Here's some advice courtesy of ARA Content on how to save for college expenses:
Paying for a college education trails only a home purchase as the largest expenditure a typical American family will make in a lifetime.
To prepare for future college expenses, MFS Investment Management, an asset management firm, offers the following savings strategies to ensure enough money is saved to pay for college expenses.
Lesson One: The simpler the better
529 college savings plans are an investment vehicle created to help families save for college tax-free. Besides tuition, they can be used to pay for additional fees, room and board, books and other required supplies at accredited colleges, universities and vocational schools.
A 529 savings plan offers several benefits. Earnings are tax-deferred and qualified higher education withdrawals are free from federal tax. 529s possess a wide range of investment options including asset allocation funds. The investor controls the assets and can contribute up to $12,000 per year (or $24,000 for married couples) per beneficiary without any federal gift-tax consequences.
“Investing in a 529 plan allows parents to control their own destiny when it comes to paying for their child’s college education,” says Bruce D. Harrington, vice president and director of product development at MFS Investment Management. “Don’t take the risk of relying on financial aid or scholarships.”
Lesson Two: Be prepared for growing expenses
According to Oregon State Treasurer Randal Edwards, “Families need to start saving as early as possible to prepare for the ever-growing cost of higher education. If college costs continue to rise, parents can reasonably expect a four-year degree to cost as much as a quarter-million dollars in 10 years.”
There are a variety of tools and resources that help predict future expenses at different classes of higher education. Use of these planning tools can help place a dollar figure as a goal for savings.
Lesson Three: Do the right thing
“No matter what your relation is to a child – parent, grandparent, aunt, uncle or family friend – you can set up a 529 plan to help,” says Harrington. “With most 529 plans, there are no age, income or state residency restrictions. Financial advisors or tax professionals are good sources for further information.”
Many states allow participants to open a 529 account with a minimum contribution of just $250, which makes it affordable to set up an investment program. By making monthly contributions to a 529 plan, investors can practice disciplined investing to fund college needs.
A major issue was resolved when President Bush granted 529s tax permanency. On Aug. 17, the president signed legislation that makes permanent the tax-free status of 529s for qualified withdrawals, which had been set to expire in 2010.
Lesson Four: Ask an expert
College investing programs come in many shapes and sizes today. Consumers often seek the insight and guidance of an investment professional to help navigate the waters.
“529s may appear complex, but they have emerged as the premier college savings vehicle,” says Kyla M. Doyle of the College Savings Foundation (CSF), a Washington, D.C.-based not-for-profit organization. Doyle is also assistant vice president, and manager of product development at MFS Investment Management. “Consulting an investment professional will not only help you choose the right college plan, but can also help you select the investment options that best fit your needs and tolerance for risk. You should also consult a tax professional for tax advice applicable to your specific circumstance.”
With the variety of 529 options available to consumers, the financial barrier to paying for college is less strenuous. For more information contact a financial advisor, call (866) 529-1637 or visit www.mfs.com.
Comments