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Total Financial Makeover
It's Never too Late to Save for College, as Long as You do it Right
September, 2005 - Issue #11
Why do we spend 18 years raising our children, teaching them to behave, and telling them to do well in school? Because we want the best for them. We tell them that they should study hard for college, but we can sometimes neglect our part, that we may want to help them pay for it. If we don't teach them to save money for themselves by getting a job, applying for scholarships, and saving when young, our part of the bargain will raise its head in the form of the funds for that ever-increasing college tuition.

Here are a few options that have helped one of our clients. They have resided in Santa Clarita for 10 years and have an 8-year-old son and a 6-year-old daughter.

We started with opening up a college investment account called a 529 program. It allows parents to put money in and when the time comes for college, withdraw it tax-free for higher education. Even better, along the way there are no income taxes paid by the parents or the kids on the interest earned. They had an UGMA (you know, a custodian account) at a bank under the mother and child's name. They didn't know, but that is one of the least tax-efficient ways to save for college. The interest is taxed at the parents' and/or child's rate depending on the age of the child at the time. Even worse, it also hurts them when it comes to financial aid since colleges expect at least 30 percent of the money held in the child's name to be used for tuition, so it can hurt financial aid chances. However, the money held in a 529 program is counted at the parents' rate of six percent. Wow! A savings of 24 percent - not too shabby.

We also began an investment program called Tuition Rewards that allows the parents to earn tuition credits at more than 170 private schools across America. This allows them to earn up to one full year of tuition at no extra charge to them. We used this strategy for their existing IRA's and old 401K's. We also encouraged them to sign up at UPromise.com. Both help accumulate credits toward that ever-increasing college cost.

The most important thing to remember when saving for college and planning for your future is that it is never too early for them and it is never too late for you!

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Arif is the owner of Total Financial Solutions. Andrew is an administrative assistant with the company. Reach them with questions and comments by e-mailing ahalaby@tfswealth.com; include "Inside SCV" in the subject line.
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