College Saving Plans are a great way to save for college and pay tuition. Proper use of these various plans can lower your cost of education significantly. There are three major types of college education savings: US Saving Bonds, Coverdell or Educational IRAs, and 529 Plans. Each of these different vehicles have advantages and limitations. Creating the proper strategy with these tools and the financial aid process is important.
Many people think that these investments can only be used prior to college and not once the child is in school. This is not true; some state 529 plans offer income tax incentives to invest in their plan. Understanding your states 529 plan is an important part of making the best financial decision in saving for college. Proper use of college savings plans are another strategy that are often underutilized while the student is in college.
There is some confusion on the what, when and how of the various educational saving plans. The definition of qualified education expenses is difficult to understand because it can vary. Some 529 state plans are very restrictive on the types of expenses that can be reimbursed. For most college savings plans, tuition, fees, room, board and books will qualify. Personal expense items such as travel, spending money and room decorating are not reimbursable. The qualified expense definition is different for the educational tax credits.
When you combine the college saving plans strategies with financial aid and education tax incentives it can get confusing. Proper utilization and timing will be key to maximize these benefits.
This video covering College Saving Plans addresses:
- Impact on Financial Aid
- Assets in the child’s name
- Proper use of Retirement Plans
- Utilization of these plans
Developing a college education savings plan will improve both the parents and students financial future.