There are different plans you can use for saving for college. Of course, how you save for college is your choice to make, but knowing what’s available can really help you in the decision process. Here are some plans that have helped some others save for college.
#1 - 529 Plans:
These are state-run tax-deferred savings accounts specifically for higher-education savings. Plans can vary from state to state, but generally they fall under two types: Prepaid Tuition Plans & College Savings Plans.
A Prepaid Tuition Plan is much like the name implies. The plan allows you to pay for a future student’s college tuition before they actually attend college. Like pre-ordering the next new smartphone, you pay now and enjoy the benefits later. The advantage is, you can purchase the future tuition credits at today’s rates. For example, if you purchase one year worth of tuition today, Jonny will be allowed to attend for one year of college 10 years from now, even if the costs have increased. What a discount!
A College Savings Plan carries a little more risk, because it invests in the U.S. Stock Market. Think of it like an investment in a mutual fund where any profits are used for college expenses. The higher risk comes with a chance for higher returns. If the investments, in the College Savings Plan, go up, the account value could go way up as well. You may be able to invest a smaller amount in a College Savings Account and still pay for a pricey higher education!
#2 - Education Savings Accounts (ESAs):
These used to be known as “Education IRAs” so if you are familiar with IRAs, just know that these are similar. They, like college savings accounts, can be used to invest in the US Stock Market. ESAs can be used for more than just college. In some cases, they can be used to save for secondary learning or private education costs in K-12. When an account is setup for a student, usually there can be more than one person who puts money into it. So, if Aunt Becky wants to help out with Jonny’s education costs, she can make a donation to the account. There are donation limits however, and if too much is contributed, you could incur penalties.
#3 - IRAs
Some people opt to use IRAs when saving for college. The benefit of an IRA is that it does not have to be used for any one specific thing like college. It can be used for other things as well so long as you follow the guidelines. IRAs are also used as an investment in the US Stock Market. Typically, people use them for mutual fund investing, but they can be used for other types of investing as well. There are several types of IRAs available.
If you want to know more about the different ways you can save for college, or for anything else for that matter, you may want to talk with an investment advisor. My friends at TRADEway and I are all registered investment advisor representatives (IARs) that would love to get to know you and learn more about your BIG GOAL of saving for college. To meet us, call 877.777.0703 or go to TRADEway.com to learn more.