Saving For College
By Reecy Aresty
College Admissions/Financial Aid Expert and
Author
In today’s highly
competitive admissions process, families must never lose sight of the fact
that nothing is more important to parent or student than an acceptance
letter! As all the aid in the world is useless without that coveted
admission ticket, paying for college is your second priority.
Planning for
college can begin as early as birth and proper financial planning in the
early years can make all the difference when it comes time to have to
cough up all that cash - as much as $220,000 (2007). Here are some of the
best ways to save for college:
Custodial
Accounts:
With Uniform Gift
or Uniform Transfer to Minors Act Accounts (UGMA or UTMA), parents,
grandparents, etc., can each contribute up to $12,000 per student per year
(2007). This money can be used for college or for any other purpose. While
the money remains in the student’s name, the custodian, usually a parent,
has absolute control over the account. UGMA accounts accept cash only.
UTMA accounts accept cash and property.
The Downside:
UGMA and UTMA
accounts are irrevocable gifts that are considered student assets. In the
financial aid formulas, students have no asset protection allowance and
are assessed (financial aid lost) 20% per year. This option must be used
with extreme caution.
Coverdell Education Savings Accounts
(Formerly Education IRA’s):
A single parent with an adjusted gross
income (AGI) of up to $110,000, and joint filers with AGI’s up to
$190,000, can contribute up to $2,000 annually (2007). Earnings accumulate
tax-free and can be withdrawn tax-free without penalty to pay for a
private elementary, secondary, or college education.
The Downside:
With the current
limit of $2,000, fees can eat up much of the gains in the early years.
Contributions are not tax deductible and all colleges consider EIRA’s
parent assets and apply the 5.64% assessment when calculating financial
aid. When distributions are made from these accounts in excess of the EFC
(Expected Family Contribution - the minimum the federal gov't. determines
a family will pay at any college) the situation
worsens. Financial aid is automatically reduced dollar for dollar, because
in addition to being an asset, the funds have now become a resource.
However, the legal repositioning of these funds effectively
makes them invisible to the financial aid formulas, and not one penny of
the money is assessed.
529 Savings Plans:
Anyone can open a 529 Plan in his or her own
name and designate a student as beneficiary. Up to $50,000 ($100,000
jointly) may be contributed over five years to a maximum of $300,000.
Funds grow tax-free and since 2002, withdrawals have been tax-free as
well. In many states, the contribution is even state tax deductible.
Downside:
Monies
contributed are not federally tax deductible, and there is little
or no control over how the funds are invested. Additionally, a 10% penalty
for withdrawals applies to funds not used for college. Having money in a
529 Plan will decrease the chance for a large grant or scholarship – and
that’s not all. When distributions occur in excess of the EFC, as with
Coverdells, financial aid is automatically
reduced dollar for dollar. Funds in these accounts can be legally
repositioned into financial vehicles that are not included in the
financial aid calculations.
Retirement
Plans:
An IRA, HR10
(Keogh), Pension, SEP, 401(k), 403(b), 457 or any other qualified
retirement plan should be considered first when saving for college. Such
plans are not regarded as assets and are not included in the financial aid
calculations. While the account value is not considered an asset,
the contribution is added back to the adjusted gross income for an income
assessment of as much as 47%. The BIG print giveth, but the small print
taketh away!
Non-Qualified Savings Plans:
Families should
set up these accounts to pay for unanticipated costs and the
Expected Family Contribution (EFC, the minimum the federal government
determines any family will pay for college). These accounts should
be set up as early as possible so there will be adequate money when the
time comes to pay for college. By the time students enter high school,
reducing “high risk” investments should be considered. Never gamble with
money that’s earmarked for education.
Be this as
it may, parents are strongly advised to never lose sight of the fact that
all monies saved for college will not serve their purpose unless the
student prepares for and successfully completes the admissions process…
About The Author:
Reecy Aresty has been a financial advisor since 1977, and
is founder and president of College Assistance, Inc., located in Boca
Raton, Florida. He is the author of the critically-acclaimed, How To Pay For College
Without Going Broke, an invaluable, parent/student
manual. Arguably the most revealing book ever
written on college admissions and financial aid, it is the only book of its
kind also available in Spanish.
Reecy has been
interviewed by financial experts on radio and television, and by many of
the nation's most respected publications including Money Magazine, US
News & World Report, Bloomberg News, Scripps Howard,
The Washington Post, financial icon Terry Savage for the
Chicago Sun-Times, Consumers Digest, The Education Times and AOL. An Internet search for
Reecy Aresty will result in thousands of links to sites all over the
world that feature his articles, advice and methods. Recently, he created
the College Information Network™,
which includes The High School Blog, The College Blog, PayLess For
College and The Way To College.
For almost three
decades, Reecy has helped thousands of families send their kids to the
college of their choice for less than they ever dreamed possible.
The critics agree. The way to college is Reecy Aresty's How To Pay For
College Without Going Broke. It reveals the trade secrets and insider
information our colleges, universities and the federal government don't want you to know. For
further information on the best college funding book on the market today,
please use the links provided. For more information on admissions and
financial aid -
Ask Reecy!
