4 - EASTERN OREGON PARENT - April 2018
College fund saving plan can be as easy as 5-2-9
By SUZANNE KENNEDY
Search online for “how to save
for college” and the entire first
page of your search results will
come back with information on 529
plans. Somewhere farther down in
your search, you might
see Educational IRAs
and life insurance plans
like the one from Ger-
ber.
The benefits of a 529
plan make a long list.
It’s easy: contributions
are automatic once you
set up the account. The
earnings are automati-
cally reinvested. No ad-
ditional work is required
on your part. You can
use the money at any
accredited school, in
any state, and even in
foreign countries, as long as they
have a student aid program. The
school can be academic or voca-
tional so when little Susie decides
that studying cooking in Paris is her
thing you’re covered. As long as
the money is used for education,
it is tax-free. That includes various
items that are necessary for educa-
tion, like books, computers, some
room and board costs, and even
Internet access.
Thirty-three states offer these
529 plans and you don’t have to
live in the state in order to get one
of their plans. Just because you
live in Oregon doesn’t mean that
you can only purchase an Oregon
plan. You can shop around and see
which one you like best. There are
a couple of websites that compare
the details and ratings of each plan.
Anyone can send contributions, so
when Grandma asks what your son
needs for his birthday, you have the
perfect answer.
There are no application fees,
no maintenance fees, and no sales
fees. You can start one for as little
as $25 and contribute monthly
as much or as little as you’d like
(states may differ on minimum
amounts). Many states even offer
a tax deduction for your contribu-
tions.
If your child decides not to go
to school that money can be used
by another relative – even you. In
some cases, if perchance your child
receives a full ride to a university
(hey, we can dream, right?), that
money can be removed without
any tax penalties as well. Or, if your
child doesn’t spend it all, another
relative can step in and use it.
As of last year’s federal tax re-
write, the money can also be used
for educational K-12 expenses for
private schools. The major benefit
here is the tax break, but investing
money one month and taking it out
the next doesn’t take full advantage
of the idea of letting your invest-
ment grow, and it certainly won’t
help you save for college. So it
depends what your financial goals
really are.
Educational IRAs are another
option. These are similar to 529s
in that the funds have to be used
for educational purposes or they
will be taxed. There are a few
differences. Edu-
cational IRAs, like
the Coverdell ESA
(educational sav-
ings account), have
an age limit and a
maximum yearly
contribution of
$2,000. This plan
also allows you to
self-direct your in-
vestments whereas
a 529 does not, but
IRA contributions
are not tax deduct-
ible.
The third popu-
lar option is a life insurance policy
like the Gerber Life College Plan.
It’s a life insurance policy which
matures at 10 or 20 years (your
choice) that can be used for college
… or anything else. It’s your money
and there are no restrictions on its
use. The drawback is that payouts
are not tax-free and your contribu-
tions are not tax deductible.
It’s never too late or too little.
Every bit you put away now is
Education
money that won’t need to be
borrowed with interest. If you are
starting later, set a realistic goal like
saving enough to pay for a year’s
worth of textbooks or a meal plan.
Don’t forget, you don’t have to stop
saving when they’re freshman. You
can continue contributing through-
out their time in school. In addition,
23 states participate in a matching
grant program similar to a company
matching your 401K contributions.
States differ in their programs,
which is another great reason to
shop around.
Experts say the most important
rule to saving for college is con-
sistency. Don’t leave it up to your
memory to contribute each month
– make the deductions automatic.
You’ll save more than you think you
can and have one less headache
when the time for higher education
rolls around.
________
Suzanne Kennedy is a former middle
school teacher who lives in Pend-
leton with her husband and four
children.
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