of your pocket.
This is a key point to remember. We'll get back to it!
What is different between these
college savings plans and my
Investment Properties Program is that my plan is funded
primarily with OPM (Other People's Money, namely, the bank).
But I'm getting a little ahead of myself . . . let's take a look at
the nuts and bolts of the savings plans. With
college costs climbing about 5% per year, parents have to save
more aggressively and take advantage of every tax break. In
recent years, Congress and state governments have responded with new
rules and options designed to help.
 I have tried to
distill the information to provide brief explanations of some of the
available plans. I have also provided links to some sites that
I thought do a nice job of elaborating on the details.
Let's take a look at the various plans.
529 Savings Plan
State-sponsored college-savings plans -- known as 529
plans -- are at the top of the list for both long- and short-term
college savings. Not only are the earnings tax-free, but some states
let residents deduct contributions on their state tax returns.
Parents, grandparents, aunts, uncles -- anyone -- can open an
account for a child with as little as $25 or $50 and make
contributions regardless of income. Contribution limits vary by
state, but all states let you contribute more than $200,000. The
money can be used for qualified higher-education costs -- tuition,
room, board, books and transportation -- at any accredited college
in the U.S. and some foreign countries. And there's no rush to use
the money because students can use the money at any age in most
states.
The downside to the 529 plan is that the state
regulates and controls many of your investment options.
Click on the following link find out more
information about the 529 plan.
529 College Savings Plan - Minnesota
Coverdell (ESA)
Education Savings Account
Best for those who like to pick their own investments
Coverdell education savings account (ESA) formerly known as an education IRA, gives you complete
control over your college savings investments. And you get a little
more flexibility on how you spend the money. There are income
restrictions in making full contributions to a Coverdell account.
Click on the following link to learn more about
Coverdell ESAs.
Coverdell ESA - Minnesota
Prepaid-Tuition Plans
Let's you pay future college bills at today's prices. That's
an attractive option because tighter state budgets are expected to
accelerate tuition inflation over the next few years. By high
school, you want to be pulling back on risk anyway, so the kind of
return you can expect in a prepaid plan is competitive with (if not
better than) safe havens such as money market mutual funds or
short-term bonds. But prepaid plans generally are too conservative
and inflexible for longer time horizons.
Click on the link to learn more:
Pre-paid Tuition Plans
Roth IRAs
Roth
IRAs were built for retirement. They're not ideal
for college savings, but the tax rules include provisions that can
help education savers in a pinch. You can withdraw your principal
from a Roth penalty-free at any time. In general, if you withdraw
the earnings before age 59 = you'd get hit with income taxes and a
10% penalty. If you use the money for college expenses, however, the
penalty is waived. Remember, too, that Roth withdrawals will count
as parental income and can impact financial aid.
Click on the following link for more information on
Roth IRAs:
Roth IRA
 UTMA or UGMA Traditional custodial accounts (also known as UTMA or
UGMA accounts, after the Uniform Transfers/Gifts to Minors Act) were
becoming a thing of the past for college savings until changes to
the tax law lowered the capital gains rate.
To learn more, click on the following link:
UTMA / UGMA - Minnesota
This is a lot of information to take in!!
There are a lot of nice programs out there. The one
that seems to be very popular was the 529 Plan.
So I decided to use the 529 Plan in a comparison
between:
College Savings Plan
VS
My Investment Property Program
The results of the match were pretty interesting!!
Click the following link:
Savings VS Investment Property
If at any time
you have any questions, please feel free to contact me by phone or
email:
vic@mnrealestateteam.com 612-282-8639
| 
