As you start to save for college, consider three of the most popular ways to set up a college fund: 529 College Savings Plans, UGMA/UTMAs, and Education Savings Accounts (ESAs).
Each one offers different features and benefits. Other methods include high-yield savings accounts, life insurance, and mutual funds. A financial advisor can help you choose the best one for your needs.
529 College Savings Plan
State-sponsored 529 plans are one of the most popular ways to save for college. You can invest in any state’s 529 plan regardless of your residence, but check with your own state’s plan first. Most offer special tax advantages1 for residents. 529 plans give you additional benefits such as:
- The account owner has full control over the account, so you can be sure the money is used for college.
- Your assets can be used for any qualified higher education expense, including tuition, fees, and certain room and board costs.
- Earnings grow tax deferred and are free from federal income tax when used for qualified higher education expenses.
- Most plans offer gifting programs, which allow friends and family to celebrate milestones by making contributions directly into your account.
If you’re not sure if a 529 plan is right for you, we have more information on how they work and what makes them tax-advantaged. You can also check out the TD Ameritrade 529 plan, which is an easy and affordable way to save for college over time.
An UGMA/UTMA (which stands for The Uniform Gift to Minors Act/Uniform Transfers to Minors Act) is a custodial account usually set up at a bank. The assets in the account are designated for the child, but do not have to be used solely on education. Benefits include:
- Flexibility – you choose how you want to invest the money, with options including mutual funds, stocks, bonds, or CDs.
- Control – the money is still yours until the child reaches the age of majority, and then it belongs to the beneficiary. But keep in mind – it then becomes their choice whether or not to use the money for college-related expenses.
Education Savings Account (ESA)
An ESA (also known as a Coverdell ESA) allows you to contribute up to $2,000 per year, per beneficiary to be used for education expenses like tuition and fees. The benefits of an ESA include:
- The account owner maintains full control over the account until the beneficiary reaches 30 years of age. After that, any assets left in the account transfer to the beneficiary and may be taxable upon withdrawal.
- As with 529 College Savings Plans, your earnings grow tax deferred and are free from federal income tax when used for qualified higher education expenses.
A common misconception about scholarships is that they are only available for the smartest students with the highest GPAs. However, this just isn’t even close to true. There are scholarships out there for every type of student seeking a college education.
Academic scholarships are also often referred to as merit scholarships, though a merit scholarship can mean anything that has some level of contest to it. These are for the students with the 4.0 GPAs, years as part of several extracurricular activities and the well-rounded applications. They typically have the highest payouts and are considered very prestigious as they are often national awards. There are academic coaches can provide assistance for student excellence. Considering the affordable costs relative to private and college education tuition, it may make sense to invest in an Academic Success Coach early on.
Average Academic Performance Scholarships
If that first category nearly scared you away, don’t run off so soon! Even if your grades aren’t the best, there are plenty of scholarships meant for you as well. Average student scholarships do take academics into consideration, but focus on other factors as well, such as community service, leadership, the strength of your essay, etc.
For students with strong academics and physical skills, athletic scholarships are the way to go. There is practically a scholarship for every single sport, from volleyball to football; gymnastics to cheerleading. So, if you excel in anything physical, you should definitely pursue an athletic scholarship.
Scholarships for Minorities
There are also many scholarships for minorities available. Some of these are general and for all minorities as a collective whole, while others are catered to individual ethnic groups. It is also a good idea to apply for a minority scholarship if you are part or fully of a certain ethnicity. You will get to represent your culture and possibly win money.
Scholarships for Women
As with the scholarships for minorities above, there are also scholarships specifically for women. Since colleges were dominated by men for many years, scholarships have been created for strong, career-minded women that need assistance paying for college expenses. If you are female, it is strongly recommended you pursue a scholarship for women. Moreover, scholarships for women are typically available in just about any field.
For those artistic at heart, there are creative scholarships available to help you pursue your passion. Art scholarships, music scholarships and even dance scholarships usually involve an audition of some sort, and can help you get through art school or an art program at a university. Regardless of your creative field, you can rest assured that there is a scholarship out there just for you. However, it is your job to find it and to apply!
Unusual scholarships are a lot of fun and a great way to be creative and get some cash while you’re at it. They are typically sponsored by private companies and are meant to be fun. For instance, there is a scholarship available for left-handed students and one for who can create the best prom dress out of duct tape. Even though there aren’t very many of these off-beat scholarships each year, there are enough to attract significant attention from potential applicants, schools and even the media. Because of this, they may be a bit competitive. However, if you have a killer idea, go for it!
Community Service Scholarships
Community service scholarships are fantastic for those that love to give to others and give back to their communities. If you already perform a lot of community service, then a scholarship in this vein may be perfect for you. There is also the Federal Work Study program, which awards a percentage of their funding to students performing community service activities. It may be a viable option for you if you were planning on using work-study as a means of paying for college anyway.
Regardless of the type of scholarships you pursue, know that there is something out there for everyone. No matter your grades, your interests or your background, you can and will pay for college with a bit of effort.
Continue to: Financial Planning Services