The cost of sending a child to college is increasing and
shows very few signs of slowing. Average costs have almost doubled over the
past few years. And, do not forget to
include additional costs of books, transportation and entertainment.
Starting to save early is critical and like any saving goal,
the sooner you start and the more you save, the more you will have when you
Starting to save on a regular and consistent basis is most
important. The next decision to consider is how to hold the funds.
These college savings plans are now offered by over 40
states and were also enhanced by the 2001 Tax Law. While the plans are offered
by the state, there is no restriction on where the child attends college
utilizing the funds. One potential drawback is that there are usually limited
investment options. It makes sense to look at several states programs to find
one that offers the investment choices you desire.
There are special provisions to allow of up to five years of
contributions to be made without gift taxes. Withdrawals used for qualified
educational purposes are excluded from federal income taxation.
An account can be opened with a minimum of $250.
We also offer a flexible start option of $50 for 5 months to
get you the starting required balance of $250.
One option for parents is to just consider saving for a
child's college as part of their total savings program. This is simple, but
doesn't provide an easy way to identify how much progress is being made toward
a goal. Establishing a separate account for college savings helps with
monitoring progress. However, the earnings on the funds will be taxable to the
Another option is to establish a custodial account for the
child. Using a Uniform Gifts to Minors Act (UGMA) or Uniform Transfer to Minor
Act (UTMA) account is an easy and legal way to transfer the ownership of assets
to a child. With a UGMA or UTMA account, the parent creates a custodial account
on behalf of the minor child. Assets are transferred into the account and the
custodian, usually a parent, manages the account until the child reaches legal
age. At that point, the child can do whatever he or she wishes with the assets.
Transfers to these accounts are irrevocable. Earnings on the account are
taxable to the child which may save some income taxes.
These accounts function like an IRA with earnings not being
taxed if the funds are used for qualified education purposes. The largest
drawback to Coverdell ESA's are that annual contributions are limited to $2000.
There are also income limitations for these accounts.
Contact us today at (800) 851-8549 or email us at firstname.lastname@example.org.
Enabling a child to attend the college of their choice and
get an education that will prepare them for a successful and productive life is
one of the greatest gifts you can give.