Father and Sons

I called up my agent today (agent as in insurance agent) and asked her to send me a copy of their pre-need, educational plan. This is for my second son, Sean Timothy.

This is one way for me to save for college. It’s hard for me to save couple of thousand pesos every payday or at regular interval. Discipline is the key. In getting one of these insurance, I am forcing myself to save up… When I save, that means no extra expenses including diamond rings for the wife.

Here are 5 Tips for Saving for College

1. Start early

2. Consider 529s

State 529 college plans have been a popular investment vehicle for a lot of parents. But be wary. It’s convoluted, it’s expensive, it’s unregulated and it may not even grow your savings.

There are 92 separate state 529 plans, according to Morningstar. And some states like West Virginia, California and Nevada have up to five offerings. These plans vary wildly and can be very difficult to understand. Right now money grows tax deferred but that is set to expire in 2011.

3. Prepay with caution

If you’re certain your son or daughter is going to a state school, you may want to consider prepaid tuition. The more time you have before your child gets to college, the better. When you enter into a pre-paid plan offered by the state, you basically lock in tuition costs and offset inflation rates.

For example, if a state school costs $10,000 and you buy $5,000 you already have half of tuition paid for, regardless of how much tuition rises. You may like that certainty, but many state programs charge more than current tuition rates when pricing in the contracts.

And be careful — if your student winds up not going to a state school, you may lose money. In some states, such as Florida, you would get the initial money you put in, but you may have to pay additional cancellation fees, according to Tanabe. In other states you may only get a small refund of your money.

Right now states like West Virginia, Virginia and Texas have suspended enrollment in their prepaid programs. In Ohio tuition increases of 10 percent annually caused the prepaid tuition plan to be suspended. And keep in mind, prepaid tuition plans reduce financial aid eligibility. These pre-paid programs also don’t cover the cost of room and board.

4. Play it safe

If you’re more conservative, consider Education Savings Bonds. This is a risk-free investment. And there are tax breaks for parents who meet income eligibility. For single taxpayers your adjusted gross income cannot exceed $74,850 to quality for the exemption.

Since the money is held in the parent’s name, the child isn’t penalized when it comes to getting financial aid. And don’t forget that you can also tap into your home equity or retirement savings too. Most colleges don’t count these assets at all.

You need to invest at least $50 in bonds in order to qualify for the exemption. Right now the rate is 3.5 percent. The annual limit is $60,000. For more information, click here.
5. Get your rebate

We all know about frequent flier miles, but how about getting money for college by shopping at McDonald’s or Staples? The rebates received from a loyalty program are not subject to income tax or sales tax.

Upromise is one example of a free rebating program that helps families save money for college. Major companies where you can get rebates include America Online, Avis and Borders Books & Music.

You can automatically have your Upromise balance invested in a section 529 plan or you can redeem the rebate for cash. For more information, go to www.upromise.com. Or call 1-800 upromise.

If you buy or sell a home through a Upromise affiliated broker, you can save up to $3,000. But usually the rewards are smaller. If you spend $60 at Sharper Image, you’ll see a savings of $1.80.

Tanabe says that you’ll need to spend a lot of money to see significant savings and that these programs should be seen as enhancements to college savings, not as a replacement for other savings.

Check out the whole article here.