Money Matters – Ways to save and pay for your children’s college savings

 There are many different options to help you pay for college. Scholarships offer another avenue, as do student loans. Each option has its unique benefits and risks and you may want to consider more than one vehicle depending on your timeline and overall savings goals.
529 College Savings Plans – Your Best Option:
A 529 College Savings Plan enables your savings to grow faster through federal and state tax-deferred earnings. There is no federal or state income tax on withdrawals if the money is used for qualified educational expenses, such as tuition, fees, books, and certain room and board. If your child does not go to college, you can transfer the funds to another eligible family member and preserve the tax benefits. Should you need to withdraw the money yourself, you may so long as you pay the regular income tax plus a 10% Federal penalty on any earnings. Or you can simply go back to school, possibly to get another degree and utilize all the benefits it would have given your child.  I was told of an individual whose child chose not to go to college and the parents went to Italy to attend a Cooking School while on vacation using the benefits of the 529 Plan. Unlike many other education savings programs, 529 College Savings Plans allow for participation regardless of income with a higher ceiling on contributions than other options.
529 State and Private Pre-Paid Plans:
A 529 State Pre-Paid Plan allows you to pre-pay all or part of the costs of an in-state public college education at today’s rates. They may be converted for use at private and out-of-state colleges, and there’s also a separate Private College 529 Plan specifically for private colleges. Funds invested in state-run prepaid plans can only be used at full value to pay for tuition and fees at in-state colleges, while funds invested in the Private College 529 plan can only be used for member colleges. In either case, room and board won’t be covered. Should your child choose not to go to school in that state or to one of the participating private schools, you may roll the funds over to another sibling attending college or withdrawal the principal — though you will likely lose most or all of your interest.
Coverdell Education Savings Account (CESA or ESA):
This is a tax advantaged education savings account similar to a 529 Savings Plan except qualifying expenditures cover primary and secondary schools in addition to college, universities and post-secondary institutions. While it can be used to cover tuition, fees and a wide variety of education related expenses, room and board costs can only be paid if a requirement of attending that school. With an ESA, you only receive federal tax advantages — there are no state tax deductions. If your child doesn’t use the funds, you can designate another beneficiary within the family. Coverdell ESA contributions are limited to $2000 per year, per beneficiary. The account is not available to high income families. And you’re limited to select mutual funds and securities.
Custodial Accounts (UGMA/UTMA):
The Uniform Gifts to Minors Act and Uniform Transfer to Minors Act are ways some states allow assets such as securities to be held in a custodian’s name for the benefit of a minor without an attorney needing to set up a special trust fund. The income from a custodial account must be reported on the child’s tax return and is taxed at the child’s rate, subject to the Kiddie Tax rules. The parent is responsible for filing an income tax return on behalf of the child. There is no special tax treatment for UGMA accounts. Children aged 14 and older must sign their own tax returns. Once the child turns 18-years of age the money is theirs, unlike the College Savings 529 Plan where a designated parent is the owner and the child is simply the beneficiary.  I had a friend whose son knew of the UGMA his father had for him and on his 18th birthday went to the bank, showed his driver’s license and cleared out the account.
Others ways of you saving for your children’s college expenses include Taxable Accounts, ROTH IRA’s, TRAD IRA’s, and Educational Savings Bonds but the preceding 4-options are much better of doing the same thing.
Scholarships, Financial Aid, Grants, and Student Loans (many types) are additional ways of raising funds to pay for you children’s college education if you fall short on your savings.
My two children who attended Pepperdine and Yale University were both the beneficiaries of 529 College Savings Plans but we had not anticipated that they would both attend private institutions and fell short in the funds needed to get them through college. We were able to use funds from the 529 Plans, Grants & Scholarship Funds, and Parent Plus Student Loans (the Parent co-signs and is ultimately responsible) that is an excellent device to fill in the gap between what you have saved, gotten in the form of scholarship or grant, and what the total costs of education are. When my children graduated they refinanced those Parent Plus Student Loans into what is now called a FED Loan and have been making the payments, on time, ever since.
For more information, please contact Douglas J. Sedam at 661-295-2400 #1 or Toll Free: 1-866-549-3900.  You can also email: Doug.Sedam@ThePaseoGroup.com and visit www.ThePaseoGroup.com. The Paseo Financial Group, Inc. is located at 27413 Tourney Road, Suite 140 in Valencia.
Securities and Investment Advisory Services offered through Financial West Group which is a member FINRA/SIPC. OSJ Office: 4510 E. Thousand Oaks Boulevard, Westlake Village, CA 91362, Phone: (866) 502-8929  The Paseo Financial Group, Inc. and Financial West Group are unaffiliated companies.