New Baby? Time to Save for College

 While we joyously look forward to developmental milestones, parents often forget to look a couple of decades ahead to the costliest and most important milestone of all—college. So while budgeting for diapers, don’t forget to set back a few dollars each month toward future educational expenses. Tomorrow will be here before you know it.

The State Wants to Help

“The Oklahoma College Savings Plan is without a doubt one of the best ways for Oklahomans to save for a college education,” said Scott Meacham, Oklahoma State Treasurer. At www.ok4saving.org you can sign up for a TIAA CREF 529 Plan to automatically withdraw as little as $25 per month from a checking account, $15 per pay period with a payroll deduction, or contribute as much as $10,000/year—$20,000 for couples.

Contributions not only provide tax savings for April 15th, but earnings used to pay for qualified higher education expenses are tax-free at both the state and federal levels. Best of all, funds can be used for any college expenses nationwide, as well as vocational or graduate schools.

Qualified expenses include tuition and books, supplies, required fees and certain room and board costs. If your child doesn’t need the money because of scholarships, or forgoes further schooling, you can change the beneficiary to another person, even a grandchild or yourself, within the immediate family.

IRAs Mean More than Retirement

Educational IRAs, now known as the Coverdale Education Savings Account (CESA), allow parents to contribute $2,000 per year for educational expenses.

“The child must be under 18,” said Falina Thomas, who is known at TTCU as the “IRA guru.” Unlike 529 plans, these are not tax deductible, but the contributions can be used on any kind of school expenses—even the cost of private elementary and high schools, and things needed for early learning, such as computers.

When CESAs and 529s were first created by Congress, families were not allowed to have both for the same tax year, but that has now changed. So, families can put money into a CESA to be used for pre-college expenses, and any monies left can be used for tuition later.
“One of the good things about CESAs is that you don’t have to have all those funds out of the account until the child reaches 30,” explained Thomas. “But if the child does not go to college, the savings can be transferred to another family member.”

While using retirement funds should be your last option, Thomas explained one way to save for both future college expenses and retirement is to start saving into an IRA. Whether traditional or Roth, after contributing for five years, parents can withdraw funds without penalty for qualified educational needs.

Save While You Shop

Upromise uses purchases (mostly online) to help with college savings. Complete an online membership application at upromise.com, then begin shopping and earning back from 1percent to as much as 25 percent of what you spend. Best of all, anyone can use this program to help fund a youngster’s future education needs—not just parents. Grandparents, non-immediate family, even family friends can direct their Upromise savings into a child’s savings account.

With Upromise, monies can go into any affiliated 529 plan. If your plan isn’t affiliated, contributions are held until you submit a withdrawal request for a check. There are details for withdrawals and a list of affiliated plans at upromise.com/8106.2.do.

Savings pile up as registered members use the company’s networks to purchase from retailers and service providers. Want to buy a car? Get a rebate. Plan to buy or sell a house. Again, merchants are ready to help with the sale and sock college money into your child’s account. There are even merchants who rebate for diaper purchases! Upromise offers College Savings Credit Cards, where 1 percent of all purchases go into educational savings, regardless of where and what you buy.

So when family and friends coo over your new one and want shower gift or first birthday suggestions, mention contributions to college accounts, and ask them to use the shopping networks. Eighteen years from now you’ll be glad you did.

Categories: Financial Health