| With higher education tuition increasing at | | | | |
| double digit year over year percentages an | | | | Uniform Gifts to Minors Act/Uniform Transfers |
| effective saving plan for your kid's | | | | to Minors Act |
| education is becoming much more important | | | | |
| than it has been before. Most families will | | | | (UGMA/UTA Custodial Account): - The benefit |
| discover that their future higher education | | | | of a UMGA/UTA Custodial Account is that there |
| costs will be much more than they have saved | | | | is no limit on the contribution and it is |
| for their kid's education. This leaves many | | | | easy to set up at most financial |
| kids to be faced with obtaining financial aid | | | | institutions. However, the limitations far |
| to pay for a portion of their college | | | | outweigh the benefits. The first limitation |
| education. The goal of this article is to | | | | of a UMGA/UTA Custodial Account is that these |
| explore the pros and cons of 4 common | | | | types of accounts offer very little tax |
| investment options when saving for college. | | | | advantage. If your child is under 14, only |
| This article will also explore why some of | | | | the first $800 of income is tax free, the |
| these options are better than other when | | | | next $800 is taxed at your child's tax rate |
| considering a portion of your kid's education | | | | and after that there is no tax benefit at |
| may be funded by financial aid. | | | | all. The other big limitation is that the |
| | | | account has to be set up in your child's |
| 529 College Savings Plan: - A 529 college | | | | name. As a result, if your child needs |
| savings plan is a fairly new investment | | | | financial aid all of the assets will be |
| option for college saving. It allows just | | | | reviewed at a 35% rate. Therefore, this type |
| about anyone to save for college. There is a | | | | of account is not advisable for those who may |
| long list of benefits of a 529 college | | | | need financial aid. |
| savings plan, but perhaps the most important | | | | |
| is that your earnings grow tax free if you | | | | Coverdell Education Savings Account (CESA): - |
| use it for qualified education expenses. | | | | A Coverdell Education Savings Account is very |
| Additionally, the maximum amount you can | | | | similar to a 529 college savings plan. The |
| contribute to a 529 plan can go as high as | | | | main difference is that with a Coverdell |
| several hundred thousand dollars depending on | | | | Education Savings Account you can only |
| your State. In the event you do not use the | | | | contribute $2000 per child and to qualify |
| funds for college, you can still withdrawal | | | | your adjusted gross income must be less than |
| your earnings, but you will have to pay taxes | | | | $110,000 if single and less than $220,000 if |
| and a 10% penalty. The penalty will be waived | | | | married filing jointly. The account is |
| if your child receives a scholarship, or your | | | | classified as a parent's asset so less that |
| child becomes disable or dies. | | | | 6% of the value counts against your kid's |
| | | | financial aid eligibility. |
| 529 plans can typically be purchased through | | | | |
| a broker or mutual fund company, but a | | | | In the end, parents should consider planning |
| disadvantage is that investment choices can | | | | for college to be a highly important process. |
| sometimes be limited. Since qualifying for | | | | The above 3 alternatives can make this |
| financial aid is based on a calculation that | | | | process much more easy and financially sound. |
| considers your kids assets, another big | | | | |
| benefit of a 529 college savings plan is that | | | | Copyright (c) 2005, by Jay Fran. This article |
| the money in the plan is classified as a | | | | may be freely distributed as long as the |
| parents assets so less that 6% of the value | | | | copyright, author's information and the below |
| counts against your kid's financial aid | | | | active live link is published with the |
| eligibility. | | | | article. |