Sunday, December 24, 2006

Education Plans

So, you have a child under 18 years old and you wish to setup a savings account where your child can later use for college. There are various ways you can approach that, from opening a savings or CD account at the bank to investing in mutual funds. I believe the best way to accumulate money for the long term is investing in mutual funds. If you take at the rate of return on them in the past 10 years, they have average out anywhere between 5 to 14% (this including the effects of September 11). How much will public college cost in 10 to 15 years? To be conservative, lets say its $100,000. That may seem a very large number in today's numbers because an average cost of tuition is around $12,500 for 4 year public universities (nationwide). But if tuition keeps rising every year, its very possible that a 4 year college will cost $100,000 in 10 to 15 years.

Before we talk about education plans, you need to take a look at your retirement plan. Are you accumulating enough wealth to live on when you retire? If not, then setting up an education plan may not be the right move for you. However, its up to you on what you want to do with your money.

There are two types of plans that are designed specifically for higher education and offer tax benefits as well. They are 529 Plans and Coverdell Education Savings Accounts (formerly known as Education IRA), which will explained in the next couple of blogs.