Investing in Education Savings Plans

By Heather Taylor0 Comments

College education costs are high and continue to increase year after year. Currently, the average price for a four-year public school is $22,261/year. That price increases to $43,289 for a four-year degree at a private college.
 
Families with children need to think ahead regarding the price of further education, especially if their children are planning on pursuing a four-year (or advanced) degree.
 
There are some investing options available for parents to consider when saving for their children’s education. These include:
 
529 Plan – These plans are run by either the state or by the educational institution itself. Students who know what college or university they want to attend might be more interested in the plans run by the school, but since many students don’t choose a school until much later in life, state plans might be a better option. State plans can be used to fund schools located out of state. Families should also check to make certain the school their child is interested in attending is eligible for funding from the 529 Plan.
 
Generally, these plans are either considered savings plans, like a 401(k) or IRA or prepaid plans. Savings accounts are invested in the stock market, and perform accordingly. Prepaid plans are not invested. Instead, the money is used to pay the price of college – some plans include tuition and fees, and others all college expenses. Tuition is paid now at today’s prices, and when the child enrolls in college, the credits can be redeemed. This is the plan offered by the educational institutions themselves.
 
529 Plans differ in tax savings benefits, which mean they need to be thoroughly researched for the plan that would best work for the family.
 
Coverdell Educational Savings Account (CESA) – Formerly known as an educational IRA, this savings account is really a trust or custodial account created specifically for the student in the family. The money is only to be used for educational purposes, and distributions are tax-free. These accounts have a maximum amount of money that can be contributed each year.
 
Having a college education plan set up for children helps families to spread out the funding costs for many years. If the student is able to qualify for additional funding via scholarships or grants, the savings might be able to stretch to cover the entire four-year degree – or graduate degree.