Saving for College
With competition in the job market tougher than ever, it is imperative that today’s students realize the importance of a college education.  So what can you do now to help them achieve their educational goals?     

As many of you know saving for college can be a daunting task.  Every year, tuition and fees for private and public colleges increase.  According to a recent survey by Fidelity Investments, many respondents called saving for educational expenses “overwhelming.”  Fortunately, there are a variety of investment options available for your consideration

Educational Savings Plans
In order to aid families in financing the cost of education, all states now sponsor a college-savings plan, and a handful utilize the prepaid savings plan.  Assets in 529 plans grow tax-deferred and distributions to pay for qualified college expenses are not subject to federal taxation.  529 plans are beneficial in that they provide tax deferred growth, and may also offer tax free withdrawals.  Once the child reaches college age, funds can be withdrawn tax-free to cover expenses such as tuition, books, supplies, and room and board.  One significant benefit of a state-sponsored college savings plan is that it can be used to fund education at any accredited college or university. 

You might be asking yourself, what if my child doesn’t go to college?  If this occurs, you have a couple different options.  The first option is to transfer the plan to another family member.  Funds can be transferred and used by siblings, parents, grandparents and other relatives.  The second would be to cash out the plan.  Most states assess a penalty of 10 percent of the earnings on any withdrawal that is used for non-educational purposes. 

Federal penalties and income tax on the growth of the account may also be imposed.  Should the recipient of the 529 Plan die or become disabled, no penalties will be incurred. 

Prepaid savings plans operate in a slightly different fashion.  Families purchase tuition units for any state college or university at today’s prices for the child’s future use.  Currently, there are only about a dozen states that offer the prepaid plans, whereas every state sponsors at least one college saving plan.  One thing to be aware of is that most prepaid plans are tied to specific groups of schools, not the national average. 

Who Can Assist Me?
With all the educational savings options available today, choosing the right one might seem like a daunting task. Now may be a great time to visit your local credit union, and meet with the financial professional for a review. 
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Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. American First Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

 

CUSO Financial Services, L.P. (CFS) does not provide tax or legal advice. For such guidance, please consult your tax and/or legal advisor.

 

Source: Fidelity Second Annual Survey of High School Seniors, 25 May 2010.