College Financial Planning

College financial planning is one of the best investments you can make in your child's financial future. It is important to start early and maintain a solid contribution as your child grows to realize the full-compounded benefits of savings plans. Anyone can save for a child's college tuition. Grandparents, aunts, uncles, even friends of the child can put money into a plan. There are many types of savings plans to choose from. Grandparents can even use retirement funds from a Roth IRA account if they choose. No matter what college financial planning mechanism you use, be sure to contribute the maximum amounts allowed to the college financial planning arrangement for your future student.

Planning for Academics

There are many types of college financial planning options to choose from. Which financial plan you choose depends on your income, how many children you have, and the amounts you need to save. Two of the more popular plans include the 529 plan and the Coverdell ESA. Both of these plans are excellent savings tools for financial planning, but each has their own advantages and disadvantages. You can discuss the planning options with an investment advisor to determine which one is the right planning tool for you.

The 529 plan is a college financial planning tool sponsored by the state. In many cases, residents from any state can contribute to the state of their choice even if they do not plan to send their child to school in that state. Each state's plan varies slightly so choose the one that provides the most benefits to you. There are several different plans to choose from, but most have two basic options, prepaid tuitions, or savings plans. Prepaid tuition plans allow you to purchase semesters at today's going rate, while savings plans give you the ability to invest funds that will grow depending on the type of investments you choose. The 529 plan allows tax-free contributions, which are controlled by the investor for the life of the plan. The earnings are also tax free if used for eligible academic expenses.

The Coverdell ESA financial plan was originally introduced in 1997 as the Education IRA. This plan was then expanded and renamed by Congress in 2001. This college financial planning tool is also an investment plan. It generally allows parents or others who are saving for a child's academic future to invest in stocks, bonds, mutual funds, or CDs. The funds can be withdrawn tax-free at any time during the child's academic years to pay for approved school expenses, even elementary, middle school, or high school expenses. The approved expenses include items such as tuition, room and board, computers or laptops, books, tutoring, supplies, even transportation.

A Coverdell ESA plan can be established for any child, related or not to the donor, as long as the child is under the age of 18. The disadvantages of the plan are that the funds must be used for the child's education before they reach the age of 30. If unused, the funds then must be rolled over into a Coverdell ESA plan for another child who is a relative of the original recipient. A family member could include siblings, cousins, in-laws, or any other relation to the child. If there are no other qualified recipients, the money must be withdrawn and given to the original recipient.

Other College Funding Resources

If you do not have the total funds needed for college, there are financial aid programs available that can provide assistance. The two most popular plans are the Pell grant, and the Federal Supplemental Educational Opportunity Grant (FSEOG). Both of these grants are income based and do not have to be repaid upon the completion of college. You can go online to fill out the applications for these grants, or you can talk to the college of your choice to help you with the paperwork.

Another source for supplementing funds would include the work study program offered by the federal government. This plan offers students the opportunity to work part time jobs both on and off campus. These programs can be excellent for any student who needs to make ends meet. There are however, time concerns that need to be considered. If a student planning to carry a full load of classes, they may not have the time to commit to a part time job.

College financial planning is an important step to securing any child's academic and financial future. If you start college financial planning early, you will be more likely to have the full funding the child requires when it is time to send them to college. Review the available college financial planning tools in your state with an investment advisor to determine which one is the best option for the planning needs you have. 

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