Saving for College 101: It’s a lot easier course when you take it today

Good news is that college expenses show signs of leveling off but that’s hardly a reason to hold off on planning for the inevitable costs down the road

Your kid’s college may be years away but the old adage of “They grow up so fast!” holds especially true when planning for the event in the context of your retirement goals.  Here is a list of 7 tips that can lessen to the blow:

Get your retirement in order first – Your kids will have access to more sources of college money than you will once you stop working, so make sure you’re on the right path for your own retirement before you set aside money for college.

  1.  Start early – Even small contributions can add up if you give them time to grow. Investing just $100 a month for 18 years can yield $48,000, assuming an 8% average annual return.
  2. Consider a 529 savings plan for big tax advantages – Qualified withdrawals are free of federal taxes (and some state tax benefits, too), and the amounts you can put in are substantial (more than $300,000 per beneficiary in many plans).  Plus, you can open a 529 no matter how much you make or the age of the beneficiary, which makes it a particularly attractive vehicle for grandparents who want to lower the value of their taxable estate.
  3. Custodial accounts give the child more control over the money – Gifting assets through the Uniform Gifts to Minors Act (UGMA) accounts or transferring assets through the Uniform Transfers to Minors Act (UTMA) accounts can be a practical way to expand the universe of available investment options, but they come with a caveat. UGMA and UTMA accounts weigh more heavily on financial aid decisions because they are considered an asset of the child, not the parent. Plus, their tax benefits are limited when compared to a 529. The biggest consideration, however, is that the money saved becomes the child’s at a certain age (18 or 21, depending on the state), regardless of whether they go to college.
  4. Set up a Coverdell Education Savings Account for simpler needs – The Coverdell ESA offers tax advantages that are similar to those of the 529 plan but limits contributions to $2,000 per year. If you’re contributing less than $2,000 a year, they can be simple to set up and manage. Plus, you can select from a broad range of investment options, including mutual funds.
  5. Take advantage of federal tax breaks – Depending on your modified adjusted gross income, you may be able to take the “American Opportunity Tax Credit and Lifetime Learning Credit” in the years you pay tuition.
  6. Look for flexible repayment plans – There are still ways to cut costs after your student graduates and begins repaying student loans. For instance, there is often a ¼ point interest-rate decrease if you set up automatic debit, wherein monthly payments are automatically taken from your account. Federal student loan programs generally have more lenient provisions than private education loans.

Need more info on college affordability? Contact a financial advisor, or visit

FM International Services (NY), Ltd. provides a wide range of retirement services featuring customized benefit plans, flexible investment options, and
centralized pension administration. Through Fmi’s countless services, businesses of all sizes create unique domestic and international retirement
plans for two employees or two thousand – with a single provider handling conversion, setup, and administration.

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