Guide to college savings plans
Creating a plan for college ahead of time will save you both time and money.
In Lesson 11
How much will you need for college?
Glossary
Take
the test
Top things to know
Getting started
What's the best way to invest?
Tax-savvy savings options
What kind of aid is out there?
Want free money from the IRS?
For grads only: Payback time
Money 101 Lessons
Setting priorities
Making a budget
Basics of banking and saving
Basics of investing
Investing in stocks
Investing in mutual funds
Investing in bonds
Buying a home
Controlling debt
Employee stock options
Saving for college
Kids and money
Planning for retirement
Asset allocation
Hiring financial help
Health insurance
Buying a car
Taxes
Home insurance
Life insurance
Estate planning
Auto insurance
401(k)s
1. Saving for your own retirement is more important than saving for college.
Your children will have more sources of money for college than you will have for your golden years, so don't sacrifice your retirement savings.
2. The sooner you start saving, the better.
Even modest savings can pack a punch if you give them enough time to grow. Investing just $100 a month for 18 years will yield $48,000, assuming an 8% average annual return.
3. Stocks are best for your college savings portfolio.
With tuition costs rising faster than inflation, a portfolio tilted toward stocks is the best way to build enough savings in the long term. As your child approaches college age, you can shelter your returns by switching more money into bonds and cash.
4. You don't have to save the entire cost of four years of college.
Federal, state, and private grants and loans can bridge the gap between your savings and tuition bills, even if you think you make too much to qualify.
5. With mutual funds, investing for college is simple.
Investing in mutual funds puts a professional in charge of your savings so that you don't have to watch the markets daily.
6. 529 savings plans are a good way to save for college and they offer great tax breaks.
Qualified withdrawals are now free of federal tax and most plans let you save in excess of $200,000 per beneficiary. Plus, there are no income limitations or age restrictions, which means you can start a 529 no matter how much you make or how old your beneficiary is.
7. Tax breaks are almost as good as grants.
You may be able to take two federal tax credits -- the American Opportunity Tax Credit and Lifetime Learning Credit -- in the years you pay tuition.
8. The approval process for college loans is more lenient than for other loans.
Late payments on your credit record aren't automatic grounds for refusal of a college loan.
9. Lenders can be flexible when it's time to repay.
There are still ways to cut costs after you graduate and begin repaying your student loans. For instance, there is often a one-quarter percentage point interest rate decrease if you set up automatic debit, in which monthly payments are automatically taken from your account.
10. Taxpayers with student loans get a tax break.
You may deduct the interest you pay up to $2,500 a year if your modified adjusted gross income is less than $70,000 if you're single or less than $145,000 if you're married filing jointly. The deduction can be taken for the life of the loan.
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