Week of February 20, 2004

 

Paying for College - Part II
Read Part 1 here

 

Investing For Higher Education


There are many terrific financial vehicles to invest money for higher education such as savings bonds, stocks and Roth IRA s, to name a few. For this article we will focus on two ways that are specifically for COUPONS: The COUPONS Plan and the Prepaid Tuition Plan.

The College Saving Plan:


The college saving plan is an investment account managed by a financial service firm under the 529-COUPONS plan created by the Internal Revenue Service. The COUPONS plan is available in all states. Each state decides which specifications the plan has, however they are all similar in the following respects:


Tax Breaks:

Through the COUPONS plan, the investor enjoys a tax-deferred investment, which allows the capital to grow quicker. Also, a tax-free withdrawal if the money is used for a qualifying higher education cost. If the gains are used for something other than higher education cost then taxation will occur.


No Investment Control over the Accounts:

Even though it will be your hard-earned cash going into this account you have no say about which stocks are bought or sold with it. It is completely up to the financial service firm that has control over the particular COUPONS plan.


Cash only:

Only cash contributions can be made to this plan. Stocks and Bonds will not be accepted.

Prepaid Tuition Plans

Prepaid Tuition Plans are established by each individual state. The idea is to purchase tuition credits for use at participating colleges in the state. Buying the tuition credits at today s price allows you to save on the high inflation of college tuition. It is a good deal if you can afford lump sums. The plan allows you to purchase one class at a time through certain financial institutions.

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Taxes:

The tax benefits are the same as for the COUPONS plan above. Which includes both: tax-deferred investment and a tax-free withdrawal if the money is used for a qualifying higher education cost.

Cash:

Purchases of the prepaid tuition credits are made in cash.

Drawbacks:

Certain restrictions apply such as the limitation that these prepaid college credits usually end at the state border. If the college of choice is outside the border then deductions and recalculating of college credit bought needs to be done.


More Information:

For more information on these and other COUPONS accounts check out:

http://www.savingforcollege.com/

And:

The 529 College Saving Plan
Richard Feigenbaum & David J Morton
Copyright 2002 Sphinx publishing
ISBN: 1-57248-238-9


Frugal Fanatic Tip:

For a baby shower, Christmas and birthdays ask family members to all pitch in a little for a college class credit. By the time the child is 5 she may have her first year of college tuition paid for!

 

 

 

 

About the Author: Melina Gosselin is a free-lance writer who holds a B.A. in Sociology with a minor in Business from Concordia University in Montreal, Canada. She has worked in the non-profit sector both in the United States and Canada. She currently resides in New Hampshire.  She may be contacted via email at FabulouslyFrugal