What type of College Savings Plan is Right for Me?
When it comes to saving for college, there are many investment options to choose from.
And though to a newcomer, this may all be overwhelming, it can be managed by looking at the differences between each type of plan and deciding which options are right for you.
The 3 basic plan types are a Coverdell ESA, an IRA for college savings or a state-sponsored 529 plan. All of these plans were made exclusively for the needs of college savers and so should provide you with features that are suitable to your financial situation.
Each of these three saving methods are available through College Savings Bank. The CollegeSure CD offered exclusively through College Savings Bank, was created to hold deposits safely with FDIC insurance and designed to enable families to invest in a child’s higher education today for a fraction of tomorrow’s cost.
About Coverdell ESAs:
- Distributions are tax-free.
- You choose the investments. You can invest in the stocks, bonds, mutual funds, or just plain old cash. College Savings Bank offers their trusted CollegeSure CD in a Coverdell ESA.
- Funds in a Coverdell ESA can also be used for eligible primary- and secondary- education expenses. This is unique to Coverdell ESAs.
- With a Coverdell ESA, you can contribute up to $2,000 a year per child.
- When a contribution is made, the beneficiary must be under the age of 18, with certain exceptions.
- Coverdell ESA accounts may not reduce the amount of financial aid a student is eligible for.
About an IRA plan for college:
With an IRA plan, there are both the Traditional IRA and the Roth IRA, providing more options when it comes to choosing.
- IRA’s, though designed as a retirement vehicle, also allow funds to be withdrawn for higher education purposes without penalty. Taxes may be due depending on the account owner’s age and the type of IRA (see your tax advisor for more information).
- With both Traditional and Roth IRAs, the maximum investment in one year is $5,000 ($6,000 for taxpayers age 50 and over).
- An IRA account may be considered when financial aid is determined.
With a Traditional IRA:
- Contributions may or may not be deductible in the tax year made, depending on the owner's income tax filing status, adjusted gross income (AGI).
- Withdrawals from a Traditional IRA will always be taxed, either in whole or in part, at ordinary income tax rates.
- If the funds from your account are used for higher education, there is no 10% pen- alty from the IRS.
With a Roth IRA:
- Withdrawals may be tax-free provided certain minimum rules are met; however, contributions to a Roth IRA are not tax-deductible. If a Roth IRA has been open for at least five tax-years and you are older than age 59 ½, a withdrawal will not be taxed; Roth IRA offers tax-exempt rather than simply tax-deferred savings.
- Roth IRAs are available to single filers making up to $95,000 and couples making up to $150,000 with flexibility allowing you, in many cases, to withdraw your principal contributions at any time tax-free, without penalty.
College Savings Bank offers both Traditional and Roth IRAs for families saving for college through the safe and reliable CollegeSure CD.
About a 529 savings plan:
- The control over the funds in the 529 will always reside with the account owner contributor.
- The contribution limits to 529 plans are as high as $318,000 over a lifetime, depending on the program.
- Earnings grow tax-free and distributions are tax-free if used for higher education.
- 529 distributions that are not included in income are not treated as assets and so will not reduce the student's financial-aid package.
- Your state may offer a tax deduction for contributions to the local 529 plan. Also, some states offer other perks, such as scholarships and matching contributions.
- If the child you opened the account for decides not to attend college, you can change the name of the beneficiary, with certain restrictions.
As the program manager for two great state-sponsored 529 plans, the Montana Family Education Savings Program and the Arizona Family College Savings Program, you don’t need to look further than College Savings Bank. Any U.S. taxpayer, regardless of income, may establish a tax-favored college savings account for anyone - including themselves, to help pay for qualified higher education expenses. Use the proceeds at any eligible college, university, proprietary or vocational school worldwide.
With a 529 plan from College Savings Bank, you can rest easy with FDIC insurance up to $100,000 per depositor and principal protection. There are also no fees.
529 plans have become a widely sought out way to save for college because of the features they include. Parents seemingly like that 529 plans are free from federal and state income taxes, grandparents or family members can gift money into the accounts and also 529 plans do little damage to your chances for financial aid. In more than half of the states, they also deliver a state tax deduction or other tax benefits in exchange for your contributions.
College Savings Bank understands that every family has different financial needs. The products offered at the Bank come with multiple deposit options and have initial deposits as low as $100, based on the plan you choose. Coverdell ESAs, IRAs for college and 529 plans are all available through College Savings Bank. With 21 years of experience in the college saving field, the Bank makes a commitment to providing safe and innovative saving tools.
The two products exclusively offered by College Savings Bank, the CollegeSure CD and the InvestorSure CD, do not have any fees and have FDIC insurance (principal only for InvestorSure) to at least $100,000 per depositor.
- The CollegeSure CD is a variable rate certificate of deposit indexed to college costs and designed to meet the future cost of college. This product acts like a college cost prepayment product and pays an annual percentage yield tied to the rise in college costs. The CollegeSure CD has stood the test of time and continues to be a safe, affordable and flexible meth- od of saving money for education.
- The InvestorSure CD is a variable rate certificate of deposit indexed to the Standard & Poor’s 500 Composite Index. Un- like many investments, the InvestorSure CD does not risk principal. This product allows college savers the ability to see the upside of the S&P 500 without the accompanying risk.
At College Savings Bank, there are plenty of ways to conservatively save for your child’s education and protect the funds that you put into it. With Standard & Poor's highest credit rating awarded to the CollegeSure CD from College Savings Bank, you will be able to rest assured that your college savings is protected and will be there when you need it.
After reviewing each type of savings plan and its features, you should more easily be able to decide which plan fits your financial situation and which plan will be able to provide the most advantages for your savings.
Take time to examine the different options and college saving methods before choosing a college saving plan. To find out more about the CollegeSure CD and the InvestorSure CD, call a College Savings Bank Adviser at 1-800-888-2723 or visit them online at http://www.collegesavings.com.