5 Reasons Why You Should Get A College Education Fund

Getting a college education is now a must. The competition for employment has grown more intense with the added complication of current trends in outsourcing. In applying for work at a respectable company, higher education qualifications are a big advantage. However, with college fees and other education expenses increasing, more and more people realize the need for a college education fund.

The earlier the better applies to saving for college but many families find it difficult to sustain the projected required monthly savings when other, more urgent financial needs occur. It is especially difficult in families where more than one member of the family is destined for college.

When possible, saving for college should begin at birth of the intended beneficiary because:

  1. long-term investments are more likely to grow as compounding of earnings increase over time
  2. a smaller amount is needed to be set aside on a regular basis, freeing up funds for other financial goals
  3. students become less dependent on federal and state-sponsored financial aid which have eligibility requirements and fiercely competed over
  4. the future indebtedness of students is reduced after they graduate from federal, state loans and/or private loans
  5. there are more funds likely to be available when a child is still young

In constructing a college education fund, the following must be considered and researched: estimated college costs; lead time for the fund; amount of funds available for savings; possibility of student employment to be applied to college costs; student eligibility for student loans.

Investment and savings options must be selected based on risk, return, liquidity and time frame. Some college tuition investment plans can be just the perfect fit for existing and projected financial conditions.

Education Individual Retirement Accounts which are misnomers because they are not actually retirement accounts and now referred to as Coverdell Education Savings Accounts, are tax deferred or exempt investments in mutual funds. The contributions are not tax exempt but any earnings are. However, contributions are limited to $2,000 a year and for educational use.

State-sponsored prepaid tuition plans are also federal tax deferred until the beneficiary goes to college, at which the tax rates are lower. Prepaid tuition plans protect against tuition fee increases as rates are locked at current rates, although rules and conditions may vary from state to state. A source for more information online is via the College Savings Plans Network or call toll free to the National Association of State Treasurers at 1-877-277-6496.

Custodial accounts, such as those designed under the Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) are taxable savings accounts, typically in the form of mutual funds.

Series EE and Series I savings bonds, also known as college savings bonds are tax-exempt at the federal level, and also at the state level in most states if used for college expenses. They are secured long-term, usually zero-coupon bonds that yield only modest returns. This is a good option to take if investments are for the long term because the longer the maturity period, the higher the returns and comes in issues of $5,000.

Saving for the rainy days has never been more real than in reference to college expenses. There are many reasons for establishing a college education fund chief among these is the propensity for spending money on unnecessary expenses.

With a college education fund, it is much harder for funds to be used for reasons other than education purposes, especially with savings bonds and prepaid savings accounts, and much easier to ensure the educational future of the child.

529 Accounts