Save For College - College Savings Plans
When you start to save for college, you will notice that there are different types of college savings plans that you can consider. These include the 529 Plan, IRA accounts and the Coverdell Education Account. You can also save for college using US Savings Bond.
All of the above plans are all investment vehicles that are designed to save for college. They all offer tax advantages such as deferred interest plans. This means that during the time that you save for college, you will not have to pay taxes on the interest that you earn.
My first year of education after high school was spent at a community college. Being the uninformed child that I was, I didn't look into sources of financial aid. I did that old, my parents will cover it, thing. Not the brightest of ideas. After a few years of working away from the joys of college, I began my search for financial aid. I had heard that there were grants for college students. In no time, I had achieved my first grant. This took care of most of my school expenses. What I didn't know at the time was there are many state grants to utilize. Virtually every state has some sort of grant to offer the struggling college student. It is ridiculous to avoid this free money.
Because these are all college funds, they have to be used for college purposes only or else incur a substantial penalty. If you take the money out of the account prior to when you are able to use it for college expenses, or decide to use it for something else, you will have to pay a penalty to the IRS. This can be substantial as you will be penalized for taking the money out of the account as well as for the interest that was deferred. Before you decide to open an IRA or 529 account to save for college, you have to realize that the money will have to be locked in during the entire term.
If you decide to save for college using US savings bonds, you can cash them in after a certain period of time. You will have to pay interest when they are cashed in, but there is no penalty for cashing them in early. You can then store the savings bonds in a safe place and use them when needed. They come in different denominations.
The positive aspect about using US savings bonds to save for college is that they are a safe investment vehicle. They offer a decent interest rate and can be cashed in early in case of an emergency. Because you can purchase bonds easily (you can purchase a $50 for $25, but it will take 10 years for it to mature to reach the $50, after which it will still accumulate interest), you can buy them when you can afford to do so and still be able to save for college. This can help out someone who may not have the same amount each month or week to save for college.
Talk to your financial advisor when it comes to the best option for you to save for college. Your circumstances and how soon you will need the money will determine what type of savings vehicle is right for you. No matter how you choose to save for college, however, it is important that you do so as soon as possible to insure a sound future for your child.
