August 3, 2005-- Posted at 3:10 PM CDT
Chicago /PRNewswire-- You've just watched your child walk across the stage to receive a high school diploma. You couldn't be prouder or happier, and you're excited about the opportunities that college will open up for your child, and at the same time you have never been more stressed on how you are going to pay for it.
The costs of a higher education are rising rapidly -- the 2004-2005 average annual cost at a public four-year college was roughly $14,600 and a private college was $30,300, up about 6 percent from the 2003-2004 academic year. Furthermore, college costs are expected to rise at a rate between 6 to 8 percent over the next 10 years, according to the College Board's "Trends in College Pricing Report 2004."
"We all dream about the day when we will send our children off to college," notes Elaine Weiss, president and CEO of the Illinois CPA Society. "But figuring out how to pay for college can be the stuff of nightmares."
Starting to save for college when your children are young and saving enough to beat the rate of inflation is the best strategy. But even if you are starting late in the game, help is available. The Illinois CPA Society suggests investigating the following college savings vehicles to see what best fits your current situation.
-- 529 State Saving Plans: These are tax-advantaged college savings vehicles that let you save money for college in an individual investment account. Your contributions fund the investment portfolios you've chosen and grow tax deferred. Money withdrawn to pay for college expenses is tax free, and only 5.6 percent of the total funds are counted against financial aid. -- 529 Prepaid Tuition Plans: These plans are distant cousins to state savings plans -- their federal tax treatment are the same, but just about everything else is different. A prepaid tuition plan is a tax- advantaged college savings vehicle that lets you prepay tuition expenses for use in the future. One major disadvantage is that your child is limited to the participating colleges -- if your child attends a different college, plans differ on how much money you'll get back. -- Coverdell Education Savings Accounts: These accounts are a tax- advantaged education savings vehicle that lets you save money for college, as well as for elementary and secondary school (K-12) at public, private or religious schools. Contributions ($2000 max per year) are invested at your direction and grow tax deferred. Withdrawals to pay education expenses are excluded from gross income. -- Custodial Accounts: They allow your child to hold assets that he or she ordinarily wouldn't be allowed to hold in his or her own name. The assets can then be used to pay for college or anything else that benefits your child (e.g., summer camp, braces, hockey lessons, a computer). Account earnings are taxed annually at your child's rate; all contributions to the account are irrevocable; and the account passes to your child's control at the age of majority in your state (18 or 21). -- Financial Aid: Almost three-quarters of full-time undergraduate students receive some form of financial aid to help pay for college, and about 60 percent receive some grant aid. Financial aid can be one of four types: loans, grants, scholarships or work-study. Grants and scholarships are more favorable than loans because they don't have to be repaid. In a work-study program, your child works for a certain number of hours per week (either on- or off-campus) to earn money for college expenses.
If your savings and financial aid aren't sufficient to meet college costs when the time arrives, you may want to supplement the proceeds of your college fund by:
-- Obtaining private loans (e.g., home equity loan, margin loan) -- Obtaining financial aid-related loans (e.g., PLUS loan) -- Tapping your own investments (e.g., mutual funds, 401(k) plan, IRA, cash value life insurance) -- Using a portion of the child's savings and/or investments -- Having your child obtain a part-time job during college -- Deferring college for one year, so your child can work and save for college
While the exams your children will face as college students are likely to be challenging, paying for college doesn't have to be. A CPA or financial professional can help you choose the savings instruments that best fit your long-term strategy and land you on the honor roll.
About the Illinois CPA Society
The Illinois CPA Society, founded in 1903, is the fourth largest state CPA society in the nation, with more than 22,000 members. It is the only professional organization that represents CPAs in Illinois. During its 101 years of existence, the Society has advanced the highest ethical and financial standards of the profession, and has been a leader in educating the public on financial issues.
CONTACT: Megan Norris, Communications-Media Manager of Illinois CPASociety, +1-312-993-0407 ext. 228, email@example.com
Web site: http://www.icpas.org