Save Money for College by Saving on Taxes
Start saving for college at about this educational level
People who pay close attention to finances as well as the tax laws have discovered that under certain circumstances the government offers significant savings to people who plan ahead for college expenses. Many of these programs have made it easier for parents to save money for college tuition by providing tax credits and investment vehicles, such as Educational IRAs. Also, relatively new college savings-plans provide excellent ways to save on taxes.
Cautious investing
Parents should exercise caution when implementing college savings-plans, as some kinds of investments may affect a family’s eligibility for other financial aid programs. Circumstances such as marital status, family income, and state of residence are used to determine a student’s eligibility for financial aid, and so are available investment funds. If family funds are available to pay for a college education, the student may be barred from obtaining government-sponsored financial aid.
College savings options
For some parents, planning for college begins the minute a child is born. Others may not realize the importance of educational planning, or may be unable to start saving until well into a child’s adolescent years. When someone starts saving for college, however, no matter how late, it’s always a good idea. The important thing to remember, regardless of when the effort starts, is that it should be taken seriously and structured in an effective way. To that end, it’s important to know what the savings options are. Useful options include:
- Roth savings plans
- Educational IRAs
- 529 plans
Time will tell
For parents who have ten years or more to go before their child will be ready to attend college, investing in special mutual funds, stocks or exchange-traded funds may also be a good idea. However, for those who have less time to invest, this may not be the best idea. Market fluctuations may make these kinds of investments too risky in the short run and little growth, if any, may be realized. Options for investors with fewer than ten years to go before college include:
- Treasury notes
- CDs
- Money market funds
- Bonds
Minimize the risks
When people start investing money to pay for college later rather than sooner, it’s a good idea to consider investing only a portion of available savings in order to minimize risks. Investment options and the risks involved with each should be discussed with a qualified financial planner.
Anytime is a good time to invest in a child’s education
No matter how or when a parent begins to invest in a child’s future education, it is always a good idea. If you can save money on taxes in the process of investing for college, it can be a tremendous help. Different families plan for college in different ways. For some, investments may be rewarded with tax credits or other tax savings, which are added incentives to prepare early for college expenses. Whichever strategy a family adopts, investing in a child’s future education is invaluable.
