The following article was posted by the National Association of Student Financial Aid Administrators (NASFAA)
“One of the most common mistakes parents make ... is deciding not to save any money at all for their child’s education out of concern that it might impact their ability to get financial aid in the future. ‘If you can choose to save, don’t not do it because you’re afraid of eligibility,’ said Karen McCarthy, a senior policy analyst with [NASFAA]. ‘The federal formula for financial aid is driven more by income than by assets, and a student’s assets are weighted more heavily than a parent’s,’” The News-Times reports.
She explained that the federal government expects that a student can use their assets towards their education, while the government also realizes that parents are saving their money for other expenses as well, including their own retirement or the education of other children in the household.”
Published by OnlineColleges.net, Celine James writes a brief yet descriptive article entitled, “The 411 on 529 and Other College Savings Plans.” Her article details the pro’s and con’s of various college savings options..
“The 529 plans are great options, but when researching something as important as financing the education of you or a loved one, it’s important to know what’s available to you. Just as no single college is right for everyone, no single college savings plan is perfect for everyone’s financial situation.” Visit www.onlinecolleges.net to read the full article.
The American Taxpayer Relief Act, signed into law Jan. 2, “breathes new life” into Coverdell Education Savings Accounts, which is a “flexible way to save tax-free for college and/or kindergarten through 12th grade expenses—even a computer,” Forbes reports. “The new tax law made permanent enhancements to Coverdell Education Savings accounts (known as education IRAs in their first incarnation). You can open an account for each child and put away $2,000 a year. Since the accounts work like IRAs where you save for retirement, you can make 2012 contributions through April 15, 2013. So if you’re opening a new account or adding to a dormant account, you can immediately stash away $4,000, earmarking $2,000 as a 2012 contribution and $2,000 for 2013. Like a 529 account, the money grows tax-free and is tax-free when withdrawn for education expenses.”
“The state parents live in should not be the only reason for choosing a 529 plan, says Chadderdon O’Brien, financial planner at Lassus Wherley. Most 529 plans, investment plans designed specifically for college savings, are available to both in-state and out-of-state residents,” according to U.S. News and World Report. “Plans vary in ability to switch 529s without tax penalty, minimum initial deposits, maximum contribution rules, and investment options and costs, as well as tax benefits, says O’Brien. Parents need to choose the 529 plan with the best combination of these features for them, regardless of the state of origin. ...Choosing a plan with the ability for parents to roll over money from one 529 plan to another without state tax penalties can be important if there’s a possibility that you’ll move to another state or switch plans in the future, says Kristopher Johnson, senior financial advisor with Timothy Financial Counsel Inc.”
“Beware grandparents bearing gifts,” the Wall Street Journal reports. “While nearly one in five students heading to college this fall will receive financial assistance from relatives including grandparents, a little-noticed legal change that took effect in the 2009-2010 school year puts some of these students at a disadvantage when it comes to financial aid. Still, for families who plan in advance, there are ways to avoid taking a big hit. When saving for college, many grandparents set up state-sponsored 529 college-savings plans, which allow each grandparent to contribute up to $13,000 a year—or a lump sum of $65,000 covering five years—without triggering a gift tax. In addition, some states provide a state income-tax deduction for contributions. The biggest benefit: Money used for qualified higher-education expenses can be withdrawn tax-free.”
“Even if some borrowing is inevitable for you and your child, it’s worth it to first explore other options to help you pay for college,” Kiplinger reports. “All you need is a little lead time and some background on your choices. The options, as well as their rewards and drawbacks, are varied. Some vehicles, including Coverdells, 529 plans and Roth IRAs, come with tax advantages for college savers. Others, such as custodial accounts, offer greater investing flexibility. Private scholarships, meanwhile, are sources of free money. We rounded up the best payment strategies, based on Kiplinger’s extensive coverage of college values, college savings and student loans.”