Private colleges have an average tuition of $33,480 a year, while the average cost of educating your child at a public college is $9,650. Students attending university out of state can generally expect to pay much more than for in-state residents, at $24,830 on average.
However, tuition is not the only cost to be considered: books and room and board can add upwards of $10,000.
Even though the soaring costs are discouraging, there are still ways to bear the educational expenses of their children. Currently, various financial plans are available to help you prepare for the costs of sending your son or daughter to college. Here are some notable saving options to evaluate in order to help your child get the education they deserve.
Custodial accounts are a popular option for making contributions towards the expenses of the beneficiary. It was originally known as the Uniform Gift to Minors Act (UGMA).
Although anyone can deposit funds into the custodial account, it is usually managed by a parent or guardian.
In most cases, the first $1,050 earned is considered tax-free. The next $1,050 is taxed at the child’s rate. If a deposit exceeding $2,100 is made, it will be taxed at the rate applicable on the parent. The child rate tax rule is currently applicable for children who are under the age of 19 years or those full-time college students who are under the age of 24.
One thing worth noting here is that some states necessitate the amount to be transferred to the child when they become of age. It will be up to the child to spend the money however they like.
Another great option to save for college is a 529 college savings plan. This plan allows an individual to invest in certain securities such as stocks and bonds and the rest is operated by the state or by the college.
Only limited contributions can be made, not exceeding the qualified educational expenses.
For a 529 savings plan, anybody can contribute to support the beneficiary, thus the scope is not restricted to parents only. Taxes are applied if the account is more than $14,000.
Lastly, one additional option you may consider is a Roth IRA account. A Roth IRA plan is similar to a 529 plan. In this account, earnings made through investments are not subjected to federal taxes when withdrawn, but it is necessary that those amounts be used for qualified education expenses like tuition, room and board, and books.
Furthermore, the Roth IRA account being in the name of parents is not considered as an asset for financial aid.
If you are concerned about the expenses your child could face when they leave for college, talk with Griffin Financial and get personalized advice on how best to prepare. Call us and make an appointment today.
Call (714) 912-4764 and set up a time to meet with us. We are here to help!