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Saving for college is easier than you think.

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College Savings Ideas

The cost of college continues to rise.  As you consider how to prepare to finance your child’s education, here are four take-aways you should know.

Have your college bound senior apply for FAFSA regardless of your personal support level and savings.

If you are fortunate, scholarships and savings may pay for most of your child’s college.  Even so, all college bound students should file their Free Application for Federal Student Aid (FAFSA), as circumstances may change.  But regardless of the financial aid package, the balance of tuition will be paid from savings or even through an equity loan.

Plan early, plan often, to save for your child’s tuition – you have choices!

You simply cannot begin saving too early for your student.  The earlier you begin and the greater the frequency you save will allow compounding to grow your child’s college “nest egg”!  There are a number of ways to begin saving early:  family contributions to a dedicated college savings plan, money received from special celebrations or milestones and especially payroll deduction from your pay that is directed into a savings or investment account for each child will all help build a solid level of savings.

There are many savings accounts dedicated to educational purposes – some may carry tax advantages, some may have high contribution limits, and some that are less restrictive on qualifying withdrawals.  Parents should always discuss options with their bank officer, financial partner or tax accountant to be sure these variables are taken into consideration before making a choice.

For example, one very popular savings tool is a 529 Plan (named after Section 529 of the IRS code), which offers tax-deductible contributions and non-taxed qualified withdrawals.  These plans are operated by a state or educational institution (the Connecticut-sponsored plan is known as the Connecticut Higher Education Trust, or CHET).  Parents are not restricted to using only their state’s plans and are able to invest in plan offers through other states to take advantage of better rates or lower fees.

While there are no income limits for 529 Plans, most have lifetime contribution limits (the CHET plan has a $300,000 limit per child, per donor).  The tax-deductible benefit may be limited as well (CHET, for instance, has a $5,000 contribution limit for tax deductions, or a $10,000 for joint filers) and earnings on contributions and qualified withdrawals are not taxable.  Contributions for 529 plans are not tax deductible for federal tax purposes.

The Coverdell Education Savings Account (ESA) available from Simsbury Bank and other banks, securities firms and mutual fund companies does have income limits ($100,000 for individuals and $200,000 for joint filers).  However, these funds may be used to pay tuition for any year from Kindergarten through graduate school.

Some families set up an UGMA (Uniform Gift to Minor Act) / UTMA (Uniform Transfer to Minor Act) Account, which can be used for tuition or any other expense that benefits the minor (child).  The earnings on these types of accounts are tax-free.

Ensure your senior puts some “skin in the game”.

There are many ways your student can contribute to their college savings and “own” their degree.  Students should work closely with their parents to understand exactly how their tuition will be paid.  Part of their summer employment pay might go to their college savings plan.  Another way is while in school they can work to pay for their own incidental expenses.

Also, many parents set up mutual funds through their local bank dedicated to tuition or educational expenses – and then require their children to contribute regularly so they play an active role in saving for their own education.  Others ensure their children take on a percentage of the tuition burden by participating in work-study programs or by taking out student loans that they will be responsible to repay.

There are tremendous personal rewards when your child graduates college.

The purpose of your investment in your children is to have them educated and become independent:  both financially and emotionally.  If students contribute to their college program they will reap the same rewards that will launch them forward.

While paying for college may seem daunting at first, there are countless creative approaches families can take to develop their own savings strategy.  Visit your community bank like Simsbury Bank, financial advisor, or one of the many online resources to decide on the best savings tools for your family – and to learn how to get started saving for college today!

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