College costs have been rising higher than the rate of inflation. More than 60 colleges now have a sticker price (tuition, fees, room and board) that's over $60,000 a year. While many college students receive some form of financial aid, applying for and maximizing your eligibility can be a challenging process. If you have children, you must have a plan. Consider this: a 13-year old has less than 60 months to left to save. The earlier you start, the better off you’ll be. Below are some of the common methods used to pay for college:
The Uniform Transfers to Minors Act (UTMA): allows a minor to receive gifts, such as money, stock, patents, royalties, real estate and fine art. Under the UTMA, the gift giver or an appointed custodian manages the minor's account until legal age. The property belongs to the minor, and earnings are taxed at the child's tax rate. It’s important to note that this may have a negative impact when the minor applies for financial aid or educational scholarships.
529 College Plan: provides tax advantages when saving and paying for higher education. The plans allow a person to grow savings on behalf of a beneficiary, who could be a child or grandchild, spouse or even themselves. A 529 plan may be established by anyone for a designated beneficiary. There is no limit on the number of 529 plans an individual can set up, but contributions should not exceed the cost of education nor the limit as set by the state.
There are two kinds of 529 plans:
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