Planning for College
Few people question the value of a college education, but with college tuitions rising faster than inflation, it can be a little overwhelming for a lot of families when they stop to think what the cost of higher education could be by the time their child enters that stage of their life. While the numbers can look scary, a college education can be more affordable than you might think. Keep in mind that, according to The College Board, most families don't pay the full sticker price for college. Most students receive some type of aid. At the same time, while help is out there, as with any long-term financial goal, time is a valuable asset.
It's Never to Early (or Late) to Start Saving!
Whether your child is six months or ten years old, it's never too early to start thinking about their college education. There are many great ways to get prepared:
- Coverdall Education Savings Account (ESA) - is an account created as an incentive to help parents and students save for education expenses. The total contributions for the beneficiary of this account cannot be more than $2,000 in any year, no matter how many accounts have been established. Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary's qualified education expenses (tuition, fees, books, supplies and equipment, and room and board) at an eligible institution. If the distribution exceeds qualified education expenses, a portion will be taxable to the beneficiary and will usually be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.
- 529s - a state-sponsored college savings plan established by the federal government in Section 529 of the Internal Revenue Code to encourage families to save more for college. They offer unique state and federal tax benefits you can't get from other ways to save, making them one of the best ways to save for college. As a Colorado resident, every dollar you contribute to any 529 plan can be deducted from your Colorado State taxable income. Anyone can invest-parents, grandparents, friends and relatives, and you can contribute as little as $25 per month up to maximum benefit of $280,000 per beneficiary. For more information on 529s, please go to http://www.collegeinvest.org/
- Qualifying U.S. Savings Bonds - You may be able to cash in qualified U.S. savings bonds without having to include in your income some or all of the interest earned on the bonds if you meet the following conditions:
- You pay qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return. (Qualified higher education expenses include tuition and fees required to enroll at or attend an eligible educational institution. Qualified expenses do not include expenses for room and board or for courses involving sports, games or hobbies that are not part of a degree program.)
- Your modified adjusted gross income is less than $80,600 ($128,400 if married filing jointly or qualifying widow(er).
- Your filing status is not married filing separately.
A qualified U.S. savings bond is a series EE bond issued after January 1, 1990 or a series I bond. The bond must be issued either in your name (as the sole owner) or in the name of both you and your spouse (as co-owners). The owner must be at least 24 years old before the bond's issue date. The issue date is printed directly on the front of the savings bond. For more information on the education savings bond program, please go to http://www.irs.gov/publications/p970/ch10.html
You Don't Have to Save the Entire Cost of a Four Year College Degree
It doesn't have to be all on your shoulders to pay for your child's education as there are plenty of Federal, state, and private grants and loans available to bridge the gap between your savings and tuition bills. The following tips will help you maximize aid eligibility.
- Save money in the parent's name, not the child's
- Spend down student assets and income first
- Pay off consumer debt, such as credit cards and car loans
- Maximize contributions to your retirement fund
- Accelerate necessary expenses, to reduce available cash
For more information on financial aid, please go to http://www.finaid.org/ and don't forget to choose Credit Union of Denver as the financial institution to fund your loan!
Take Advantage of Tuition Tax Credits and Deductions
Parents who qualify should take advantage of two federal tax credits for tuition costs. The HOPE Credit and Lifetime Learning Credit are almost as good as getting money outright, since they are a dollar-for-dollar reduction of the tax you owe. And you can use these credits against tuition payments that you make using student loans. To qualify for these credits, your adjusted gross income must be less than $50,000 if you're single or less than $100,000 if you're married and filing a joint return. For more information on either of these credits, please go to http://www.finaid.org/otheraid/tax.phtml