Marino on Money: April 30
This week we discussed helping a child or grandchild save for college. Based on the average lifetime earnings, a college degree is worth a lot of money. With the cost of college rising faster than inflation, it’s a good idea to start saving now. According to the College Board, for the
2008/2009 school year, the average cost of one year at a four year public college is over $18,000. An average year at a private college is over $37,000. There are some ways to start saving now.
529 plans are popular, and they offer tax-free withdrawals when the money is used for qualified college expenses. Some people may qualify for a Coverdell education savings account, which also has some tax advantages. Finally, Series EE and Series I US Savings Bonds are exempt from federal income tax if the proceeds are used for qualified college expenses.
You also have the option of gifting money to your grandchild, but this may create estate tax problems and could limit the financial aid of the student. Please consult with your tax advisor before considering any type of gifting strategy.
Any help you can provide someone when they are trying to pay for college is a great gift. Without help from the student’s family, the student may need to borrow money just to pay for college. Graduation day becomes a good news/bad news event. The good news? You’ve graduated. The bad news? Now you need to start paying back your student loans. And no, it doesn’t matter if you got a job yet. Once you are out of school, you will eventually need to start making the payments.
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