Saving Money

Parents often ask what is the best way to save for college. Before answering this question, it is important to remember that you can always borrow for college, but you can not borrow for retirement. Make sure your retirement financing in order before saving for college.

If your children are years away from the university consider yourself lucky and start saving for college now. To begin the process of investing or saving for college, you must first define your financial goals or the specific amount of money needed to finance the costs of education. To determine the amount of money you need to save or invest, go to College savings calculator at collegeboard.com.

Once you have determined the amount of money you want to save for college, you can begin the investment or savings process. The key is to start, although the amount is small weekly or monthly. Since one of the most important factors is the amount of time available to save, should Start saving as soon as possible. The earlier an investment plan is carried out, most of the investment options. Also, if you start early you can invest a lower annual contribution to reach your savings goal.

An important factor to address is whether your child qualifies for financial aid. To determine this, the calculation expected financial contribution (EFC). For families with children not yet in college, it is assumed that if they qualify for financial aid now will be eligible for financial assistance in the future. If your child qualifies for financial aid would not be advisable to save for college in the name of the child, because goods the child is assessed at a higher rate. However, there are times when the tax benefits you receive as parents outweigh the benefits of financial aid that could be received by the student, especially in a public university. You have control over the tax benefits, although we have no control over the financial aid amount the College award. Most financial aid received at public universities is the loan and work study. Moreover, most financial aid at private universities is the gift aid.

You have to select the appropriate investment vehicle for investment of funds. There are several investment options that education should be regarded as as Coverdell Education Savings Accounts, qualified tuition plans, or tax deductible investment funds. It is important to understand the pros and cons of each type of investment in order to select the proper investment or a combination of investments.

To select the appropriate investments for the financing plan of education for your child, consider your child's eligibility to receive financial aid. If you expect your child to be eligible for financial assistance, investment will not reduce use your eligibility for financial aid. These types of investments include retirement accounts, annuities and life insurance. Before investing in life insurance is important to ensure that it is applicable to your situation. Sometimes, insurance products are sold under the premise that is used to reduce EFC, without real analysis to see if the strategy is valid for the consumer. If you select other types of investments, keep in the names of the parents due to their lower percentage of financial assets evaluation.

If children are not expected to be eligible for financial aid, the Coverdell Education Savings Account (CESA) is usually a good first choice because it can be used both for K-12 or the cost of college expenses. It also offers parents direct control over investment and the flexibility of being able to be rolled over to a qualified tuition plan (savings plan) at a later date.

After the CESA has been funded, the savings plan should be considered as a funding vehicle for the university. If a state tax incentive to contribute these plans, parents must finance the savings plan at the level needed to use state tax incentives. However, the tax treatment of withdrawals hard QTP used for college (ordinary tax rates to 10% penalty on the earnings on withdrawals not used for college), parents should not over-fund a savings plan. You may want to contribute just enough to cover the cost of public higher education.

The last level of funding college for children who are not expected to be eligible for financial aid should be tax deferred investments. Appropriate investments include tax efficient funds, Series EE bonds, I Bonds, and municipal bonds. If parents want to keep control of investments, investments shall be entitled on behalf of parents.

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