The phrase “they grow up so fast” takes on a new meaning for parents who want to set aside money for their children’s education. It can be a daunting task to determine which educational savings account is best for your particular situation and how much you should save. The good news is you have options.
The most basic advice is to start saving as early as possible; the earlier you start, the more time your money has to grow. Here are some more tangible suggestions.
One attractive option is a Coverdell Education Savings Account (ESA) because it provides some unique benefits. Offered by financial institutions, including NVE Bank, a Coverdell ESA is a fully FDIC insured savings account created to pay the qualified education expenses of a designated beneficiary. According to the IRS, beneficiaries fall into two categories – those under the age of 18, and special needs. The maximum annual contribution is $2,000 for each beneficiary, and distributions used for the designated beneficiary’s qualified education expenses are tax free.
Two benefits of a Coverdell ESA are:
Investment Options – Compared to other choices, a Coverdell ESA has many more investment avenues. You can choose between stocks, bonds, and mutual funds, based upon your consultation with a financial professional, such as NVE’s IRA Specialist.
Educational Institutions – The flexibility extends to how you can use the money. Savings can be applied to pay costs associated with qualified elementary schools, high schools, or colleges. Other plans are restricted only to colleges and universities.
There are a few other things to keep in mind with a Coverdell ESA. The money must be disbursed by the time the beneficiary turns 30, or transferred to another family member who is 29 or younger. Also, the funds are considered the beneficiary’s money, which may affect how much financial aid the beneficiary receives. Contact NVE’s IRA Specialist, and be sure to touch base with your tax advisor to determine eligibility and tax deductibility.
Other savings and loan tools available to you include:
A Certificate of Deposit (CD) is a low-risk savings account with a fixed rate, a fixed maturity date, and a guaranteed rate of return for the time period of CD. This option allows your education savings to grow – untouched – until you are ready to use them. In exchange for leaving your money alone for a specific period of time, you will earn interest. As this is a single-deposit account, it is beneficial to open it with a more sizeble sum of money. Also consider that the longer the CD term, the higher interest your savings will earn. You can access the funds prior to the CD maturity date, however it is not recommended, as penalty fees are applied for early withdrawal.
One advantage of being a homeowner is having the ability to put your home’s equity to work for you. A Home Equity Line of Credit (HELOC) is a variable rate, simple interest line of credit, which offers you the flexibility of writing a check for the cash you need, up to a maximum approved credit line. Financing a child’s tuition is a common reason many homeowners choose to take out a HELOC.
Finally, consider applying for Grants and Scholarships; qualification for this free money ranges in category and criteria, offering many students the financial assistance needed to attend college. Grants and scholarships come from a number of sources, such as the federal or state government, colleges, or private sources. Contact your state higher education agency about any aid program, grants or scholarships sponsored by your state. New Jersey residents can use the Higher Education Student Assistance Authority (HESAA) website as a resource. The HESAA is the only New Jersey state agency with the sole mission of providing students and families with financial and informational resources for students to pursue their education beyond high school.
To learn more about savings products and other products and services offered by NVE Bank, visit our website. You can also visit your convenient neighborhood branch, or call us at 1-866-NVE BANK (683-2265).