College Board® reports public four-year institutions have raised their average tuition and fees by 40% within the last ten years; at this rate, a degree from a public college could cost upwards of $62,000 within the next decade. As tuitions continue to rise, it’s important to know your financial options when planning for your child’s education.
A College Savings Calculator is the easiest way to estimate how much to save. It takes numerous factors into account including estimated college start date, as well as annual inflation rates and price fluctuations based on in-state or out-of-state tuition. From there, you can find a savings plan tailored to your goals.
A 529 Savings Plan:
A 529 Savings Plan is operated by state or educational institutions to help you set aside funds for future college costs. They offer tax breaks on the federal, and sometimes state, level and the funds are not taxed upon withdrawal. Although there are no income restrictions with a 529 Savings Plan, contributions are limited to the amount necessary to provide the education; exceeding the annual contribution limit may lead to taxing of your funds.
529 Prepaid Tuition Plans:
529 Prepaid Tuition Plans help you manage future tuition costs by allowing you to prepay higher education costs at today’s rates at eligible public and private colleges or universities. These plans do come with residency requirements and other limitations, so consulting a financial advisor is recommended.
Coverdell Education Saving Accounts (ESAs)
Formerly known as Education IRAs, Coverdell Education Saving Accounts (ESAs) offer virtually limitless investment options. ESAs are tax-deferred and withdrawals can be made tax-free. You can also withdraw funds tax-free for private elementary or high school expenses and post-secondary school expenses. ESAs do come with contribution limits; you can give up to $2000 annually per beneficiary.
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