College Savings Account

A college savings account is a guaranteed investment, which can give students access to educational funds without tapping into Mom and Dad's cash or credit cards. In addition to tuition, room and board, and books, students need to pay for transportation, clothing, on- or off-campus housing and utilities, and food, lots of food! While some students rely heavily on high-interest credit cards to finance a four-year education, a college savings account usually requires low minimum balances, no added interest, and very few fees. Instead of paying with plastic to the tune of 18% and 24%, collegians can easily budget and save some cold hard cash. Typical with most campus savings packages are the freebies: no-fee ATM cards and usage, companion checking, and free 24/7 online access. Students can also start building credit-worthiness with banks and financial institutions through establishing and maintaining a college savings account over a period of time. Initially, deposits may have to come courtesy of "dear old Dad," but once cash begins to accumulate, funds are there for unexpected expenses and emergencies.

College costs; and the sooner parents start saving, the easier it will be to finance a four-year degree. Gone are the days when families relied on spare change stashed in a cookie jar to help fund Junior's education. Today's sophisticated students are high maintenance; and the skyrocketing costs of higher education require some savvy financial planning. In uncertain economic times, it takes faith and common sense to save for the future; but God promises to bless those who fear, or reverence, Him: "He will bless them that fear the Lord, both small and great. The Lord shall increase you more and more, you and your children" Psalms 114:13-14. Families need not go bankrupt or take out a second mortgage to pay for school. A Coverdell College Savings Account (ESA) is a vehicle to help families accumulate tax-free funds for elementary, secondary, and advanced education. Parents, grandparents, and benevolent aunts and uncles can contribute up to a combined total of $2,000 per year until a student/beneficiary reaches 18 years of age.

Corporations can make contributions to the ESA without meeting income requirements. But the maximum adjusted gross income (MAGI) must be less than $110,000 for an individual contributor filing single; or less than $220,000 for married couples filing jointly. Coverdell contributions are not tax-deductible, but are exempt from federal and state taxes until withdrawn by the student/beneficiary. Of course, early withdrawal is subject to a 10% penalty and income tax may be incurred if monies are spent for non-educational purposes. Contributing parents can also transfer, or rollover, assets from one sibling/beneficiary to another if monies in excess of qualified higher education expenses remain in the ESA. However, rollovers must be made within 60 days to avoid penalties or income taxes. Qualified higher education expenses include the usual tuition and books, room and board, and perks like personal computers and Internet service if used for educational purposes. Miscellaneous expenses, such as clothing; airline tickets; and non-educational recreational costs are not permissible.

Rather than opening a basic college savings account, undergrads may opt for a money market fund for short-term savings. Money market funds are low-risk securities, such as Certificates of Deposits (CDs), U.S. Treasury notes, and mutual funds. With the exception of CDs, money can be withdrawn without a penalty. And because funds invested in debt securities are backed by the government, money markets are considered a safe investment for students and non-students alike, and offer relatively high yields. Families planning for higher education may also consider a 529 college savings plan. Administered by state governments and higher education institutions, 529 plans invest tax-free contributions in mutual funds with hundreds of investment options. Unlike a Coverdell student savings account, contributors have no income limits and plans can be opened for as little as $25. The maximum contribution per student/beneficiary far exceeds the maximum Coverdell allowance, topping at $300,000.

Saving money for school is one thing, but when it comes to spending it, collegians wrote the book. Banks and financial institutions know that young adults are big spenders and they usually make opening student checking accounts simple. Typically, accounts require no minimum balance, offer free ATM check cards and usage, and provide free online checking, online bill paying, and direct deposit. Overdraft protection can usually be included for an additional monthly fee, a great feature for undergrads who may sometimes forget basic math! Most checking accounts are linked to interest-bearing savings and offer debit/credit cards to make cashless purchases on and off campus. As with any financial transaction, students should be aware of keeping accurate balances and watch for identity thieves. Campuses are breeding grounds for criminals seeking to take advantage of youngsters with access to cash. Numbers of student checking accounts and savings deposits, receipts, and statements should be kept under lock and key. Social security numbers and banking information should never be shared with friends or classmates.

No matter what method families choose to save, students should be aware that higher education costs and bears a tremendous responsibility. Parents can help young adults learn and apply financial management skills and develop a greater sense of responsibility by entrusting them with college savings and/or student checking accounts. Certain plans allow undergrads to experiment with investments, such as money markets, securities and Treasury bills. Parents and college-age children should consult with local bankers or lending institutions to find out which plans offer the most benefits. A combination of several options may meet fluctuating needs, as scholars progress through advanced degree programs. While student checking accounts teach young adults how to budget and manage personal finances, federal and state tax-deferred plans make higher education accessible to many families who otherwise would have to incur indebtedness to educate their offspring.

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