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Home » Education Articles » 3 Alternatives For Investing For Your Childs Higher Education Costs

3 Alternatives For Investing For Your Child’s Higher Education Costs

With higher education tuition increasing at double digit year over year percentages an effective saving plan for your kid's education is becoming much more important than it has been before. Most families will discover that their future higher education costs will be much more than they have saved for their kid's education. This leaves many kids to be faced with obtaining financial aid to pay for a portion of their college education. The goal of this article is to explore the pros and cons of 4 common investment options when saving for college. This article will also explore why some of these options are better than other when considering a portion of your kid's education may be funded by financial aid.

529 College Savings Plan: - A 529 college savings plan is a fairly new investment option for college saving. It allows just about anyone to save for college. There is a long list of benefits of a 529 college savings plan, but perhaps the most important is that your earnings grow tax free if you use it for qualified education expenses. Additionally, the maximum amount you can contribute to a 529 plan can go as high as several hundred thousand dollars depending on your State. In the event you do not use the funds for college, you can still withdrawal your earnings, but you will have to pay taxes and a 10% penalty. The penalty will be waived if your child receives a scholarship, or your child becomes disable or dies.

529 plans can typically be purchased through a broker or mutual fund company, but a disadvantage is that investment choices can sometimes be limited. Since qualifying for financial aid is based on a calculation that considers your kids assets, another big benefit of a 529 college savings plan is that the money in the plan is classified as a parents assets so less that 6% of the value counts against your kid's financial aid eligibility.

Uniform Gifts to Minors Act/Uniform Transfers to Minors Act

(UGMA/UTA Custodial Account): - The benefit of a UMGA/UTA Custodial Account is that there is no limit on the contribution and it is easy to set up at most financial institutions. However, the limitations far outweigh the benefits. The first limitation of a UMGA/UTA Custodial Account is that these types of accounts offer very little tax advantage. If your child is under 14, only the first $800 of income is tax free, the next $800 is taxed at your child's tax rate and after that there is no tax benefit at all. The other big limitation is that the account has to be set up in your child's name. As a result, if your child needs financial aid all of the assets will be reviewed at a 35% rate. Therefore, this type of account is not advisable for those who may need financial aid.

Coverdell Education Savings Account (CESA): - A Coverdell Education Savings Account is very similar to a 529 college savings plan. The main difference is that with a Coverdell Education Savings Account you can only contribute $2000 per child and to qualify your adjusted gross income must be less than $110,000 if single and less than $220,000 if married filing jointly. The account is classified as a parent's asset so less that 6% of the value counts against your kid's financial aid eligibility.

In the end, parents should consider planning for college to be a highly important process. The above 3 alternatives can make this process much more easy and financially sound.

Copyright (c) 2005, by Jay Fran. This article may be freely distributed as long as the copyright, author's information and the below active live link is published with the article.

And here is another random article you might be interested in...

Get out of Debt - Top 5 Reasons you need to Consolidate Loans

Today, the number of people filing for bankruptcy has skyrocketed by 44% in just the past 10 years with numbers continuing to climb. Consumer credit has reached an all-time high, leaving more and more people in debt. While we need consumer spending to maintain and grow the economy, when money and credit are misused, disaster strikes.

Unfortunately, people are notorious for abusing money and before they know it, they are in completely over their heads with no way to get out â€" or so they think. In truth, there are options for getting out of debt, staying out of debt, and rebuilding damaged credit. Below, you will find the top five reasons for taking back control of your life with a debt consolidation loan or student consolidation loan.

Keeping your Home

Considering that the average cost of a home today is close to $175,000, it is easy to see why mortgages can zap a large part of a person's income. However, with interest rates now at a serious low and being a homeowner an excellent investment, this is the time to save your home. If you find that you are being swallowed up by bills and your mortgage is getting further and further behind, a debt consolidation loan could not only get you caught up on payments but also make owning your home more manageable and enjoyable.

Going to School

Unfortunately, there are people all across the country that would love to go to school or go back to school to complete a degree. However, the high cost associated with tuition, books, and supplies makes it impossible for many people due to the high level of bills. In fact, with so many people working two jobs just to stay above water financially, trying to fit in the cost of the classroom is simply too difficult.

However, by choosing a debt consolidation loan or student consolidation loan, you can get all of your outstanding debt under control. With this type of loan, everything is wrapped into one loan at a great interest rate and with payment schedules, you can afford. With that, your bills would be far more management, allowing you to earn the coveted degree that will only push you further into success.

Credit Card Interest Rates

Sadly, many credit card companies lure people into having a credit card, offering great credit limits and convenience. However, these same companies are charging anywhere between 20% to 25% interest on a single credit card. Multiple that by several credit cards and there is no way the individual could pay off the debt. Today, the average balance on a credit card is $9,000 and most people have five or more cards.

Unfortunately, people do not realize that if they had even a $1,000 balance and were to pay the minimum payment with a high interest rate, they would be paying on that one credit card debt for 20 years or more before finally getting it paid off, just because of the interest. That means they are spending thousands and thousands of dollars just for the "privilege" to carry around a credit card. By securing a debt consolidation loan, you could have all outstanding credit card debt rolled into one loan with a low interest rate. Therefore, the debt would be paid off within a few years, saving tremendous money.

Controlling Debt

Because so many people are struggling with debt versus income, debt consolidation loans and student consolidation loans are booming. With this type of service, you also have the opportunity to meet one-on-one with a professional counselor that will review your debt versus income ratio and set you up on a realistic payment plan that works specifically for you.

An agency that specializes in debt consolidation loans or student consolidation loans is structured to work directly with your debtors, working out lower interest rates and better repayment schedules. With that, you can keep a schedule that would allow you to pay off all your debt in 30 to 60 months as opposed to 20 to 30 years! The bottom line is that depending on the level of your debt, you would easily save anywhere from $1,000 to hundreds of thousands of dollars in interest, processing fees, and late fees.

Future Buying

When you go to buy a home, car, get a student loan, or go into business for yourself, the first thing that will happen is a report will be run on our credit history. This report will show potential debtors how much money you own, if you pay your bills on time, if you have ever had a judgment against you or filed for bankruptcy, and everything possible about spending and paying habits. If you are way in over your head from a financial perspective, chances are you are overextended with credit, have missed some payments, made late payments, and overall have a fair or poor credit report history.

That means if you wanted to buy a home or car, you would be denied. Maintaining good credit is crucial and something everyone should take seriously. A debt consolidation loan would help you get back on track so your history report is favorable, not damaging. With that, if you want to invest in a home when you get married, or buy a larger car when little ones begin arriving, you could. Therefore, a debt consolidation loan can help you with future buying.