Money for College and Retirement

Most people, regardless of income, put off saving for college until their children are in their teens. What could be worse is many are not having kids until they are in their 30s and 40s. At this age they will be trying to save for retirement at the same time.

It’s tough, but it can be done, especially if you take advantage of new tax breaks for college financing and new ways to save for college using tax-sheltered retirement plans.

• An employer’s retirement plan provides tax breaks, and some employers even give matching contributions. If necessary, you can borrow from the account to pay tuition.

• Consider saving in the child’s name. Colleges expect a student to use 35% of his resources, while they expect a parent to pay 6%. Further, more aid is in the form of loans, not cash awards. Putting money in your name only means your child goes further in debt because he or she can borrow more.

If money is in the child’s name, it will be taxed at a lower rate (the first $650 in earned income is tax-free. Kids over age 14 pay capital gains at low rates).

• The best way for teens to save: If a child has earnings of $2,000 a year, they can contribute that much to a Roth IRA. The money grows tax-free, and they can pull out all their contributions for college when the time comes.

• You can use a Roth IRA for college savings too. If your income is $150,000 or less for a couple (for individuals, $95,000) you can contribute up to $2,000 per year. You can pull out the contributions for tuition, living and related expenses.

• How about the New Education IRA? This lets you contribute up to $500 per child under age 18 per year, (same income limits as above). The contributions aren’t tax deductible, but the money grows tax-free to pay for education, and you can save a regular IRA at the same time.

Most parents have less than $5,000 saved for college, according to a study by Mosaic Mutual Funds. Even if this happens to you, you can still educate your child. Have them go to a local college and live at home. Take out a home equity loan.

Also take a look at this new option for parents: The Hope Scholarship tax credit allows a tax credit of $1,500 per child for tuition during the first two years of college.

More education is well worth saving for. If you are having your child save some money with you, it could teach them the responsibility and value of money, plus help them pay for their education to be the best it can be.

Finding The Right College

Finding a college, comparing colleges, applying to college...what's a busy family to do? Many are logging on to the Web where, often, a fast solution is just a click away.

Increasingly, college and university Web sites are often proving to be a gold mine of information for time-pressed families who cannot visit each and every school. Web-based descriptions of current course offerings, academic environment, social environment and photographs of the school all help to paint a portrait of the institution.

Some Web sites even offer an interactive space where prospective students can interview current students and glean insights into which dorm is the coolest for freshman and where to get a good pizza on campus. Other Web sites serve as interactive guides to help students choose from among many colleges.

Students can also narrow down choices and to find in-state schools with similar characteristics to schools that are far from home by searching the web. Then, with list in hand, families can plan campus visits to a few institutions that best meet the student's personal choices.