College Education Planning
FUNDING A COLLEGE EDUCATION
One of the largest expenses families face is the cost of college. With the price of four
years at some colleges already topping $100,000, one can only imagine what that figure might be when your student enters college. If you don’t already have a plan in place you need to establish one now. Here are the basic ways to accumulate moneys to fund a college education:
- Florida Prepaid Tuition Plan - This could be a great plan, provided, of course, that you’re sure your student will attend a Florida public college. You will get your money back if your student elects to attend private school within Florida or any school outside of Florida, however, you will not get back enough moneys to pay for the other schooling since you are basically returned only your contributions without earnings. The age of the child at the time you start making contributions dictates your cost, thus if time is on your side (for example 10 years or more before the student enters college) the Florida Plan may work well. If time is against you another option may be needed. Room, board, books and incidentals are not covered by the Florida Plan so if you’re going to go with the Prepaid Plan be sure to accumulate additional moneys outside of the Plan.
- Private Investing – Discipline yourself and systematically contribute some of your salary into a private investment. If time is on your side then a conservative investment such as bonds might be a good choice. By working with a professional you will be able to find bonds with the rating quality, interest rate and maturity date that fits your needs. If you are short on time then investing in stocks or mutual funds may be necessary. Investing in stocks and mutual funds while providing the opportunity for strong growth have no guarantees so use a professional to choose wisely.
- Coverdell Education Savings Account - This program caps annual contributions at $2,000, which given the tax advantages of growth and withdrawal free of income taxes, may work well. Again, use a professional to make wise investment choices, and, the more time you have to accumulate moneys the better this option will work for you.
- 529 Savings Account Plan – This option provides the same tax advantages as above, however, contributions can be as high as $11,000 annually (or up to $22,000 annually if married). If time is against you, a one time “catch up” contribution of up to $55,000 generally can be made (or up to $110,000 if married). Because 529 Plans also provide tax advantages to the person(s) making the contribution (the “donor”), this choice works well for affluent parent’s and/or the student’s grandparents who may want to help out their grandchild while simultaneously receiving a tax benefit for themselves. Here’s how it works: The amount of the contribution is considered a gift and is removed from the donor’s estate. As such, the donor’s estate tax bill that will be due upon the donor’s death (the tax presently ranges from 37% to 48% of the value of the estate over the amount of the federal government exemption) will be reduced by all contributions made. Because the amount of moneys being contributed by the donor may be sizable, the donor is the account owner and maintains control over the account, including how the account is invested and changing the designated beneficiary should the donor wish to do so.
- Private Reserve Account (Indexed Universal Life Insurance) - This type of permanent life insurance provides both a guaranteed tax free death benefit to loved ones while simultaneously providing immedaite tax free access to the policy’s cash value to pay for such things as college education, long term care, a down payment on a home, purchase a new car, and/or to pay off existing debts when savings which have been accumulated to date are insufficient. To explore using this type of life insurance to pay for college and to obtain a FREE illustration customized to your circumstances you need only to contact us.
Regardless of which plan suits your needs best, preparing for your child’s education is an important decision. No matter when you start saving, if you consult with an informed and savvy professional, your child’s college tuition may not seem so daunting.