As you pay off student loans, it’s natural to wonder how you could spare your children similar debt. That’s the ultimate in Financial Adulting. Fortunately, there are several programs that can help. The key is to start when your children are young. As in all savings, the sooner you start, the greater the gain. What information do you need to figure out your savings needs?
One of the most popular programs is the federal 529 Savings Plan. Although the contributions are not tax-deductible in many states, including Florida, your contributions grow tax-free and the money can be withdrawn tax-free for covered educational expenses, including tuition, room and board, and required textbooks.
Most states, including Florida, have 529 Prepaid Plans that are administered by the state. They lock in in-state tuition rates when you sign up. If the rate goes up, you still get the rate you paid for. Florida has several plans to choose from. Although designed for Florida colleges and universities, the Florida Prepaid Plan can be used in other states. And speaking of other states, you can enroll in any state’s plan; check out other states to compare benefits. But buy your plan directly from the state, not a broker, so you’ll save on fees.
It’s smart to have both a 529 Savings Plan and a Prepaid Tuition Plan (think study abroad). You also have the option of a Coverdell Education Savings Account, which must be set up before the beneficiary is 18 and can be used for elementary, secondary, and college expenses. Like 529 Savings Plans, the contributions are not tax-deductible, but qualified withdrawals are tax-free.
Plus, anyone, whether related or not, can contribute to 529 Savings Plans and Coverdell ESA accounts. There’s a $15,000 limit per beneficiary for 529 Plans and a $2,000 limit for ESA accounts, depending on income. Be MoneyWise and let the grandparents know.
The Florida Institute of CPAs has a PowerPoint presentation on paying for college, which includes a wealth of information from saving early to student use of credit cards.
Community college is an option that can stretch your savings dollars, as well as ease the transition from high school to college.