Tomorrow is the day I finally setup my 3 month old baby girl’s college fund. It is crazy to think that I am setting up a fund for my daughter’s college almost 18 years prior to her going to college. I don’t even want to think about her going to kindergarten some day, let alone college. I guess if it has to happen I better be prepared. So prior to meeting with my financial planner, I have researched my college savings options. I will discuss Nevada’s college fund options, but many states have the same or similar options. Here is a great resource to research what your state offers. Nevada offers the following options:
- Pre-Paid Tuition – This is a great plan if you anticipate your child going to an in-state university or college. Instead of actually saving money you are paying for college credits at or near their current price instead of the price it will be at the time they go to college. Resident tuition has historically increased 6% and 4% a year over the past 13 years for Nevada universities and colleges, respectively. The current credit cost for an undergraduate at the University of Nevada, Reno is $189. If this trend continues in 18 years a college credit will cost $540. If you pay a lump sum for a newborn now youe contract rate per credit would be $184 when they go to college, this is for the 120 credit plan. You can use this plan for out-of-state schools, but it will only pay the contract amount per credit. You are responsible for the remaining cost per credit.
- 529 College Savings Plans – Nevada actually offers two different 529 plans. The SSgA Upromise 529 and the Vanguard 529. They are similar plans but the Upromise has some matching benefits from the state. A 529 plan is a college savings/investment account. The money you save is diversely invested in various funds and equities. The tax benefit to this plan is that all gains are not taxable as long as withdrawals are used to pay for eligible college expenses. The downfall is your account can lose value because it is invested in the market. If you choose to close this fund and not use it for college expenses then you will incur taxes and penalties.
There are other options available to save for your child’s college such as the Coverdell Education Savings Plan or Uniform Gifts/Transfers to Minors accounts. These two accounts can be used for other education expenses besides college. The most common accounts are pre-paid tuition and the 529 plans. Make sure you do your research prior to starting an account. The cost of college is expensive and that is a burden I don’t want place on my children. Have you had any experience with any of these accounts? If so, how do you like them?
“A college degree is not a sign that one is a finished product but an indication a person is prepared for life.”
-Reverend Edward A. Malloy