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Articles: How to Help Pay for College

Based on the latest information from the College Board (see chart), the ever-rising cost of college can be daunting to cash-strapped parents. But you can still manage to put a sizeable dent into the projected tuition bill if you’re dedicated. Consider the following:

Try to save money regularly. This should become a top priority right along with paying the mortgage or meeting your insurance bill. Review your expenses and try to determine the amount you can safely set aside each month. No matter how little you can spare, the savings may grow substantially if you start early enough. And it’s a lot less painful than if you wait until the day your child gets his or her letter of acceptance.

Be tax wise about investing. For instance, certain investments may generate income that is either tax free or tax deferred. You also can set up a system to have the income paid out at regular intervals during the time your child will be attending school. Furthermore, you may reduce the resulting tax liability if funds are put in your child’s name. Caution: Don’t overlook the “kiddie tax.” Generally, unearned investment income received by your child in 2010 will be taxable at your top tax rate to the extent it exceeds $1,900.

Check out financial aid options. While financial aid may be limited to the neediest families, your child still may be eligible for some type of state or federal financial assistance. This can come in the form of a grant, a work/study program or a low-interest loan.

Average College Prices 2009 - 2010
Private four-year $26,273 (up 4.4 percent from last year)
Public four-year $7,020 (up 6.5 percent from last year)
Public two-year $2,544 (up 7.3 percent from last year)
In the current year, students will pay, on average from $377 to $420 more than last year’s room and board, depending on the type of college. The average surcharge for full-time, out-of state students at public four-year institutions is $11,528. Source: College Board

Research Section 529 Plans If certain requirements are met, the funds in a Section 529 plan can grow, without current tax and may be withdrawn tax-free if used for qualified education expenses. There are two basic types of 529 plans: prepaid tuition plans and college savings plans. In brief, prepaid tuition plans enable you to lock in future tuition rates at in-state schools. College savings plans generally provide more flexibility for choosing a school, but without the same guarantees.

Note that intrafamily gifts can help. Grandparents can also set up a Section 529 plan for the benefit of a grandchild. Or a grandparent can give each grandchild $13,000 directly without any gift tax this year.

Before investing, the investor should consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 plan. Coordinate your actions with the help of a professional adviser.


This newsletter/advertisement is produced for our clients, friends and associates through an arrangement with WPI Communications, Inc. for the representatives’ use. Although the editorial content is professionally researched, written and edited, neither our firm nor any of its agents, representatives or associates make any representations regarding the accuracy of the content or its applicability to your situation. The information in this communication is not intended as tax or legal advice. In accordance with IRS Circular 230, the information provided herein may not be relied on for purposes of avoiding any federal tax penalties. Any tax advice contained in the body of this material was not intended or written to be used, and cannot be used, by the recipient for the purpose of 1) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, or 2) promoting, marketing or recommending to another party any transaction or matter addressed herein. You are encouraged to seek tax or legal advice from an independent advisor.

 

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