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College
Cost is Soring A
quality education can greatly increase your child's chances for success - but
it can be expensive. Can you imagine what it will cost 4 years, 8 years, or 12
years from now? When my kids were born, I didn't worry about how to pay for their
college costs. 18 years seemed to be a long way off. I already had enough on my
mind - and anyway, by the time my kids turn 18, I would be richc.. That's
what I thought. It's amazing how the years fly by. Kids grow up so fast. 18 years
ago seems like yesterday now. Looking back I realize that I should've planned
better for the future. College
costs are rising at an astounding rate. Today, the average cost of a 4-year undergraduate
education at a public university is over $63,000 and $130,000 at a private college.
The projected costs for 4-year college in the year 2024 is $158,000 for a Public
In-State University and $338,000 for a Private University!
Saving
Now Versus Borrowing Later If
you're thinking of funding your child's higher education by borrowing, you may
want to think again. Borrowing later could cost you twice as much as saving with
the right college savings plan now. If you begin depositing $242 per month when
your child is 3 years old and continue these monthly investments for 15 years,
you'll have saved more than $100,000 when the first class bell rings: $43,560
in principal investment, and the remainder in earnings on that principal, based
on a 10% rate of return. If, instead, you choose to borrow $100,000 at 6% interest
to pay for your child's 4 years at college, you - or your child - will face payments
of $840 per month for 15 years after graduation. The total cost to you of the
"borrowed" degree: $151,139. The difference between the total costs
to you of the two degrees? $107,579 - enough to fund a second college education.
A
Solution to Saving for College In
1996, congress added section 529 to the Internal Revenue Code to allow for the
creation of state-sponsored college savings plans. Through these plans, families
may take advantage of generous tax breaks while saving for a child's future education.
These plans are usually called "529 College Savings Plan" and have the
following benefits that other savings vehicles can't provide. 1.
Tax-Free Growth and Withdrawals: You make after-tax contributions to the
account, but you don't pay taxes as the account grows. And as long as withdrawals
are used to pay for qualified higher education expenses - such as room, board,
books, supplies, fees and tuition - your investment earnings are federally tax-free.
Tax-free growth means more of your dollars remain in the account, potentially
accelerating your investment's growth through compounding over time. So less of
your money goes to pay taxes and more goes where it belongs - to pay for college.
2. Estate-tax savings: Your contributions to The 592 College Savings Plan
are removed from your federal taxable estate, reducing its taxable value. For
grandparents and others involved in estate planning, this is an important benefit.
3. Gift-tax benefits: You may make contributions of up to $55,000 per beneficiary
in a single year without triggering a federal gift tax. Married couples may contribute
$110,000 per beneficiary in a single year.
4. Absolute control over the account: Unlike some investments that transfer
control to the beneficiary as early as age 18, you control your account permanently.
5. Flexibility: Beneficiaries may be anyone you choose - including yourself
- and may be changed as frequently as you like. And there are no eligibility,
income or age restrictions on account owners or beneficiaries. So if your beneficiary
chooses to delay higher education, you can designate another beneficiary, or simply
allow the account to grow until the beneficiary decides to enroll. Also, you can
use your savings to pay for higher education almost anywhere in the United States
and qualified foreign schools, including vocational schools, 2 and 4-year colleges
and graduate schools. Put
Time to Work for You The
following chart illustrates the growth of a hypothetical after-tax investment
at a 10% annual rate of return, compounded monthly.
| Monthly
Investment | 5
Years | 10
Years | 15
Years | 20
Years | | $400 |
$31,233 |
$82,621 |
$167,170 |
$306,279 |
| $300 |
$23,425 |
$61,966 |
$125,377 |
$229,709 |
| $200 |
$15,616 |
$41,310 |
$83,585 |
$153,139 |
| $100 |
$7,808 |
$20,655 |
$41,792 |
$76,570 |
| $50 |
$3,904 |
$10,328 |
$20,896 |
$38,285 |
You can see that
even a modest amount of money set aside regularly each month yields a great financial
benefit later. That's truly making money work for you. Start
Now! - Procrastination Will Cost You Money Trying
to squeeze extra dollars out of your budget to invest for future education expenses
can seem difficult or even impossible, but little things mean a lot when it comes
to saving for college. Starting now means even the smallest of investments has
the potential to grow into a sizeable amount. And with tax-free compounding, you
can save thousands of dollars in taxes. It's never too late to start saving for
a higher education, so why not start now and let time ease some of the burden
for you? Call
me today at 310-800-6333 for no-cost consultation.
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