Saving for college
We've all heard the stories about the increasing cost in college tuition throughout the years. Even parents who start saving while still buying diapers may come up short when their child enters college. So how do you go about saving for this increasingly expensive investment? Ideally, you want to choose a savings option that offers you the best combination of tax advantages, financial aid benefits, and flexibility.
Annual tuition averages from $5,800 to $22,000
According to the College Board, a not-for-profit education association based in New York, annual tuition and fees now average $5,836 at four-year public universities. That's a 6.3% increase over the 2005-06 school year. Compare that with $22,218 at four-year private universities—a 5.9% increase from the previous year.
Despite these daunting numbers, there are ways to make college affordable, but it's important to know your options.
What are my savings options?
College savings plan
Also known as a 529 plan, this option offers you a tax-free way to save. Earnings and withdrawals grow federal and state tax-free in Wisconsin, and contribution options are flexible. Withdrawals can be used for tuition, books and supplies, and certain room and board expenses.
Coverdell education savings account
These accounts also allow you to save tax free. You can contribute up to $2,000 each year until your child turns 18. Withdrawals from the account can be used for any qualified education expense for your child's elementary, secondary, and college education expenses. All withdrawals for a qualified education expense are free from federal tax.
Financial aid
The College Board estimates that over half of the students currently enrolled in college are receiving some form of financial aid. If a student is unable to pay the entire cost of college expenses, financial aid is available to bridge the gap between what the student can cover and the actual cost of college. To apply for financial aid, a Free Application for Federal Student Aid (FAFSA) form must be filled out—usually during the student's senior year in high school.
College planning resources
EdVest.com - Information for opening a 529 savings plan.
SavingForCollege.com - Resources and information on college savings options.
CollegeBoard.com - Tips on planning, choosing, applying, and paying for college.
CollegeSavings.org - College planning resources, FAQs, and saving options.
College Savings Calculator - Use this calculator to help develop or fine-tune your education savings plan.