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Pros and Cons of College Payment Strategies- Part 2
What Are Your College Payment Strategies?
Are you or a family member on the cusp of making college attendance decisions? Or have you already decided? So, how will college expenses, tuition, room and board, books and incidentals, living expenses, how will they be paid? What college payment strategies do you have today?
In Central Oregon we have great options where students can live at home while they attend COCC or OSU Cascades. That can save a significant amount of money. But that still leaves many school costs to be funded.
This is the second in a series of articles designed to help students and their parents make the best choices on how to pay for college. Read the first in the series, Pros and Cons of College-Payment Strategies- Part 1.
Custodial accounts
Pros: You manage the account until the child reaches 18 or 21, depending on your state. After that your adult child owns the account (this could be a con).
There are no limits on how the money can be used. There’s no limit on how much a parent can put into a custodial account.
Full-time students younger than age 24 pay no tax on the first $950 of unearned income and pay the child’s rate on the next $950. Earnings above $1,900 are taxed at the parents’ marginal rate. Investment choices aren’t restricted.
Cons: If your contributions surpass $13,000 a year you’ll have to pay a gift tax. Large balances in a custodial account can hurt chances for financial aid.
Private scholarships
Pros: The money is free and many scholarships are awarded to students based on need or special interests.
Cons: Schools might reduce aid if scholarships and aid combined are more than a student’s calculated need.
With soaring tuition costs, borrowing is often necessary even after accounting for savings and scholarship money. Investigate government-sponsored loans, federal work-study programs, state programs, and institutional aid with the Free Application for Federal Student Aid (FAFSA) form.
Consider federal PLUS loans. Private student loans come into play after all other resources are exhausted.
Basic Savings Accounts
Children with savings accounts have improved early childhood development and future financial capability. Adults who had savings as children have improved financial literacy, a greater diversification of savings, and a higher level of savings overall.
Pros: Easy to set up, flexible deposit options and great at instilling lifelong savings habits for children.
Cons: Can be easily accessed and used for other things,and building significant amounts takes time, patience and contributions.
According to CFED, children with college savings have greater college expectations and do better academically. Even though it’s never to late to start, having that savings build over time, with regular deposits, can provide a source of funds for school but more importantly can better position your child for success!
Whether college expenses are in the distant future or weighing you down today, the professionals at Mid Oregon Credit Union can help you figure out the best savings strategy to avoid negative tax consequences and the best loan options when all other sources are exhausted.
Horses of Every Color!
Have you ever seen an orange horse? How about a pink one? Green? If you haven’t, then you haven’t been to the Crooked River Roundup Stick Horse Races or watched the kids paint and decorate their horses the day before at Western Daze in Prineville. There you will find horses of every color!
Painting & Decorating Stick Horses
This year, on Saturday, 6/27, children will be coming the Mid Oregon booth at Pioneer Park in Prineville, where the credit union will be providing stick horses and decorating supplies for the Stick Horse Race on Sunday. Starting at 10 am, as long as supplies last kids will customize their wooden steed for the race. scheduled to start at approximately 3:30 pm the following day at the Crooked River Roundup Rodeo at the Fairgrounds in Prineville.
The Stick Horse decorating is part of Western Daze, organized each year by Crook County Park & Recreation at Pioneer Park in Prineville. Starting Friday with vendors, live music, dancing, games and prizes, Western Daze culminates on Saturday with the Crooked River Round Up Parade from 10 to 11:30 am, followed by live music, entertainment and more. Visit the Crook County Park & Rec website for details.
The Race Is Part Of The Rodeo
Mid Oregon has been providing the stick horses and decorations with Credit Union staff volunteering for many years. The Stick Horse Race held on 6/28 is part of the Mid Oregon Credit Union sponsored Sunday at the Rodeo, starting at 2 pm, where kids under 18 get in for free. All children under 10 years old are eligible to participate in the Stick Horse Race. The rodeo starts Friday night at 7 pm, sponsored by Pioneer Memorial Hospital, continues Saturday at 7 pm sponsored by Facebook and finishes on Sunday. Visit the Crooked River Roundup website or its Facebook page.
The blank stick horses are free and so are the decorating paints, but they are for kids to compete in the race on Sunday, and quantities are limited. Please come early.
See you at the Park!
Pros and Cons of College Payment Strategies- Part 1
College Payment Decisions
Are you or a family member on the cusp of making college attendance decisions? Or have you already decided? So how will college expenses, tuition, room and board, books and incidentals, living expenses…how will they be paid? Do your have any college payment strategies?
In Central Oregon we have great options where students can live at home while they attend Central Oregon Community College or OSU Cascades. That can save a significant amount of money. But that still leaves many school costs to be funded. This is the first in a series of articles designed to help students and their parents make the best choices on how to pay for college.
Borrowing Can Be Expensive
College students who borrow for school graduate with a debt load equivalent to a new-car purchase or a down payment on a house, averaging $25,000.
Some borrowing might be inevitable. To keep it to a minimum, explore the features of other college payment strategies.
529 savings plans
Pros: Your savings grow tax-free and earnings escape federal tax if you use withdrawals for qualified college expenses. Your state might give you a tax break for contributions. You may invest in other states’ 529 plans.
Cons: If you use the money for noncollege expenses you’ll have to pay taxes and a penalty on earnings. A state-appointed firm manages the account you so lose direct control.
Prepaid tuition plans
Pros: You can lock in tuition at in-state public colleges years in advance. The tax benefits are the same as for a 529 savings plan. If your student goes to an out-of-state or private school instead, you can transfer the value of the account or get a refund.
Cons: Not all states participate. If you use the money for noncollege expenses you’ll have to pay taxes and a penalty on earnings.
Coverdell education savings accounts
Pros: The tax benefits are the same as for a 529 savings plan, and Coverdell’s expand the definition of “qualified” to include tuition at private elementary schools and high schools.
Cons: Your contributions can’t exceed $2,000 a year and the beneficiary must be younger than 18; contributions are limited by your modified adjusted gross income.
Roth IRAs
Pros: The money in a Roth grows tax-free. Withdrawals are not limited to qualified education expenses. You can avoid taxes on withdrawals as long as they don’t exceed your contributions. You can avoid a 10% early withdrawal penalty on earnings if you use the money for educational expenses.
Cons: If you are younger than age 59 ½, you will owe tax on any earnings you withdraw. If you are 59 ½ or older you must have held the account for five years to avoid taxes on earnings you withdraw. The ability to contribute to a Roth IRA is governed by modified adjusted gross income limits.
Read more suggestions in Pros and Cons of College Payment Strategies-Part 2