Simple Options for College Savings from a Professional

Patti Black is BirminghamMom of twins and a Certified Financial Planner. Patti typically works with high net worth individuals but she is generously sharing some tips that any average mom can use in planning for the costs of college. These are accessible to all of us and require only a modest commitment to get started.

Patti’s Easy Tips on Saving for College

With the economy in trouble and account values declining, including the assets funding Alabama’s PACT plan, you may feel that trying to save money for your children’s education is hopeless. Or you can take another point of view and decide that continuing to save in today’s environment is like buying things on sale. (A really good sale, like one where you can “buy one get one free” and use your coupon.)

Just like making a grocery list, what you “buy” when you are saving for education depends on what you can afford. Even if you don’t feel like you have any cash to spare for savings right now, you can still take advantage of Upromise® rewards. It is a free service that helps you earn money for college by giving back a percentage of what you spend with hundreds of America’s leading companies when you use a registered credit card or grocery card. You can save when you shop online (be sure to install The Upromise TurboSaver™ to get the most Upromise® bang for your online shopping), at your favorite stores, at the grocery or drug store, when traveling, dining out and more.

This money, which accumulates in a Upromise® account, can be automatically transferred to a Section 529 plan (more on it in a minute) on a periodic basis, subject to a $25 minimum transfer amount. Visit www.Upromise.com for more information and to enroll.

If you have at least $25 to set aside regularly for your child’s education, you can utilize a Section 529 plan. These plans allow you to save for qualified education expenses (tuition, fees, books, room and board, supplies, etc.) and, as long as the withdrawals are used for these purposes, they are not subject to federal income tax.

However, (you knew that was coming, didn’t you?) you will have to pay both income tax and a 10% penalty on the earnings of any withdrawals that are not used for qualified education expenses. The penalty does not apply if a child receives a scholarship. In addition, you can avoid the penalty by changing the beneficiary of the plan to another family member. A 529 plan may make it more difficult to obtain financial aid, but keep in mind that most financial aid comes through loans, which must be repaid.

Just as your child wrestles with the decision of which cereal to select at the grocery store, you may also be overwhelmed with which 529 plan to select. This task will be made a little simpler with a visit to www.savingforcollege.com, which has a tool that allows you to compare the plans.

Like the advice not to grocery shop on an empty stomach, you should not save for your children’s education until you have an adequate emergency fund (3-6 months of expenses set aside in a money market fund) and you have paid off your credit cards. But you already knew that, right?

Any views or opinions are solely those of the individual author and do not necessarily represent those of Charles D. Haines, LLC.

Thanks, Patti, for sharing these ideas. We BirminghamMoms are glad to learn from a professional who understands the temptation to enjoy takeout for dinner today vs. deferring for college tomorrow. It’s good to be reminded that those empty-stomach shopping decisions can be wallet-busters down the road.