With
college expenses getting costlier day-by-day, most parents are seen to have
several saving structures at their disposal favoring the expenses of a
traditional college degree. Until and unless, you have a good plan ready
catering to your educational expenses, chances of falling short on higher
education stands high. After all, with the present student loan debacle and the
unpleasant employment scenario dominating the world, very few would like to
take up the risk of pursuing college degrees on support of federal and private
student loans.
1. The 529 Plan
The
529 plan is often referred to as a qualified tuition program (QTP) is a college
funding program that is designed to help you prepay or make contribution to a
specific account. All that needs to be taken into consideration is that you are
building up the savings for pursuing a degree from a qualified educational
institution for catering to the expenses of qualified education. The amount
that you save with this particular plan is tax free, which implies that your
earnings are free of any tax cuts while being withdrawn for college expenses.
The
529 plan embraces the cost of tuition, other college fees, books, educational
supplies, and other required costs bearing the enrollment at qualified
educational institutes. However, you need to remember that computer and
computer software no longer falls within the purview of the saving plan, as
they do not eligible as qualified costs of education. Presently, two types of
529 plans are available for the students that include the college savings plan
and prepaid tuition plan.
2. Traditional IRA
Another
prospective savings plan, this is often overlooked by most parents though it
offers many advantages over the usual college savings program like deductible
contributions. You can set up an IRA for your child at any age provided he or
she has some kind of earned income. Usually, earned income is referred to a W-2
from a job, but often includes income gained from self-employment. Now, a W-2
doesn’t really feature under a child’s name until 14 or 15.
Deposit
amount to this account can go up to $5,000, which is liable for tax deductions.
However, you must remember to deposit the amount by April 15 of the next year.
The amount when is withdrawn from the IRA to cover the expenses of college
costs is susceptible to income tax. Since, children most often do not seem to
have any income, the tax amount tends to be significantly less.
3. Roth IRA
Roth
IRA is often considered to be another potential college savings plan that
functions in a much similar way to that of the traditional IRAs. However, some
difference tends to exist between the two IRAs. The contributions that you make
to the Roth IRA account do not fall under the deductible category. Furthermore,
the withdrawals are not taxable. You can use the earning for catering to the
educational expenses without any penalty, provided one Roth IRA has been opened
for minimum five years.
Similar
to traditional IRAs, you can open a Roth IRA at any age and must have an earned
income under your name. The limit of deposit is same as the traditional IRA.
Furthermore, you can transfer the Roth IRA under the name of other members present
in the family.
Therefore,
if you wish to enroll your child into a prestigious college, grad school, or MBA program
offered by an internationally recognized institute, you must consider relying
upon any of these prospective savings plan that are available in the present
age. Give your children the wings to fly high offering the right financial
support towards his or her education. Invest in profitable savings plan and
paying for traditional college or covering the expenses will no longer remain a
burden.
About
The Author: This education related article is written by author
Melissa Spears. In this article, the author focuses on some of the prospective
savings plans that can help a student pursue higher studies, preferably an MBA programs at ease without any financial burden.
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