Tuesday, January 10, 2006

Saving for college

One of the life’s biggest financial challenges is saving for college, yet many of us have different way of preparing for children’s education. Some ignore it or postpone it. We procrastinate losing valuable time that can be used to build our children’s future.
Some of us rely on rich relatives, thinking they will help them in our children’s need. Some of us put money aside each month on our savings account hoping it would be enough for their children. Some of us just hope that their children will be smart enough to get scholarship. Some of us understand the need for good education, plan a strategy and start the program as soon as possible.

Each year cost of college is glowing. Consider this. For a baby that is born today, the average cost for four years of college will be over 150,000 for a public university and more than 300,000 for a private university for just one child. Putting some money aside on saving account will be like drop on a very big bucket. What one should do is maximize the savings by using savings option below.

Here are some Education Savings options.
Traditional IRA and or Roth IRA
529 College savings plans
Supplement your college savings with Upromise.

Briefly, I like to point out characteristics of Traditional IRA:
Tax deductible
Tax deferred
You have control over assets
It can be used for higher education as well as for one’s retirement.
Maximum contribution in “tax year 2004” is $4000 for tax payer under 50years old and $4500 for tax payer over 50 years old.

Roth IRA is basically same as traditional IRA except fund is after tax which means you are funding with money you already paid taxes on. Money however grows tax free which can saves you significant over the period of your life.

Characteristics of 529 college plans are:
Significant Tax Advantages
Control over assets
No age or income limit
Favorable gift and estate tax treatment
Accelerated gift tax treatment
Flexible beneficiary Designation
Money can be withdrawn for 529 plan account at any time. However, if it is not used for qualified education expenses, investment earnings are subject to ordinary income taxes plus 10% federal tax as well as state income tax.

Characteristics of Upromise:
It’s free so there are no excuses not to have this in place.
Every time you purchase from participating companies, including grocery products, restaurants, gas stations and online retailers you get back small portion to your Upromise account.
Upromise can be link to your 529 College plan account so it can be used to invest.
Did I mention it’s free! Join free at www.upromise.com

This information is provided to help however one should really use this as a guide and do more research on materials that was supplied here.

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