Coverdell Education Accounts, financial education tools to help battle recent tuition hike at public, private schools
Two years ago, the Vanguard Group, a mutual funds company, projected that in 18 years, the total cost of a four-year college education would be more than $90,000 at a public university and more than $200,000 at a private institution.
While those projections may change in the next Vanguard report due to large tuition increases statewide, one thing has not changed -- making plans for college savings now can pay big dividends down the road.
Today, there are a multitude of options parents - and children - can use to help take the financial sting out of the postsecondary experience. These include Coverdell Education Savings Accounts, the College Savings Iowa program, mutual funds and old-fashioned financial education to help young adults learn about the world of budgets, loans, checks and credit cards.
Julia Mooney, a certified financial planner and senior trust officer at Citizens First National Bank in Storm Lake, said one of the most important things to do is to start a savings account for children as soon as possible.
"Even at a young age, it's important for parents to think about the years ahead," Mooney said. "Starting to save at a young age is very important, especially with the time value of money, because that can be very key in helping to build up solid savings."
While starting savings accounts for children is an important step to take, Mooney said there are several other government programs which can help build a cash reserve for college. One of those is the Coverdell Education Savings Accounts program, which allows a "designated beneficiary" (usually a parent or grandparent) to contribute up to $2,000 per year to the account.
"One of the best things about these Education Accounts is that the interest is tax-free," Mooney said. "It's also nice that they raised the limit from $500 to $2,000 this year, so people will be able to accumulate more from these funds in the long run."
A second option for parents could be the College Savings Iowa program, which allows each adult to save a minimum of $50 per year up to a maximum allowable aggregate account balance of $140,221 per child. Earnings in this program also grow tax-exempt.
"The College Savings Iowa program is a very good program," Mooney said. "It has been around for only four years, but it seems like it's been a good program to be a part of so far."
Mooney said children should be involved in the process as well, whether that be through working, setting up their own savings accounts or just learning basic financial fundamentals such as how to balance a checkbook, how to use credit and how much is taken out of a paycheck for taxes and where that money goes.
"It's important for kids to look ahead to college by being exposed to things like income taxes or W-2 forms or working and having financial investments themselves," Mooney said. "It's a good learning experience for them, because they get a feel for how expensive things really are and how important saving for life after high school, whether that's work or college, is."
For more information on the College Savings Iowa fund, visit www.collegesavingsiowa.com or call 1-888-672-9116.