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Start Your Child's College Fund Today

Watch Your Money Grow by Saving Early

So, you've contributed for years to your child's 529 college fund and now they've decided to go to an out-of-state school. Well, fear not, your money has not gone to waste, you have several options. You can take the money out and use it for your personal needs (incurring a small 10 percent fee, of course) or you can pass the money on to another family member such as an uncle, niece, first cousin or spouse.
You may have talked with your friends about the daunting prospect of saving for your children's college education. Prices at colleges and universities have risen dramatically over the years and show no signs of slowing. But we know it's worth the scrimping and saving—if your child has a college degree, she could earn on average 60 percent more per year than a person with only a high school diploma. The confidence and knowledge your child can gain at college can pay off big in the long run. Making plans to start saving for college now is a wise decision. The longer you save, the more your money could grow. There are many ways to save for college, including opening a savings account or CD, investing in mutual funds or stocks, buying bonds, adding more money to your IRA, or starting a 529 savings plan. Consult your financial advisor about which type of savings strategy fits your budget and lifestyle.

Grow Your Money by Investing and Saving

You may know that investing money in an IRA helps you save for your retirement, but it's also an option for saving for your child's college tuition. When your child reaches college age, you are allowed to tap your IRA reserves without incurring a penalty to pay for tuition, which is considered a qualified expense. You may also invest in stocks and mutual funds with the sole purpose of building a nest egg for your child's education. Savings accounts, CDs, and bonds can be a slower, lower-risk method of saving money. Your money may not grow as fast as if you invested, but you will not risk losing any money you've already put in. These types of savings may be an option for you if you're starting early in your child's life.

The 529 College Savings Plan

Another option to consider is the 529 savings plan which is designed to help parents save or invest money to use exclusively for college expenses. 529 plans are sponsored by states, state agencies, educational institutions or groups of private colleges and universities. One type of 529 plan is pre-paid tuition, in which parents purchase units of tuition in advance over time until your child is ready for college. These units are redeemable at participating in-state public colleges or universities. As these plans are state-sponsored, they have state residency requirements and are often redeemable only at state institutions. Some units may be converted for use at out-of-state colleges or for private colleges.

College Savings Plans Can Work for You

The other major type of 529 plan is the college savings plan. This plan is similar to 401(k) or IRA investments in that the money you put into the fund is then taken and invested on your behalf. You may invest in stock mutual funds, bond mutual funds, money market funds and (sometimes) CDs. Geared specifically for parents who think long-term and start early, college savings plans let your money grow over many years. But remember, like all investments, there is the risk that your account may lose money and your savings may decline.

Tax Benefits with 529 Savings Plans

Many states offer tax deductions on your contributions into the plan, income exemption on withdrawals, and matching grants for the amount you place in a 529 plan. Some states require residency for these benefits, while others allow you to invest in their state 529 plan while living elsewhere. It's worth the time to compare the policies of various states to see which will provide a net gain. While your contributions are not deductible, your earnings are not subject to federal income tax, if the withdrawals are used for college expenses.

Coverdell ESA for Tuition, Books and Board

Another savings strategy to consider is a Coverdell Education Savings Account in which you can save a maximum of $2,000 per year. Contributions to the ESA are not tax deductible, but the interest earnings grow tax-free. Distributions from a Coverdell account are tax-free if they are used for qualified education expenses, such as tuition, educational supplies and equipment, and room and board. You choose from a wide array of school types with a Coverdell since distributions can be used for private or religious schools, elementary or secondary education, vocational schools, colleges, universities, and public, nonprofit, and proprietary postsecondary institutions.

Learn More about College Savings Plans

It's wise to read all savings plans in detail and consult with a financial advisor about investments before selecting the savings strategy that's right for you. The College Savings Plans Network, an affiliate of the National Association of State Treasurers, offers detailed information on most of the available 529 plans so you can compare plans from around the country. You'll be glad you invested early — they grow up so fast..

SunTrust is unable to offer tax or legal advice. Please consult with your tax and legal advisors.




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