How to Save for College
1. Save for your own retirement first.
Your children will have more sources of money for college than you will have for your golden years, so don't sacrifice your retirement savings.
2. Start saving now!
Investing just $150 a month for 18 years will yield $48,000, assuming an 8 percent average annual return.
3. Stocks are best for your college savings portfolio.
With tuition costs rising faster than inflation, a portfolio tilted toward stocks is the best way to build enough savings in the long term. As your child approaches college age, you can shelter your returns by switching more money into bonds and cash.
4. You don't have to save the full tuition.
Federal, state and private grants and loans can bridge the gap between your savings and tuition bills, even if you think you make too much to qualify.
5. Think about mutual funds.
Investing in mutual funds puts a professional in charge of your savings so that you don't have to watch the markets daily.
6. 529 savings plans give great tax breaks.
Qualified withdrawals will be free of federal tax starting in 2002 and most plans let you save between $150,000 and $270,000 per beneficiary. Plus, there are no income limitations or age restrictions, which means you can start a 529 no matter how much you make or how old your beneficiary is.
7. Tax breaks are almost as good as grants.
You may be able to take two federal tax credits - the Hope Credit and Lifetime Learning Credit - in the years you pay tuition.
8. The approval process for college loans is more lenient than for other loans.
Late payments on your credit record aren't automatic grounds for refusal of a college loan.
9. Repaying loans can be easier than you think.
For example, if you make 48 consecutive on-time payments, most private lenders will knock two percentage points off your interest rate.
10. Taxpayers with student loans get a tax break.
You may deduct the interest you pay up to $2,500 a year if your adjusted gross income is $65,000 or less if you're single or $130,000 or less if you're married filing jointly.
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