Education Planning

Do you have kids with plans for a college degree? If so, you better brace yourself for a financial reality. Higher education is not only a place of higher learning, it’s a place of higher costs. And those costs seem to keep rising well above the rate of inflation each year. Just how much does a college education cost these days? Here are some estimates of total costs (including books, travel, etc.) from the College Board for the 2007-2008 academic year:¹

For a child born in 2004, the cost of four years at a private college will amount to nearly $250,000.³ That’s a quarter of a million dollars! It’s easy to see, sending a child to college involves advanced financial planning. What are your options for saving for a college education?

529 Plan
This is an education savings plan operated by a state or education institution. It’s designed to help families save for college expenses. It gets its name from the Internal Revenue Code (Section 529) that created it in 1998. What are a 529 Plan’s advantages?⁴

• Can be used for any higher accredited educational institution in the U.S.
• Qualified distributions are federally tax-free
• Investment has the potential to grow tax-free
• May have state tax benefits    

Uniform Transfers to Minors Act (UTMA)
This is a custodial account that can reduce tax liability when given as an irrevocable gift to a minor. You control the money in the account until the child reaches a majority age (usually 18).

Mutual Funds
This savings vehicle allows you to diversify your savings portfolio and make investments directly from a savings/checking account for real convenience. In addition, because a mutual fund distributes capital gains to the shareholder/owner in the form of a capital gain distribution, they are taxed as long-term capital gains rather than short-term capital gains.

Financial Aid
The above are all plans meant to help you save, but remember, when it comes to paying for college, financial aid is available as well. This includes loans, grants, scholarships and work-study. Grants and scholarships are better options than loans because you don’t have to repay them. Grants and scholarships are free money toward expenses. Work-study means a student works a certain amount of hours each week (on or off campus) to help pay off any college expenses. For more information about the Private Student Loan available at Vantage, click here.

_{1  As reported n U.S. News and World Report
2  Assumes the student lives at home with no room and board expenses
3  360 Degrees of Financial Literacy
4  www.principal.com}