Education Funding Strategies - It's Not All 529 Plans

When it comes to college funding strategies, 529 plans and Coverdell ESA's are just the start. There are literally dozens of education funding strategies that you can use to lower your costs and taxes as you save for and pay for college.

(PRWEB) March 27, 2005 -- When it comes to college funding strategies, 529 plans and Coverdell ESA's are just the start. There are literally dozens of education funding strategies that you can use to lower your costs and taxes as you save for and pay for college.

Just a few of them are:
•   Roth IRA
•   Traditional IRA
•   Home Equity Loan
•   Equity-Indexed Insurance Products
•   High-Growth, Low Current Income Mutual Funds
•   Small Business Provisions
•   Gifting Strategies

In addition to the above listed strategies, there are several more items that must be factored in:
•   Scholarships
•   Grants
•   Government-Subsidized Loans
•   Student Loans
•   Parent Loans
•   Tax Credits
•   Work-Study Programs
•   Distance Learning Programs
•   Optional Study Programs

The above options represent some of the more popular options that folks utilize in addition to 529 plans and Coverdell ESA plans. Once youve determined what your Expected Family Contribution (EFC) will be, then you can begin to develop plans for how youre going to deal with that number. You will get the EFC by submitting the FAFSA form (a form that is required by the learning institution in order to determine eligibility for financial aid). If youre not at that point just yet because college is a few years away, you can get an estimated EFC from several websites, or by working with a qualified financial advisor, such as a Certified College Planning Specialist (CCPS).

For now, we will briefly discuss the benefits of two of the most popular funding vehicles -- the Roth IRA and home equity loans. When starting out in this process, youll want to develop a strategy for how much of the cost you (as the parent, grandparent or guardian) are willing to bear, and how much you can expect the student to take on. The students portion may include utilizing savings, gifts, work-study programs, and loans, among other items.

Now that youve determined how much of the EFC you are going to undertake, you need to think about your available options. Two fairly common options are discussed below.

It has often been said that college funding and retirement funding go hand in hand. For those of us that are in the throes of these savings activities, we understand this quite well. In order to begin saving for college expenses, most often we must forego some of the retirement savings activities that we so desperately need to do, as well. In addition, especially if college is still several years away, we are often hesitant to tie up too much in a dedicated education savings plan, for fear that it will be more than is necessary -- and well end up paying penalties to get our money back! Enter the Roth IRA.

Most of us are familiar with the benefits of a Roth IRA in regard to retirement savings -- but did you realize that you can use the Roth for education expenses as well? Your contributions to the account are always available to you (but not the growth), for any purpose you wish. Plus -- if you are using the funds for qualified education expenses, youll only owe ordinary income tax on the growth -- the 10% penalty is waived. The same is true for a traditional (deductible) IRA, although of course the entire amount withdrawn for educational expenses, contributions and growth, would be subject to ordinary income tax.

Another option that most folks dont consider is a home equity loan. Depending upon how long youve owned your home, this can be a great source of funds for education expenses. This should probably be considered after any other loan arrangements have been exhausted, but it is a personal decision. There are many variables to consider, including amount of equity available, terms and rates available to you, tax implications (deductibility of interest), and your own credit-worthiness. Quite often, there are better terms and rates available with some of the government programs, although some parents prefer to go the home equity route since they are familiar with the way this kind of loan works.

So, parents, grandparents, and guardians -- make sure that you keep an open mind as you develop your plans for saving and funding for education. There are many options available, so explore as many as you can. The key is to try to survive this time, both financially and mentally, while saving money wherever possible. All the while, you want to make sure that you dont derail your retirement savings plans, as well.

Jim Blankenship, CFP®, CCPS is President of Blankenship Financial Planning, located in New Berlin, Illinois. Jim is a financial expert, and a Certified College Planning Specialist (CCPS) concentrating on retirement planning and education funding strategies. For more information about education funding strategies, see www.2save4college.com. You can contact Jim at info@BFPonline.com or by phone at 217-488-6473.

Editors: Jim Blankenship is also a resource for information on all things financial, especially investment matters, retirement and goal savings issues, and college savings. You can find more information about Jim and his practice, Blankenship Financial Planning, by going to www.BFPonline.com.

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