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In today�s highly competitive
college admissions process, families must never lose sight of
the fact that nothing is more important to parent or child
than the student�s acceptance to college. Your second
priority is how to pay for it.
Planning for college can begin
as early as birth, and for that matter, even before birth.
Financial planning in the early years can make all the
difference in the world when it comes time to have to cough up
all that cash! The following are some of the best ways to save
for college:
Custodial Accounts: With
Uniform Gift or Uniform Transfer to Minors Act Accounts (UGMA
or UTMA), parents, grandparents, etc. can each contribute up
to $11,000 per student per year (2005). This money can be used
for college or any other purpose. Although the money remains
in the student�s name, the custodian, usually a parent, has
absolute control over the account � i.e. stocks, bonds,
mutual funds, savings, etc. UGMA accounts accept cash only.
UTMA accounts accept cash and property.
The Downside: UGMA and UTMA
accounts are irrevocable gifts that are considered student
assets. Since students have no asset protection allowance,
these assets are assessed at either 25% per year at schools
that employ the institutional methodology, (Ivy League and
high profile private colleges), or 35% per year at all the
rest that employ the federal methodology! Therefore, this
option must be used with extreme caution!
Education IRA�s a/k/a
EIRA�s: Single parents with an adjusted gross income (AGI)
of up to $110,000, and joint filers with AGI�s up to
$190,000, can contribute up to $2,000 annually to an EIRA.
Earnings accumulate tax-free and can be withdrawn tax-free
without penalty to pay for a private elementary, secondary, or
college education.
The Downside: With the current
limit of $2,000 (2005), fees can eat up much of the gains in
the early years when balances are small. Contributions to
EIRA�s are not tax deductible and all colleges consider
EIRA�s student assets and apply the 25% or 35% assessment
when calculating financial aid. What�s even worse is what
happens when distributions are made from these accounts.
Financial aid is automatically reduced dollar for dollar,
because in addition to being an asset, the funds have now
become a resource! When these funds are legally repositioned
outside of the financial aid formulas, then none of the money
is assessed!
State Plans a/k/a 529 Plans:
Anyone can open a 529 Plan in his or her own name and
designate a student as the beneficiary. Up to $50,000
($100,000 jointly) may be contributed over five years to a
maximum of $246,000. Funds grow tax-free and withdrawals since
2002 have been tax-free as well.
Downside: Monies contributed
are not tax deductible, and there is little or no control over
how the funds are invested. Also, there is a 10% penalty for
withdrawals not used for college, and 529 Plans can actually
decrease chances for a large grant or scholarship � and
that�s not all. When there are distributions from these
accounts, financial aid is automatically reduced dollar for
dollar! As with EIRA�s, having the funds legally
repositioned elsewhere, will result in no assessment
whatsoever!
Retirement Plans: An IRA, HR10
(Keogh), Pension, SEP, 401(k), 403(b), 457 or any other
qualified retirement plan should also be considered when
saving for college. Such plans are not regarded as assets and
are outside of the financial aid formulas. While the account
value is not considered an asset, the annual contribution made
is added back to the AGI for an income assessment! The big
print giveth, but the small print taketh away!
Non-Qualified Savings Plans:
These are accounts strictly set up to provide funds to be used
to pay for the Expected Family Contribution (EFC) or any
unanticipated college costs. Families need to set up these
accounts as early in the student�s life as possible, so
there will be adequate money to pay such costs when the time
comes.
Remember, by the time students
enter high school, consideration should be given to reducing
�high risk� investments. Never gamble with money that�s
earmarked for education! And, never lose sight of the fact
that all monies saved for college in the early years will not
serve their purpose unless the student prepares for and
successfully completes the admissions process.
This is one of a series of
articles by college admissions and financial aid expert, Reecy
Aresty, based on his book, �Getting Into College And Paying
For It!� For further information or to contact him, please
visit www.thecollegebook.com.
For almost three decades,
financial advisor and lecturer Reecy Aresty, has helped
thousands of families to protect their assets, increase their
wealth, and reduce their taxes. During the 1980�s, he turned
his attentions to the complex world of college admissions and
financial aid. By the end of the decade, he was already saving
his clients thousands of dollars on a college education!
He has authored, �Getting
Into College And Paying For It,� also available in Spanish.
Filled with trade secrets and insider information, it offers
solutions for high school and college families guaranteed to
give students the all-important edge in admissions, and
parents countless legal ways to reduce college costs.
In 2004 alone, Reecy saved
families hundreds of thousands of dollars! He has become a
major factor in obtaining affordable, quality educations for
America�s students. In doing so, he has restored the faith
people used to have in one another by proving that there are
still people who care, people who can be trusted, and people
who actually do what they promise � and get results!
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