Day 6 - Saving For College

The thought of paying for college can be daunting for many but you can take steps now to alleviate some of that stress. 529 Plans and Roth IRAs are two ways you can save money for higher education expenses.

529 Plans
A 529 plan provides tax advantages when saving and paying for higher education. There are two major types, prepaid tuition plans and savings plans. Prepaid tuition plans allow the plan holder to pay for the beneficiary's tuition and fees at designated institutions in advance. Savings plans are tax-advantaged investment vehicles, similar to IRAs

Rules governing the plans are laid out in Section 529 of the Internal Revenue Code. They are legally referred to as "Qualified Tuition Programs" and sometimes called "Section 529 plans."
(Investopedia: https://www.investopedia.com/terms/1/529plan.asp#ixzz50XmvrMXY)

 

What are the differences between 529 plans?

There are two types of 529 plans, a prepaid tuition plan and a savings plan. Deciding between a savings plan and a prepaid tuition plan is an important first step.

What should I know before investing in a 529 savings plan?

Before choosing a plan for your child, review the plan's fee schedule and investor handbook, ask plan managers questions if you have any, and make sure you understand the cost and terms associated with the plan.

Roth IRAs
These accounts were originally created for retirement savings. They are opened and maintained by you as an individual instead of your workplace. The contributions are taxed but the withdrawals are not. These accounts can be left to someone and you can make withdrawals early. US News published a recent article about things you should be aware of if you are considering this option and you can learn more about the advantages below.

3 reasons to use a Roth IRA to save for college

By For some time now, the cost of a college degree has been rising at perilously high rates. For many, the dream of one day going to college remains just that ... a dream. With college tuition and associated costs rising so dramatically, it's no surprise that people are looking for new and creative ways to save for these expenses.


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