College Savings Plans

In the last 10 years, the cost of college has increased 35%. Most government agencies predict that the rate of increase will continue. That means that if you have children, you need to aggressively save just as you do for retirement.
You have many choices when it comes to college savings, each with their own advantages and disadvantages. Your Ragain Financial advisor can explain in-depth your options and help you choose the best vehicle.


529 Plan

Quickly becoming the most popular college savings vehicle, the 529 plan is the most recent addition to the college savings plan family. Each state plan is managed by a financial services firm (Merrill Lynch, T. Rowe Price, etc.) and usually contains state tax advantages. The most attractive feature is that all contributions grow tax free as long as they are used for college costs. They can be used for any child and any university in the country.


Coverdell Education Savings Accounts

Up to $2,000 pretax dollars can be invested annually in what is called an “educational IRA”. The funds can be used to cover K-12 costs as well as college expenses. Income from the accounts is tax-free when used to pay for qualifying expenses. Limits apply to how much can be invested and the funds must be spent before the student reaches the age of 30.


EE U.S. Savings Bonds

Interest earned from the bonds may be excluded from income if used to pay qualified college expense. The exclusion is phased out beyond certain taxable income levels and the bond must be purchased after the holder has turned 24.


UGMA/UTMA Accounts

The Uniform Gift to Minors Act allows a couple to make tax-free gifts of $22,000 annually per child without affecting their lifetime gifting exemption. The first $1,500 of income from these accounts is given attractive tax treatment. But the large downside is that control over the account goes to the child when they turn 18. That means that funds intended for college can be spent on clothes or a vacation. Parents who wish to maintain control of their accounts should NOT consider the UGMA/UTMA account.


Prepaid Tuition Plans

Prepaid tuition plans offer exactly what the name sounds like, a vehicle that allows the owner to buy tuition at today’s rate and use it for college many years down the road. Unlike the 529 plan, this plan is not subject to variances in the stock market. The downside is that some schools do not guarantee that the increases in cost will be covered by the payments. Also, the plan is factored into the student’s financial aid eligibility and can hurt a student’s chances for other financial assistance.