Saving for College: Parent’s Guide to Preparing for Kids’ Higher EducationBy Audri Taylors, UniversityHerald Reporter
When making a decision about college, topics about costs and money are always present . The thought of going to college can be pretty daunting to both parents and students alike. Many students graduate from college carrying loads of student debts. It is overwhelming to think that they will have to pay for these debts for as long as they work.
This is why parents can't help but intervene when it comes to their children's college expenses. Some parents even sacrifice their retirement plans just so they can send their kids to college. But does not have to be the case all the time. There are a number of options that parents can choose from. They just have to know and weigh the pros and cons of each saving vehicle, like the following:
529 College Plans
According to The Simple Dollar, there are now more than 50 states which offer the 529 college savings plan. This plan, also known as Qualified Tuition Programs work by having the account owner invest money into the plan which can be withdrawn for education expenses.
Pros: One of the major benefits is that it is tax-free growth of your savings. The account is also transferrable to another beneficiary in the same family.
Cons: Some plans do not have a great investment menu being offered, according to MarketWatch. If this is also not used for higher education costs, the account owner will be owing income taxes and penalties.
529 prepaid tuition plans
Basically, this is about buying future tuition at the current's prices.
Pros: It can bring the account owner a peace of mind
Cons: There might be shortfalls because the plan's investment earnings may not rise as fast as tuition costs and changes may have to be made.
Account owners can withdraw their contributions from Roth IRAs if they have been holding the account for at least 5 years
Pros: The range of investment options is wider compared to the 529 plan.
Cons: The account owner will still owe income tax from these earnings.