College Education Financing

1. Saving for College Justin Keenan Sarah Gidley Neal Raval

2. Top things to KNOW! 1. Saving for your own retirement is more important than saving for college. 2. The sooner you start saving, the better. 3. Stocks are best for your college savings portfolio. 4. You don't have to save the entire cost of four years of college. 5. With mutual funds, investing for college is simple. 6. 529 savings plans are a good way to save for college and they offer great tax breaks. 7. Tax breaks are almost as good as grants. 8. The approval process for college loans is more lenient than for other loans. 9. Lenders can be flexible when it's time to repay. 10. Taxpayers with student loans get a tax break.

3. 529 Plan Is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. Are categorized as either prepaid or savings plans. Savings plans work much like a 401k or IRA by investing your contributions in mutual funds or similar investments. Prepaid plans let you pre-pay all or part of the costs of an in-state public college education.

4. 529 Plan Advantages Disadvantages Tax-free Can easily be transferred between family beneficiaries. If one child doesn’t use the money for college, you can easily designate another recipient --even a cousin, or a niece or nephew. Higher contribution limit Can only be spent on education Investing in a 529 plan may reduce a student’s eligibility to participate in need-based financial aid. This may not be suitable strategy for someone who has child about to go to college in less than 2-4 years. It would be better to invest in a traditional mutual fund as the fund expenses would be much lower than in the 529 Plans.

5. Custodial Account An account created at a bank, brokerage firm or mutual fund company that is managed by an adult for a minor that is under the age of 18 to 21.

6. Custodial Account Advantages Disadvantages The money doesn’t have to be spent on education only. No limits on contributions to account. (but any contributions over 12,000 dollars will be taxed.) The income of a custodial account is taxed to the child. Sometimes this is an advantage, if the child pays taxes at a lower rate than the parent. Once you've transferred assets into a custodial account, you're not permitted to take them back. Those assets belong to the child. When your child turns 21 (or an earlier age, in some states), the custodian must turn the assets over to the child. This can be a disadvantage because this money isn’t required to be spent on education. A custodial account belongs to only one child.

7. Coverdell Account A Coverdell ESA is a trust created or organized in the United States only for the purpose of paying the qualified education expenses of the designated beneficiary of the account.

8. Coverdell Advantages Disadvantages Tax-free distributions for qualified educational expenses Coverdell ESA’s also allow for tax-free distributions to help pay for elementary, middle, and high school educational costs. This is not allowed in 529 plans. Contribution limit is 2,000 dollars annually , if you go over a penalty is owed. Your contribution goes into an account that will eventually be distributed to your child if not used for college. This means you lose some degree of control. The account must be fully withdrawn by the time the beneficiary reaches age 30, or else it will be subject to tax and penalties. Unless Congress acts, certain ESA benefits expire after 2010 the annual contribution limit will be reduced to $500, and withdrawals will not be tax-free.

9. Top Strategies to Maximize Aid Eligibility 1. Save money in the parent's name, not the child's name.2. Spend down student assets and income first.3. Pay off consumer debt, such as credit cards and car loans.4. Maximize contributions to your retirement fund.5. Accelerate necessary expenses, to reduce available cash.

10. Payback Time 1. Pay regularly and on time. 2. Ask about alternate forms of repayment. 3. Take advantage of tax breaks. 4. Consolidate your loans. 5. Seek deferments or forbearance, if you need to.