College Savings Basics
We all know that a college education is important, but did you know that, according
to U.S. Census Bureau statistics, people with a bachelor's degree earn nearly twice
as much on average than those with only a high school diploma?
The challenge is that the cost of a college education continues to rise considerably
faster than inflation. Four-year private college prices increased 5.9 percent from
last year and Four-year public colleges increased 6.3 percent from last year. If
these increases continue, in 18 years, a college education is expected to cost over
$145,000 for Public colleges and over $325,000 for Private colleges.
You are encouraged to review The College Board’s “2006 Trends in College Pricing”
report which is very informative and contains a wealth of facts and figures. We
highly recommend you visit their website
here.
How to Save?
There are a large number of possible ways you could start saving for a college education
but the two most popular tax advantaged are the 529 and Cloverdale plans.
529 - A 529 plan is a state sponsored, tax advantaged savings plan.
While the specifics of the plans vary by state, they generally allow for the education
savings to grow federal and state tax free. 529 plans generally have high contribution
limits and can be used for a variety of educational expenses including tuition,
housing and books. While the plans are state sponsored they are often run by large
financial institutions and the investment choices are limited to a specific set
of investment choices offered by the state. Check out a more complete description
of 529 plans and their advantages
here.
Cloverdale Savings Account - A Cloverdale Education Savings Account
(formerly an Educational IRA) offers many of the same tax advantages of a 529 plan
with some important differences. A few of the differences include: a lower contribution
limit ($2,000 per year per child), significantly greater flexibility of type of
investment vehicles (e.g. stocks, bonds, mutual funds, etc…) Check out a more complete
description of Cloverdale Savings plans and their advantages
here.
In summary, there are many good tax-deferred ways to save for your child's education.
There are also a number of resources on the web to check out such as:
•
collegesavings.org
- Good information on 529 plans including what types of plans are available by state
•
savingforcollege.com-
Good general overviews of college saving information
•
collegeboard.com
– The SAT guys and a great source of statistical information
The main point is that you need to start saving as soon as possible for your child's
education and that is where SkyMana can help.