How to start a college savings fund?

[Anonymous]

My son is three years old and we would like to set up a college savings fund for him. My husband and I are both employed and we own a small townhome, but we are not wealthy. Looking at some of the postings here, it scares me a little bit and I also know that we will probably not be able to fund his entire college education, but we would like to start somewhere and start savings for him.

Can anyone recommend a plan or a savings tool for college expenses? We live in Virginia and I would like to set up the fund in January and start contributing every month.

Thank you!

[Anonymous]

We set up a VA-529 account (VEST) and we contribute $200 each month. Not a stellar, but it's what we can afford for the time being and over the years it adds up. We hope to increase our contributions when we are done with daycare payments and the kids are in school.

We have set it up as an automatic monthly transfer from our checking account so we don't even see the money, and we don't miss it. It's pretty easy to set up, and the VA plan has a good reputation.

http://www.virginia529.com/

[Anonymous]

Thank you so much for the information. I heard about this plan, but I did not know where to get the information. I will check the website. Is this something that I can do on my own or do I need to have an advisor? We plan on contributing about $200.00 per month as well. Like you said, it is not a lot at the moment, but in time it will add up. We also plan on using the money that we currently pay for preschool/daycare/babysitting expenses and add that to the fund once our DS is in school.

Is it possible to add additional money to this fund on certain occasions? We are from overseas and my son receives monetary gifts for the Holidays, birthday etc. from friends and family members overseas and we would like to add this money as well.

Thanks again!

[Anonymous]

There are several choices.. you can do 1 or all of them. The first 2 typically have tax benefits as well.
1) College Prepaid - pay now for 1-4 yrs of college at today's prices. Typically you are only eligible for the program your state offers, if they have one. Most have various payment options, pay over 17 years (depending on the age of the kid..) pay over 5 years, etc.
2) College Investment plan -- These are like 401k's but for college -- you invest the money in various funds and they are subject to the whim of the markets. You are not locked into the one for your state, you can choose a different state's plan - however you typically lose out on any tax benefit if you choose out of state.
3) Set up a regular bank account - lower rate of return, but may be good if you want to save up a down payment for the prepaid option or investment plan

Howard Clark has reviewed and ranked the various state investment plans: http://www.clarkhoward.com/news/education/preparing-for-college/clarks-529-guide/nFZS/
Here is a link where you can compare various plans offered by different states: http://www.savingforcollege.com/compare_529_plans/index.php?page=select_plans&plan_type_id=

Family can contribute -- they can either send you the money and you put it in the plan or in some cases they can send a direct contribution.

Another thing that can help put aside a little extra is Upromise -- you can sign up at their website - and then go to their webpage and use their links to shop online -- ie, go to their website and use their link to Target.com -- and you will get 2% of your purchase at Target back. Also you can enter things like your grocery cards (safeway, giant, cvs, etc) and credit card #'s you earn a couple cents from grocery shopping, or various restaurants and brick and mortar stores. It adds up over time - especially 10 years Then once a year or so, transfer the money out to your 529 plan. Upromise has been around for years - maybe a decade now. I signed up long before I had a kid!

[Anonymous]

The pre-paid plan is only for tuition not room and board, fees, books, meal plans etc.

Some friends thought they had it alll covered and then......

[Anonymous]

Anonymous wrote:The pre-paid plan is only for tuition not room and board, fees, books, meal plans etc.

Some friends thought they had it alll covered and then......

This is absolutely NOT true. Money from a 529 plan can be used for tuition, fees, books, supplies and equipment required for study at any accredited college, university or vocational school in the United States and at some foreign universities.

The money can also be used for room and board, as long as the fund beneficiary is at least a half-time student. Off-campus housing costs are covered up to the allowance for room and board that the college includes in its cost of attendance for federal financial-aid purposes.

http://www.axa-equitable.com/plan/education/529-plans/room-and-board-expenses.html

http://www.ehow.com/about_5272756_irs-rules-plans.html

http://www.collegeboard.com/student/pay/add-it-up/8849.html

[Anonymous]

You don't need an advisor to set this up. I did it on my own in one afternoon.

[Anonymous]

She said "pre-paid plan" which is just for tuition. The 529 plan can be used for room, board, etc. But with the pre-paid plan it is ony tuition that is paid for.

Anonymous wrote:

Anonymous wrote:The pre-paid plan is only for tuition not room and board, fees, books, meal plans etc.

Some friends thought they had it alll covered and then......

This is absolutely NOT true. Money from a 529 plan can be used for tuition, fees, books, supplies and equipment required for study at any accredited college, university or vocational school in the United States and at some foreign universities.

The money can also be used for room and board, as long as the fund beneficiary is at least a half-time student. Off-campus housing costs are covered up to the allowance for room and board that the college includes in its cost of attendance for federal financial-aid purposes.

http://www.axa-equitable.com/plan/education/529-plans/room-and-board-expenses.html

http://www.ehow.com/about_5272756_irs-rules-plans.html

http://www.collegeboard.com/student/pay/add-it-up/8849.html

[Anonymous]

Another option for you is a Coverdell Education Savings Account (also loosely known as an education IRA). You can easily do this on your own and can invest pretty much wherever you wish. You control how the money is invested. The limit is $2000 per year, unfortunately, but it's a great place to invest for your child with your first $2000. After the first $2000, you can go with a 529 plan. All you need to do is decide how you want to invest the money - stocks, mutual funds, CDs, money market, etc. (or a mix). When you invest, you just check off the ESA box or tell the person on the other end of the phone at Vanguard, for example, that the money is for an ESA account. The money will grow tax free as long as it is used for education expenses at withdrawal time. You can also use this money for private primary or secondary school (not preschool or daycare, however). It can be used for tuition for vocational school or college, and books, room, board, etc.

People above certain income levels are not eligible to contribute to an ESA, although the levels are fairly high (modified adjusted gross income levels below $110,000 for single parents and $220,000 for married couples). The money in an ESA account must be used by the time the child turns 30 or if must be transferred to another child or you will pay taxes and penalties.

Overall, I think it is a great first option before starting a 529 plan. Vanguard is a great mutual fund company with low fees. You have until April 15, I believe, to make a contribution for 2010. And then you can still make up to a $2000 contribution for 2011.

We have been saving for college this way since 2002. Our daughter who was born in 2002 has about $22,000 saved so far this way in a mix of mutual funds and CDs. I like controlling where we invest rather than put it in a target-date fund, but that's just me. Not everyone feels this way.

Hope this helps.

[Anonymous]

there are so many options and it can be very overwhelming.

i would start simple - open the virginia VEST. it has a tax benefit for you, low fees and good performance.

as your child gets older and you are more aware of what the college plan really is, you can review wher you are and adjust. for example, there is an Independent 529 plan where you buy pre-paid tuition credits at a long list of private schools. So you lock in todays tuition rate. If you get to middle school and you think that one of your children might go to a college on the list, it might be worth transfering your VEST to the independent 529 for a few reasons - 1. At that time you are going to put your money in more conservative investments anyway so you might as well lock in today's tuition rates - even if it is for only 1 year.

[wmihm]

Here's an article written in plain English on how to choose between a Coverdell and a 529 plan that should help to clear up some confusion.

Good luck! http://www.financialrx.com/saving-and-investing/article/529-plan-vs.-coverdell