In today's highly competitive admissions process, families must never lose sight of the fact that nothing is more important to parent or student than an acceptance letter! Your second priority is how you're going to pay for it.
Planning for college can begin as early as birth and proper financial planning in the early years can make all the difference when it comes time to have to cough up all that cash - as much as $180,000 (2006). Here are some of the best ways to save for college:
Custodial Accounts:
With Uniform Gift or Uniform Transfer to Minors Act Accounts (UGMA or UTMA), parents, grandparents, etc., can each contribute up to $12,000 per student per year (2006). This money can be used for college or for any other purpose. While the money remains in the student's name, the custodian, usually a parent, has absolute control over the account. UGMA accounts accept cash only. UTMA accounts accept cash and property.
The Downside:
UGMA and UTMA accounts are irrevocable gifts that are considered student assets. In the financial aid formulas, students have no asset protection allowance and are assessed (financial aid lost) 20% per year. This option must be used with extreme caution.
Education IRA's a/k/a EIRA's:
A single parent with an adjusted gross income (AGI) of up to $110,000, and joint filers with AGI's up to $190,000, can contribute up to $2,000 annually(2006). Earnings accumulate tax-free and can be withdrawn tax-free without penalty to pay for a private elementary, secondary, or college education.
The Downside:
With the current limit of $2,000, fees can eat up much of the gains in the early years. Contributions are not tax deductible and all colleges consider EIRA's parent assets and apply the 5.6% assessment when calculating financial aid. When distributions are made from these accounts the situation worsens. Financial aid is automatically reduced dollar for dollar because in addition to being an asset, the funds have now become a resource. However, the legal repositioning of these funds effectively makes them invisible to the financial aid formulas, and not one penny of the money is assessed.
529 Savings Plans:
Anyone can open a 529 Plan in his or her own name and designate a student as beneficiary. Up to $50,000 ($100,000 jointly) may be contributed over five years to a maximum of $246,000. Funds grow tax-free and since 2002, withdrawals have been tax-free as well. In many states, the contribution is even state tax deductible.
Downside:
Monies contributed are not federally tax deductible, and there is little or no control over how the funds are invested. Additionally, a 10% penalty for withdrawals applies to funds not used for college. Having money in a 529 Plan will decrease the chance for a large grant or scholarship – and that's not all. When distributions occur, financial aid is automatically reduced dollar for dollar. As with EIRA's, funds can be legally repositioned into financial vehicles that are not included in the financial aid calculations. Retirement Plans:
An IRA, HR10 (Keogh), Pension, SEP, 401(k), 403(b), 457 or any other qualified retirement plan should be considered first when saving for college. Such plans are not regarded as assets and are not included in the financial aid calculations. While the account value is not considered an asset, contribution is added back to the adjusted gross income for an income assessment of as much as 47%. The BIG print giveth, but the small print taketh away!
Reecy Aresty has been a financial advisor since 1977. He has authored the critically acclaimed, "How To Pay For College Without Going Broke," an invaluable, parent/student admissions/financial aid manual. Arguably the most revealing book ever written on the subject, it is the only book of its kind also available in Spanish. In a career spanning more than three decades, Reecy has helped thousands of families send their kids to the school of their choice for less than they ever dreamed possible.
Reecy has been interviewed by financial experts on radio and television, and by many of the nation's most respected publications including Money Magazine, US News & World Report, Bloomberg News, Scripps Howard, The Washington Post, Terry Savage (personal finance columnist for the Chicago Sun Times) and Consumers Digest.
Recently, Reecy created The College Information Network™ including The High School Blog, The College Blog, Payless For College and The Way To College dot coms. A Google search for "Reecy Aresty" will result in thousands of links to sites all over the world that feature his articles, advice and methods.
Reecy presents free seminars coast to coast, and his innovative appeal/negotiating techniques have turned unappealing award letters into millions of dollars of additional financial aid. Reecy's book is a warehouse of information that makes it possible for virtually any family to beat the colleges and the federal government at their own game.
For further information contact Reecy Aresty at: 561.477.9639, or visit www.paylessforcollege.com, and never loose sight of the fact that, "The money to send a student to college IS available. Paying for college is the easy part. Getting admitted is the tough part. All the financial aid in the world is useless without an admission ticket."
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