Are you on the constant look out for ways to save money for your child's college education? Have you done your research and ready to work towards your target? If not, you may wish to consider putting your extra dollars into one of the College Savings Plans that are easily available.
There are a lot of benefits for having a college savings plan, which include exemption from taxes, flexible contribution options, parental control and minimal impact on eligibility for need-based financial aid. Most states have their own college savings plans, but you do not have to enroll in the plan in your state. You should start considering plans provided in your own state, especially if they offer tax advantages. There are also other factors that you will need to consider when making comparisons, which include expenses and investing options.
One of the major advantages of such plans is that they are usually exempt from federal taxes. Earnings are tax-deferred and are not subject to capital gains taxes. Expenses used to pay for tuition, room and board, fees, books, are also exempt from federal income tax. Most states offer tax advantages, and you should enroll for the plan in your state. In addition to these income tax benefits, College Savings plans can be a valuable estate planning tool. For instance, the accelerated gift option allows you to average gifts over $11,000 per beneficiary over a five year period with no federal gift tax. In other words, you can contribute up to $55,000 per beneficiary in one year with no gift tax. Contributions are immediately removed from the donor's gross taxable estate (and included in the estate of the beneficiary).
Apart from offering tax advantages, these plans also provide investment options that are suitable for both the aggressive and conservative investors. The different portfolio options are open to the saver according to their risk appetite. You may also rest assured that established investment companies, such as Vanguard and Fidelity, usually manage these plans.
Another feature of the savings plan is that the parent has control over the account management, not the child. Even if the child decides to not go to college, they do not have access to the funds. Instead, the account owner can get his or her money back but there is a small penalty incurred. Thus, this makes sure that the money is always under parental control and well look after.
There is also the flexibility of contributions options where anyone can contribute money on behalf of a beneficiary. Hence, this provides the perfect educational present that your friends or relatives can give. In addition, the minimum investment amount required to open an account is usually lower than mutual funds require. This is to allow the lower income families to set up an account for their children as well.
States set their own contribution limits for college savings plans. Most states base their limit on an estimate of the amount of money needed for seven years of post-secondary education. In addition, most states allow you to regularly transfer funds from your savings account to your college savings plans. There are even other states that offer the option of payroll deductions.
As you can see, there are many benefits to a college savings plan. If you are seriously thinking of saving up for your child's future educations, I advise you to start right now so that you get to enjoy the magic of compounding!
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