It's the American Dream. To have your kids grow up and go to college. To graduate from a university. To have earned the right to have those little letters after your name BA or BS. To know that your child is on the right track. The he or she has the world at their feet. Opportunity is abound. Oh what a joy as a parent to know that you did as much as you could to help them get to this moment. You helped with their homework. You drove them to their after school activities. Bought their clothes, cheered at their games. Just one little thing you forgot, HOW AM I GONNA PAY FOR THIS??
It is true that college is part of the American Dream. Not only is it part of the dream, it's a necessity. College graduates earn more over their lifetime on average than those that did not attend college. In today's economy your child will need every advantage he or she can get to help them find a good paying job, if they're lucky they will even be offered benefits. Probably one of the biggest, if not the biggest, obstacles they will have to face is paying for college. Let's face it, college costs a lot of money. According to Regional average data: College Board "Trends in College Pricing" 2010 in 20 years the cost to attend a public regional commuter college, in 2030, will be $53,023.00. The following year it will go up to $55,674.00. The year after that is will be $58,457.00 and $61,380.00 the year after that. The cost for a 4 year college education for someone attending a regional college in 2030 - 2034 will be $238,534.00.
Right now in Chicago you can buy a nice 3 bedroom ranch style house for under $200,000.00. You'll be paying more for your child's education than you just paid for your house. It's time to think about saving for college.
One way is to establish a 529 plan. The definition and benefits of a 529 plan as stated in the IRS publication entitled "How 529 Plans Help Families Save for College and How the American Recovery and Reinvestment Act of 2009 Expanded 529 Plan Features"
In summary - A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Code which created these types of savings plans in 1996. 529 plans offer tax savings. Although your contributions are not deductible on your federal tax return, your investment grows tax-deferred, and distributions to pay for the beneficiary's college costs come out federally tax-free. The tax-free treatment was made permanent with the Pension Protection Act of 2006. There are also downsides to a 529. These plans are usually run by outside fund managers. This adds risk to the fund. In 2008, 89% of all 529 plans lost money.
Another way to save for college that offers less risk is to establish a high yield fixed flexible annuity. A high yield fixed flexible annuity offers tax savings as your money grows tax deferred. The annuity is fixed so the rate of return is guaranteed. If the stock market takes a plunge your finds are safe. It's high yield so you money grows at a rate of return that is usually better than any bank CD or Money Market can offer. There is a downside, if you withdraw the money before age 59 1/2 you have to pay a penalty of 10%. That's 10% of the interest earned, not on the principle. A flexible annuity also lets you self direct the investment. You have the option of investing your funds in any investment vehicle you want but doing so will release the issuing company from guaranteeing your rate of return.
Another big piece of advice is to keep the account in your name, not in your child's. Right now your child maybe a bundle of joy. In 20 year that could change. Maybe your child got involved with the wrong crowd or has issues. You don't want to give someone a large sum of money that can possibly do more harm to them. Also, if the account is in your name, they won't be penalized when it comes time to apply for financial aid.
Congratulations! You now are on your way to save for college.
Michael J. Ferro
President
Ferro Financial Services, Inc
http://www.ferrofinancialservices.com/
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