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BY DOREEN FRIEL NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION


your budget as your child grows up, there’s one thing you can do to get ready for tomorrow’s financial demands: Prepare for college expenses now.


W •


Two-thirds of 2011 college graduates had an average of $26,600 in student loan debt, according to the Institute for College Access & Success. No matter how young or old your children are, consider these five options to prepare for future expenses.


Start a regular savings account that’s earmarked for college savings. Both you and your kids can contribute to this account, and your relatives can give you or your children money to deposit as well. It’s easy and convenient: You can set up at your local bank or credit union, or through an online bank. Regularly setting aside small amounts can add up to a lot of money over time. For example, Bankrate.com’s Simple Savings calculator indicates that $100 per month saved over a period of 15 years could add up to $20,972.66, assuming a 2 percent yield on your savings, compounded monthly.


Start a Section 529 Plan. This is an education savings plan operated by a state or educational institution designed to help families set aside money for future college costs. The money is controlled by the owner of the account, not the child. Anyone can contribute to these plans on behalf of the child, and contributions may be tax exempt.





Withdrawals from the account may be tax free if used for tuition, fees, books, and other expenses. Any money not used for education must eventually be distributed to your child.


• • Open a Coverdell education savings


account. This is a custodial account that can be used to save for elementary and secondary school, and college-related expenses. Income maximums apply, so not everyone will qualify for this type of account. The money deposited into a Coverdell account grows tax deferred until it is used for educational expenses.


Open a Uniform Gift to Minors Account or a Uniform Transfer to Minors Account. Under this, a parent or grandparent typically will gift money to the account. The money is owned by the child but controlled by the custodian until the child reaches legal age. At that point, your child assumes control of the account. You can’t restrict how the money is used, and the account cannot be transferred to another beneficiary.





Buy U.S. savings bonds. Certain savings bonds can be purchased to pay for college tuition and fees without having to pay federal income tax on some or all of the interest during the year the bonds are redeemed. Certain restrictions apply—visit www. TreasuryDirect.gov to learn more.


By starting a savings program today, you and your child can be ready to better handle rising tuition expenses. Before opening a college saving account or for more help with college planning and finances, please consult a financial or tax professional. ■


hile you may not be able to avoid the “Mom, can I borrow $20 for gas?” questions that eat into


Kids and Finances Reap the benefits of planning for college today


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