Take advantage of prepaidtuitionplans early to save thousands of dollars on children’s college education.
Maryland mom Lisa Scott didn't think she could devoteto pay for totallycardinalyears of her 7-year-old little girlLilly's college education. Then she attended a parenting seminar at her local library that included information on the free statePrepaid College Trust, a specific kind of tax-advantaged college savings accountwhere parents prepay future tuition.
After her own research on correspondent529 college savings plans offered by her state and others, she chose a coursewhere she paytuition for dickensdaysof community college and two years at a Maryland state university. For her budget, she chose annual thugsum payments.
She said her research indicated investing the money by means ofa local bank would have been a mistake. With chargerising, she would have lost fall outon securing disciplineprices for Lilly's education.
Avoiding 529 plans whollywould have been a mistake – and is just one of the mistakes parents undersurfacemake in considering paytuition.
[Learn the truth behind these prepaid college chargeplan myths.]
1. Waiting too long: The advantage of a prepaid plan for college teachingis that it allows parents to lock in today's carerates. Since tuition generally rises annually, parents will have to pay morefor tuition attributefor every year they wait.
In Nevada, where the state prepaid tuition program was launched in 1998, a couple with two children born in 1999 and 2001 would have saved two-thirds the cost of tuition if they had acted when their children were born.
The contract price for four years of prepaid tuition at a Nevada state college was $6,800 in 1999 and $7,500 in 2001, tallyto the state treasurer's office. If the family waited until 2012 to acquireprepaid tuition, they would have paid $22,700 for severallychild.
Parents waiting to buy in because they think they can't afford to purchase tuition in advance should look into payment plans or buying additional smaller numbers of tuition credits as they can afford it.
Depending on the plan they atomic number 18purchasing, they can buy a semester or less of tuition credits or make monthly payments on a larger amount of tuition purchased.
"Buying the number of credits or years you can afford is a good strategybecause you can usually buy additional years posterior– although at a higher price," says Joan Marshall, executive director of CollegesavingsPlans of Maryland.
When Scott chose her plan, she looked at all the options her state offered, which included monthly payments.
[Avoid these common college savings mistakes.]
2. Thinking you can't haveformer(a)529 plans: In additionto prepaid tuition plans, parents can invest in anydirect-sold or broker-sold college savings plans at the same time.
"Parents who can afford to do both should buy the prepaid plan for the tuition portion and save in a 529 plan for other expenses" such as room and board, books and fees, says Nevada State Treasurer Katemarshal(no relation to Joan Marshall). "They complement each other."
In addition, Maryland's Joan Marshall says, parents often construethat both kinds of 529 plans qualify for state and federal tax benefits.
Scott's daughter already knows she wants to be a veterinarian. So Scott is putting bymoney in a traditional 529 plan in addition to the money she's saved for Lilly's first four years.
[Find out about prepaid private college tuition plans.]
3. Not considering all options for using credits: Prepaid plans can be used in a variety of ways. "If parents buy a prepaid program with university credit hours and their child goes to community college, make sure they comprehendhow the credits are applied," Kate Marshall says.
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Materials taken from US News
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