Paying for your children's college education is truly a big expense. That is why you need a plan to make it easier to fund it. Here are some tips to make raising money for college hassle-free.
1. Make The Most Out Of Your 529 Plan Contributions
The 529 plan, called qualified tuition plans legally, is based on Section 529 of the United States Internal Revenue Code. One type of 529 plan is the pre-paid tuition plan and the other is the college savings plans.
The first, according to the Securities and Exchange Commission, allows credits for future tuition or sometimes, room and board, to be bought. The latter allows the account holder to create a college expenses account for the student.
Money put in a 529 plan counts against the yearly $14,000 gift tax exclusion. But did you know that you can put in five years' worth of contributions without being subject to the gift tax?
If you put in $70,000 in one year, your money will have more time to grow. That money, mind you, will be tax-free.
2. Save Up For College Using Roth IRA
A Roth IRA is an account for retirement. One pays taxes for the money going into the account while future withdrawals are tax-free.
You can use your Roth IRA not only for retirement, but also for your children's college fees. Should your child decide not to enter college, you have more money for retirement.
One good thing about Roth IRA is it doesn't render your ineligible for financial aid. This is unlike the 529 Plan, where the account is held in the parent's name.
You didn't put away money for your kid's college fund. Now what? https://t.co/ZzFgcr3HT1 @usnews pic.twitter.com/eCwi1xRI6c
— SUM180 (@mysum180) April 29, 2016
3. Use Your Home Equity To Merge High-Interest Student Loans
Most parents use student loans to finance their children's education. Like debt from student loans, home equity, which is what's left when you minus debt off from a home's value, has grown a lot.
In contrast, rates for refinancing are hovering on the all-time lows. A cash-out refinance can enable you to use your home equity to merge the high-interest student loan to a lower interest rate.
Just remember to veer away from activating private mortgage insurance. Make sure your equity is more than 20% of the value of your home.
What do you think of these tips? Share your thoughts below.
