|
Tips for tuition
Ben Franklin once said, "If
you think education is expensive, try ignorance." Today, parents
everywhere are heeding the great statesman's advice as they educate themselves
about saving for their children's tuition expenses. Here are tips on funding
a college education from the Georgia Society of CPAs.
·To meet your college fund goals, estimate costs. The amount you
need to save depends on a number of factors such as whether your child
will attend a private or public school, how fast college costs continue
to grow, and whether you are eligible for financial aid. Although no one
can say what tuition will be in 10 or 20 years, online calculators, such
as those found at www.money.com and www.kiplinger.com, can help project
future costs based on today's prices.
·The earlier you start saving, the better. If you start saving
when your child is an infant, the amount you need to save each month will
be far less than if you wait until your child is 10 or 12. And with a
longer time frame, your investments have more time to benefit from compounding.
·Regular systematic savings, even of small amounts, add up. Once
you know how much you will need, you should determine the amount you must
save each month to reach your goal. The key to successfully saving for
college or achieving other financial goals is to make saving a part of
your budget. Each time your income goes up, increase the amount you contribute
to your child's college fund.
·Your child's age and your tolerance for risk determine your investment
strategy. At least 10 years before your child starts college, CPAs typically
recommend that you keep most or all of your college savings investments
in stocks and stock funds.
As your child grows older, you should move your money into bonds or cash
equivalents such as CDs, money market funds, and U.S. Treasury bonds.
·It's not always a good idea to save in a child's name. Under formulas
used to determine financial need, parents are expected to contribute 5.6
percent of their assets annually to their child's education, while students
are expected to contribute 35 percent. As a result, funds in a child's
name can have a negative impact on your chances of qualifying for financial
aid.
·Federal tax credits can cut the cost of college. There are two
types of education tax credits. One is the HOPE Scholarship tax credit,
which can cut your taxes by up to $1,500 a year per student for tuition
paid during the first two years of college.
The other is the Lifetime Learning Credit, equal to 20 percent of the
first $5,000 of qualified tuition and fee payments. Each credit is subject
to an income-based phase out. You can't claim both credits in the same
year for the same student, but keep in mind that unlike deductions and
adjustments, which are subtracted from your income, credits are subtracted
directly from the taxes you would otherwise owe.
·You don't have to save the entire cost. It certainly would be
nice to have all the money needed for your child's education, but it's
not always possible. The federal financial aid program includes subsidized
loans for students who can prove financial need and unsubsidized loans
for other students, as well as grants, and work-study programs in which
students are given jobs, usually on campus. Other borrowing options include
home equity loans and loans against retirement savings.
·With tax advantages and no income limits, Section 529 plans are
the new way to save for college. These tax-deferred savings plans are
similar to IRAs, but the funds in these plans are earmarked for tuition.
Although you don't get a tax deduction on your investment, the money grows
tax-deferred and future withdrawals are taxed at the student's presumably
lower tax rate.
·Community colleges can help cut the cost of a four-year degree.
More and more students are realizing that they can spend the first two
years at a community college, which is typically less expensive, and then
transfer to a state college or university to finish their undergraduate
studies.
It's not a good idea to forgo funding your retirement in favor of saving
for college. While financial aid, gifts, and current income can help finance
a college education, the same resources may not be available for retirement.
And since many colleges don't include money in retirement accounts when
calculating the family's expected contribution, saving for retirement
may actually help you qualify for financial aid.
The GSCPA is the premier professional organization for CPAs in the state
of Georgia. With over 10,000 members throughout the state, the purpose
of the GSCPA is to promote the study of accountancy and applicable laws,
provide continuing professional education, maintain high ethical and work
standards, and provide information about accounting issues to the membership
and the public. For more information, access our web site at www.gscpa.org.
Back
to Business Home Page | Back
to the top of the page
|
