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Saving for college: What families can do today

Published: Sunday, Oct. 14 2012 6:43 p.m. MDT

There are two types of 529 plans: pre-paid tuition plans and college savings plans. All 50 states sponsor at least one type of 529 plan. In addition, some private colleges and universities sponsor a pre-paid tuition plan.

Pre-paid tuition plans generally allow college savers to purchase units or credits at participating colleges and universities for future tuition and, in some cases, room and board. Most prepaid tuition plans are sponsored by state governments and have residency requirements. Many state governments guarantee investments in pre-paid tuition plans that they sponsor.

You don't have to be rich to save

Single Salt Lake mom and registered nurse, Keri McAfee, adopted her 4-year-old daughter Avery from China as an infant. As a condition of the adoption, she signed a form stating that she would “pay for or plan for (Avery’s) college education.”

Currently, McAfee, 44, has established a savings account and also plans to open an UESP account as well, in addition to working with a financial planner. She also said her parents are helping to contribute to their granddaughter’s future education nest egg.

“My parents are very pro education,” she said. “They have said they would be happy to pay more money if one their grandkids expressed (interest in college).”

Grandparents or extended family members — or simply those who support education — can participate in the savings plans.  And financial planners suggest planning means taking a look a your situation and making the best choices.

College savings plans generally permit a college saver (also called the “account holder”) to establish an account for a student (the “beneficiary”) for the purpose of paying the beneficiary’s eligible college expenses. An account holder may typically choose among several investment options for his or her contributions, which the college savings plan invests on behalf of the account holder.

Investment options often include stock mutual funds, bond mutual funds, and money market funds, as well as, age-based portfolios that automatically shift toward more conservative investments as the beneficiary gets closer to college age. Withdrawals from college savings plans can generally be used at any college or university. 

According to UESP spokesperson Diane Johnson, funds in an UESP account can be used for qualified higher education expenses, including tuition and fees, books, supplies, and equipment required for enrollment or attendance, room and board for students who are enrolled at least half-time.

Funds can be used at any college, university or technical and trade school that participates in federal financial aid programs for students not only institutions in Utah, but throughout the U.S. or abroad. And you do not have to be a Utah resident to save with UESP.

Save a little every month

“UESP is designed to fit any family’s budget, so you can open the account with (no money) and contribute as you like,” Johnson explained. “Funds are growing tax-deferred (both state and federal) while they are in the program. When they are used for qualified education expenses, they are tax free.”

She noted that Utah residents could also receive a state income tax credit per qualified (student) as well as an added benefit.

Among the more highly regarded state plans nationwide, UESP manages more than 208,000 accounts and $4.9 billion. The accounts can be established from any state in the country, Johnson said, “not just Utah.”

McAfee said she has yet to set a particular dollar amount as a savings goal because, “It’s hard to know what the costs will be.”

With the diverse portfolio of savings vehicles, she expects to supplement whatever assistance her daughter is able to garner when the time for college arrives.

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