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Answer:
Dear
Lottie,
Yes...you're
right. There are many college savings options now.
Some of them are available here at BUYandHOLD.com,
while others must be set up elsewhere. We can help
you with those options with an *.
*
Uniform Gifts To Minor Act & Uniform Transfers To
Minors Act Accounts or Custodial Accounts.
These
are set up in your child's name, but you control the
assets until your child turns 18 or 21, depending
on your state. The money can be used for anything
that benefits your child. However, after your child
turns 18 or 21, the money is his to use as he wishes.
And at that point it is considered the child's asset
and that may reduce the amount of financial aid he
qualifies for.
*
Roth Individual Retirement Account
You
can withdraw the full amount of your original contributions
without paying taxes or penalties. You can withdraw
above that amount without a 10% early withdrawal penalty
but you'll be hit with taxes on any gains.
The
maximum you can invest in a Roth is $4,000/year or,
if you're 50 or older, $4,500.
Any
money you take out obviously reduces the amount you'll
have available for retirement.
*
Education Savings Accounts
These
special accounts allow you to invest in mutual funds,
stocks or bonds for your child's education. Withdrawals
are tax-free if the money is used for education -
at the primary, secondary or college level.
You're
limited to $2,000 per year, per child. And there are
some family income limits.
U.S.
Savings Bonds
Interest
from Savings Bonds when used to pay for college is
tax-free if you meet certain income requirements.
The bond must also be in the parent's name, not the
child's. These are a risk-free investment. Details:
www.savingsbonds.gov
529
Plans
These
state-sponsored plans allow you to invest for tuition
and other college expenses. You can save up to $300,000
per child. And, fortunately, grandparents and other
relatives can contribute. Withdrawals are tax free
if the money is used for college.
Caution:
Some 529 Plans have large fees. Check with: www.savingforcollege.com
Prepaid
Tuition Plans
Here
you buy a "contract" that enables you to lock in tuition
rates at state colleges and universities. Most prepaid
plans are limited to state residents. Again, check
with: www.savingforcollege.com
One
Other Option...
You
can probably borrow from your 401(k) plan. Most employers
allow this and the good part is you pay the interest
on the loan to yourself and not to a lender.
This,
of course, reduces your retirement nest egg and if
you leave your job, you'll have to repay the balance
due to avoid taxes and hefty early withdrawal penalties.
Good
luck!
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