By: Gary M. DellaPosta, CPA
According to the US Census Bureau, individuals with a bachelor's degree have the potential to earn more than double the salary of those with just a high school diploma, so even though tuition and fees are on the rise, most people feel that a college education is well worth the investment. That said however, the need to set money aside for their child's education often weighs heavily on
Fortunately, there are two savings plans available to help parents save money that also provide certain tax benefits. Let's take a closer look.
The two most popular college savings programs are the Qualified Tuition Programs (QTPs) or Coverdell Education Savings Accounts (ESAs). Whichever one you choose, try to start when your child is young. The sooner you begin saving, the less money you will have to put away each year.
Example: Suppose you have one child, age six months, and you estimate that you'll need $120,000 to finance his college education 18 years from now. If you start putting away money immediately, you'll need to save $3,500 per year for 18 years (assuming an after-tax return of 7%). On the other hand, if you put off saving until your son is six years old, you'll have to save almost double that amount every year for 12 years.
Financial Calculator: College Savings Planner Use this calculator to help develop and fine-tune your child's college education savings plan.
How Much Will College Cost?
Based on the survey completed for the 2012 Trends in College Pricing, the average cost for tuition, fees, and room and board for 2012-13 was:
$17,860 per year for 4-year public (in state) colleges and universities, an increase of 4.2% from the 2011-12 academic year.
$39,518 per year for 4-year private colleges and universities, an increase of 4.1% from the 2011-12 academic year.
According to Trends in Student Aid, in 2011-12, undergraduate students received an average of $13,218 per full-time equivalent (FTE) student in financial aid, including $6,932 in grant aid from all sources, and $5,056 in federal loans.
Saving with Qualified Tuition Programs (QTPs)
Qualified Tuition Programs, also known as 529 plans, are often the best choice for many families. Every state now has a program allowing persons to prepay for future higher education, with tax relief. There are two basic plan types, with many variations among them:
Gary DellaPosta is a CPA and founder of the firm: Gary M DellaPosta, CPA's & Business Advisors. A graduate of Bryant
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