State Funding For College - Part 2

2006-08-25

Back to Part 1 of State Funding For College

Another state funding option for those who want to attend college is called the education savings accounts. As the name implies, these are accounts that are designed for those that are saving for the cost of their child's future education. You can invest in mutual funds or similar investments. When the money is taken out, it will not be taxed unless it is used for something that is not related to education. The advantages to the education savings account is that parents are free to design the portfolio the way they like. The funds can also be used to pay for multiple forms of tuition. However, the cons to this plan is that parents are limited to how much they save each year. Parents can only put up to $2000 per year in this investment, and parents or guardians cannot make more than $190,000 per year.

Another option for parents who with to invest in the educational futures of their children is to set up what is called a Uniform Gift. While this gift will be in the name of the child, parents will have full control over it until their children become adults. The age requirements for these plans will vary from state to state. Parents are given full control over how much money is put in the plan, and it is not limited to educational uses. The disadvantage to the Uniform Gift is that the child cannot access it until they are adults, and it may reduce the amount of financial aid they can get if they should need it.

The next common investment tool that is used by parents is called the Roth IRA. With this plan, you can take out any money that is put in the account without having to pay taxes or fees. However, you may pay taxes on the money you earn if you take out more than is necessary to pay for the cost of your child's education. The Roth IRA is powerful because it can allow parents to invest any amount they want, and the money that is invested will earn compound interest. However, you are limited to the amount you can invest in a single year. Parents are not allowed to invest more than $4,050. There may also be limits based on how much money you earn each year.

Related Articles:
» 529 College Savings Accounts
» Benefits of Section 529 College Plans
» Saving Money for College and 529 Plans

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