By 2020, you'll need an estimated (and heart-stopping) $225,000 to put Junior through a private college or $105,000 for a public university.
Conventional wisdom says the sooner you start saving, the more funds you'll accumulate.
No one savings method is perfect for every family. Consider your tax bracket, your child's age, how much control you want over your investments and how much financial aid you expect to get.
Do your research
First, figure out how much you'll need to save, using your child's age as a yardstick.
Then start comparing plans. Here are the most common methods:
529s, the state-sponsored investment accounts, let you put aside money for college. The money grows tax-deferred and is tax-free when withdrawn to pay qualified education expenses. In addition, for families with multiple children, funds can be moved from one 529 to another, depending on which child can best use the money. When choosing a 529, however, look hard at the fund's commissions, fees and performance.
Coverdell Education Savings Accounts allow earnings to grow tax-deferred and distributions to be tax-free when used to pay for college or technical school. You can contribute up to $2,000 a year and withdraw money tax-free for K-12 expenses. However, unless Congress extends the benefits after 2010, the maximum annual contribution to a Coverdell will fall to $500 and K-12 expenses no longer will qualify.
Prepaid tuition plans allow parents to lock in future tuition at current rates. These tax-deferred plans are designed to remove investment risk. However, some plans allow saving only for tuition, not room and board, which means you'll need an additional source of funds.
U.S. Savings Bonds purchased after 1989 may be redeemed tax-free when the bond owner, spouse or dependent uses the proceeds to pay college tuition and fees. However, the bonds' safety is balanced by low returns, and the tax exclusion is phased out for higher-income tax brackets.
Custodial accounts, which include those under the Uniform Transfers to Minors Act and Uniform Gifts to Minors Act, are not as popular as they once were. Accounts are opened in a child's name, and the income is taxed at the child's rate rather than the parents' presumably higher one. However, 2006 legislation changed "kiddie tax" rules so that children have to wait until they turn 18 to take full advantage of the lower tax rate. In addition, colleges consider custodial accounts to be the students' assets, which count against them in financial-aid packages.
Individual retirement accounts are a method of last resort. Early-withdrawal penalties are waived when Roth or traditional IRAs are used to pay qualified post-secondary education costs for you or your family. However, cashing out could leave you in a bind at retirement time.
Are you running out of time?
If your child is older than elementary-school age and you haven't started saving yet, you still have options.
Assume you'll get financial aid -- just not enough. If you're counting on a lot of aid, you will be unpleasantly surprised to learn how much colleges expect you to contribute.
Start saving now. Even if your savings reduce your aid package, any money you put aside will help reduce the amount of debt later.
A little extra couldn't hurt
Depending on your child's age, look for ways to add to your college fund. Try these ideas:
If your baby is on the way, have a "send my baby to college" shower. Set up a college fund and let guests know how to make deposits.
If you have an infant or toddler, be as aggressive in your investments as your comfort level allows.
For an elementary-age child, set up a savings account together so he or she can be invested and involved in college plans.
If your student is starting high school, move your college fund to safer, less-volatile investments.
No matter how old your child is, consider participating in credit-card rebate and loyalty programs, such as Upromise or BabyMint. Similar to airline frequent-flier programs, these provide rebates or credits to a 529 account in exchange for shopping at particular retailers or purchasing certain products.
When college bills are looming, look for ways to cut costs.
You're on your way
Once you select a method of saving and set it up with the appropriate investment professional, nurture your investments -- both the funds and the kids.
Be enthusiastic about your child's early schoolwork. Kids who love to learn early on grow up to be good students -- and therefore can get scholarships not otherwise available.
Set small financial goals just as you would any other long-term investment.
Use automatic withdrawal so your determination to save doesn't waiver when you write the monthly check.
Increase the amount you save each year to keep up with tuition inflation.
And remember . . .
Some final thoughts:
Don't pay for your child's college at the expense of your own retirement. Your child will have more sources of money for college than you will have for your golden years.
You don't have to save the entire cost of four years of college. Grants and loans can bridge the gap between your savings and tuition bills.
Be flexible. Programs and investments continue to evolve. Tax laws and your own circumstances will change. Review your financial situation periodically and make appropriate adjustments.
Thursday, January 22, 2009
Friday, January 16, 2009
This year, I will keep more cash
With the recent turmoil in financial markets and the prospects for continued economic recession in 2009 could be the year you finally make good on your determination to start an emergency fund, repayment of credit card debt or beef your retirement kitty. Our guiding principles for cutting your costs and save on taxes is guaranteed to put money in your pocket - and your savings accounts.
1. Get your expenses under control with the help of free online budgeting site like Mint.com. This is a secure site tracks your checking, credit cards and investment accounts and proposals for money-saving tips, such as where you can cut costs or better rate on your credit card. Other free sites, including Wesabe and Geezeo, offer a similar budget, and pay more attention to their online communities where users share strategies.
With meat and potatoes of your finances outlined, it would be easier to see where you can cut the fat. For example, assuming that you and your significant other pay on average $ 33 per person for meals at the restaurant (according to a recent survey Zagat) and 7 dollars for a ticket to the cinema, one less than the date of the night a month will save a total of $ 960 per year.
2. Installation of flexible spending account to help pay for medical expenses. If your employer offers this benefit, you can save pretax dollars in the account and use the money to pay from their own bills, including doctor co-payments, prescription drugs, eyeglasses, and braces for children's teeth. You can even spend the money on more-prescription medications such as antacids and more relievers.
Flex account, you can save hundreds of dollars in federal, Social Security, and in most states, state income taxes. For example, if you have a 25% tax bracket and you put $ 1450 in your account - the average premium for the year 2007 - you need to save $ 546 per year, with 5% of tax revenue the state and 7.65% for FICA tax. Plus, you can use the full amount at any time, even if you have contributed only a few months.
When using it or lose-it rule, you can lose money left in the account at the end of 2009. But many companies now offer a grace period until 15 March next year. In fact, if you have money left over from 2008, regarded it as a bonus to help pay for basic expenses at the beginning of 2009.
3. File a new Form W-4. If you receive a tax refund for 2008, setting retention will fatten your salary for 2009. The average refund of about $ 2400, you may be entitled to three additional benefits. In the 25% tax bracket, that could increase your hands on to pay $ 2625 a year.
4. Raise your insurance deductibles. The increase in car insurance deductible from $ 250 to $ 1000, you can save up to 15% on insurance premiums - or about $ 125 a year on average, $ 829 prize. Upping the franchise for the homeowners' policies can slice your rate by about 25%, or $ 191 on average, $ 764 prize.
5. Cut the cost of credit. If you tend to carry a monthly credit card balance to low interest rates, maps, such as Wells Fargo Prime Rate card with 5% interest rate, a $ 19 annual fee. For gasoline or travel benefits, try BP Visa card or> Simmons First Visa Platinum Travel Rewards Card.
If you want to pocket cash rebates, to consider the American Express Blue Cash card. You get 1% rebates on gas, food and drugstore purchases, and you will get 0.5% back on everything else. Big spenders can Bump they pay up to 5% and 1.5%, respectively, after declining $ 6500 a year. Charge of $ 15,000 from everyday purchases to save $ 490.
6. Open an account online savings, such as the one at www.fnbodirect.com, which was recently paying 3.25%, or about $ 100 a year for $ 3000 deposit. You can open an account is only $ 1, but are no monthly fees or minimum balance requirements. To avoid the temptation to spend all the money that is lining the pockets through our first five councils, set up an automatic monthly transfer from your current account, or distribution of part of your salary deposited directly into a new rainy day fund.
7. Bump your 401 (K) contributions. Already have a stash of emergency? In the stock to sell, now a perfect time to build - or rebuild - your retirement kitty. In 2009, contributions to 401 (K) accounts rises to $ 16,500, and you can add another $ 5,500 if you are 50 or older by the end of this year. Contributions are not subject to federal or state taxes, so the load on the full $ 16,500 will save you $ 4950 in taxes for the year from 25% federal tax bracket and 5% of the state income tax.
Can not afford the maximum contribution or you want to use a portion of your savings for something else? Try to start, at least enough to capture any employer match.
1. Get your expenses under control with the help of free online budgeting site like Mint.com. This is a secure site tracks your checking, credit cards and investment accounts and proposals for money-saving tips, such as where you can cut costs or better rate on your credit card. Other free sites, including Wesabe and Geezeo, offer a similar budget, and pay more attention to their online communities where users share strategies.
With meat and potatoes of your finances outlined, it would be easier to see where you can cut the fat. For example, assuming that you and your significant other pay on average $ 33 per person for meals at the restaurant (according to a recent survey Zagat) and 7 dollars for a ticket to the cinema, one less than the date of the night a month will save a total of $ 960 per year.
2. Installation of flexible spending account to help pay for medical expenses. If your employer offers this benefit, you can save pretax dollars in the account and use the money to pay from their own bills, including doctor co-payments, prescription drugs, eyeglasses, and braces for children's teeth. You can even spend the money on more-prescription medications such as antacids and more relievers.
Flex account, you can save hundreds of dollars in federal, Social Security, and in most states, state income taxes. For example, if you have a 25% tax bracket and you put $ 1450 in your account - the average premium for the year 2007 - you need to save $ 546 per year, with 5% of tax revenue the state and 7.65% for FICA tax. Plus, you can use the full amount at any time, even if you have contributed only a few months.
When using it or lose-it rule, you can lose money left in the account at the end of 2009. But many companies now offer a grace period until 15 March next year. In fact, if you have money left over from 2008, regarded it as a bonus to help pay for basic expenses at the beginning of 2009.
3. File a new Form W-4. If you receive a tax refund for 2008, setting retention will fatten your salary for 2009. The average refund of about $ 2400, you may be entitled to three additional benefits. In the 25% tax bracket, that could increase your hands on to pay $ 2625 a year.
4. Raise your insurance deductibles. The increase in car insurance deductible from $ 250 to $ 1000, you can save up to 15% on insurance premiums - or about $ 125 a year on average, $ 829 prize. Upping the franchise for the homeowners' policies can slice your rate by about 25%, or $ 191 on average, $ 764 prize.
5. Cut the cost of credit. If you tend to carry a monthly credit card balance to low interest rates, maps, such as Wells Fargo Prime Rate card with 5% interest rate, a $ 19 annual fee. For gasoline or travel benefits, try BP Visa card or> Simmons First Visa Platinum Travel Rewards Card.
If you want to pocket cash rebates, to consider the American Express Blue Cash card. You get 1% rebates on gas, food and drugstore purchases, and you will get 0.5% back on everything else. Big spenders can Bump they pay up to 5% and 1.5%, respectively, after declining $ 6500 a year. Charge of $ 15,000 from everyday purchases to save $ 490.
6. Open an account online savings, such as the one at www.fnbodirect.com, which was recently paying 3.25%, or about $ 100 a year for $ 3000 deposit. You can open an account is only $ 1, but are no monthly fees or minimum balance requirements. To avoid the temptation to spend all the money that is lining the pockets through our first five councils, set up an automatic monthly transfer from your current account, or distribution of part of your salary deposited directly into a new rainy day fund.
7. Bump your 401 (K) contributions. Already have a stash of emergency? In the stock to sell, now a perfect time to build - or rebuild - your retirement kitty. In 2009, contributions to 401 (K) accounts rises to $ 16,500, and you can add another $ 5,500 if you are 50 or older by the end of this year. Contributions are not subject to federal or state taxes, so the load on the full $ 16,500 will save you $ 4950 in taxes for the year from 25% federal tax bracket and 5% of the state income tax.
Can not afford the maximum contribution or you want to use a portion of your savings for something else? Try to start, at least enough to capture any employer match.
Monday, January 12, 2009
Stocks new year with same problems
After a whirlwind end-of-year rally, investors are back to playing it cautious as the economic news worsens.
NEW YORK (CNNMoney.com) -- As Friday's abysmal jobs report made all too clear, Wall Street's whirlwind holiday romance has ended. Investors are back to reality.
Stocks, as demonstrated by the S&P 500, rallied 8% in the last week of December and start of January. But in the first full week of 2009 trading on Wall Street, stocks erased half of those gains. A brutal jobs report, a rash of miserable retail-sales numbers, and profit warnings or job cut announcements from venerable firms such as Alcoa, Intel and Wal-Mart Stores were to blame.
The week ahead is likely to bring further testaments to the ongoing recession, specifically the weak consumer spending environment. Retail sales are expected to have dwindled in December, and reports on pricing pressures at both the consumer and wholesale levels are expected to show declines. With so many people out of work and cash-strapped, there's little room for prices to move up.
Next week also brings the start of the quarterly reporting period, which begins with Dow component Alcoa, as is traditional. Intel and Merrill Lynch are the only other marquee names due to report next week, with the bulk of earnings releases due closer to the end of January. (For a preview of bank earnings due out later this month, click here.)
"The worst damage to the economy has probably already happened, but we're going to keep seeing the messy aftermath in the months ahead," said Larry Glazer, managing director at Mayflower Advisors.
Wall Street has almost gone through its own version of the stages of grief in regards to the recession, he said: "Earlier in 2008 there was a denial of what was happening, then panic set in during the fall, and now we are in a period of acceptance."
Glazer belives that 2009 will be a year of investors trying to rebuild confidence in the market.
On the docket
Monday: Alcoa (AA, Fortune 500) is expected to report a quarterly loss of 5 cents per share after the close Monday, according to a survey of analysts by Thomson Reuters. The aluminum producer and Dow component earned 36 cents per share a year ago.
Tuesday: Federal Reserve Chairman Ben Bernanke speaks at the London School of Economics before the start of U.S. trading.
The House Financial Services Committee holds a hearing on usage of the Troubled Asset Relief Program (TARP) funds, a.k.a. the $700-billion bank bailout.
Wednesday: The nation's chain stores released dismal December sales figures last week. This week, the Commerce Department releases the composite number, and it's expected to be equally gloomy. Retail sales are expected to have fallen 1.1% after falling 1.8% in November. Sales, excluding volatile autos, are expected to have fallen 1.2% after falling 1.6% in November.
Also Wednesday, the government releases its November business inventories report. Inventories are expected to have fallen 0.5% after falling 0.6% in October.
And in the afternoon, the Federal Reserve releases its periodic "beige book" survey of the economy.
Thursday: While pricing pressure hasn't been much of an issue at this point in the recession, investors will still keep an eye on the week's inflation reports.
The Producer Price index (PPI), a measure of wholesale inflation, is expected to have fallen 1.9% in December after falling 2.2% in the previous month. Prices, excluding volatile food and energy costs, or the Core PPI, are expected to have risen 0.1% after rising 0.1% in November.
The Philadelphia Fed index, a regional manufacturing report, is also due Thursday. The January index is expected to have fallen to negative 35 from negative 32.9 in December.
Merrill Lynch (MER, Fortune 500) reports results before the start of trading and is expected to have lost 16 cents per share after losing $12.57 cents a year ago. Intel (INTC, Fortune 500) reports results after the close. The chipmaker is expected to have earned 10 cents per share after earningsof 38 cents per share a year ago.
Hearings on the nominations of various members of Obama's cabinet are happening in Congress this week. On Thursday, the Senate Finance Committee holds the confirmation hearing for Timothy Geithner as Treasury Secretary.
Friday: The December Consumer Price index (CPI)is expected to have fallen 1% after falling 1.7% in November. Core CPI is expected to have risen 0.1% following a flat reading in November.
Later in the morning, the University of Michigan releases its preliminary consumer sentiment index for January. Sentiment is expected to have dipped fractionally to 60.0 from 60.1 in December.
NEW YORK (CNNMoney.com) -- As Friday's abysmal jobs report made all too clear, Wall Street's whirlwind holiday romance has ended. Investors are back to reality.
Stocks, as demonstrated by the S&P 500, rallied 8% in the last week of December and start of January. But in the first full week of 2009 trading on Wall Street, stocks erased half of those gains. A brutal jobs report, a rash of miserable retail-sales numbers, and profit warnings or job cut announcements from venerable firms such as Alcoa, Intel and Wal-Mart Stores were to blame.
The week ahead is likely to bring further testaments to the ongoing recession, specifically the weak consumer spending environment. Retail sales are expected to have dwindled in December, and reports on pricing pressures at both the consumer and wholesale levels are expected to show declines. With so many people out of work and cash-strapped, there's little room for prices to move up.
Next week also brings the start of the quarterly reporting period, which begins with Dow component Alcoa, as is traditional. Intel and Merrill Lynch are the only other marquee names due to report next week, with the bulk of earnings releases due closer to the end of January. (For a preview of bank earnings due out later this month, click here.)
"The worst damage to the economy has probably already happened, but we're going to keep seeing the messy aftermath in the months ahead," said Larry Glazer, managing director at Mayflower Advisors.
Wall Street has almost gone through its own version of the stages of grief in regards to the recession, he said: "Earlier in 2008 there was a denial of what was happening, then panic set in during the fall, and now we are in a period of acceptance."
Glazer belives that 2009 will be a year of investors trying to rebuild confidence in the market.
On the docket
Monday: Alcoa (AA, Fortune 500) is expected to report a quarterly loss of 5 cents per share after the close Monday, according to a survey of analysts by Thomson Reuters. The aluminum producer and Dow component earned 36 cents per share a year ago.
Tuesday: Federal Reserve Chairman Ben Bernanke speaks at the London School of Economics before the start of U.S. trading.
The House Financial Services Committee holds a hearing on usage of the Troubled Asset Relief Program (TARP) funds, a.k.a. the $700-billion bank bailout.
Wednesday: The nation's chain stores released dismal December sales figures last week. This week, the Commerce Department releases the composite number, and it's expected to be equally gloomy. Retail sales are expected to have fallen 1.1% after falling 1.8% in November. Sales, excluding volatile autos, are expected to have fallen 1.2% after falling 1.6% in November.
Also Wednesday, the government releases its November business inventories report. Inventories are expected to have fallen 0.5% after falling 0.6% in October.
And in the afternoon, the Federal Reserve releases its periodic "beige book" survey of the economy.
Thursday: While pricing pressure hasn't been much of an issue at this point in the recession, investors will still keep an eye on the week's inflation reports.
The Producer Price index (PPI), a measure of wholesale inflation, is expected to have fallen 1.9% in December after falling 2.2% in the previous month. Prices, excluding volatile food and energy costs, or the Core PPI, are expected to have risen 0.1% after rising 0.1% in November.
The Philadelphia Fed index, a regional manufacturing report, is also due Thursday. The January index is expected to have fallen to negative 35 from negative 32.9 in December.
Merrill Lynch (MER, Fortune 500) reports results before the start of trading and is expected to have lost 16 cents per share after losing $12.57 cents a year ago. Intel (INTC, Fortune 500) reports results after the close. The chipmaker is expected to have earned 10 cents per share after earningsof 38 cents per share a year ago.
Hearings on the nominations of various members of Obama's cabinet are happening in Congress this week. On Thursday, the Senate Finance Committee holds the confirmation hearing for Timothy Geithner as Treasury Secretary.
Friday: The December Consumer Price index (CPI)is expected to have fallen 1% after falling 1.7% in November. Core CPI is expected to have risen 0.1% following a flat reading in November.
Later in the morning, the University of Michigan releases its preliminary consumer sentiment index for January. Sentiment is expected to have dipped fractionally to 60.0 from 60.1 in December.
Sunday, January 11, 2009
Stimulus can save 4 million jobs
Obama's proposal targets alternative energy and infrastructure for investments he says will save existing jobs and create new ones.
WASHINGTON (Reuters) -- President-elect Obama said Saturday an analysis of his stimulus proposals shows that between 3 million and 4 million U.S. jobs could be saved or created by 2010, nearly 90% of them in the private sector.
The analysis of Obama's estimated $800 billion plan to lift the country out of a year-long recession was submitted by the chair of his council of economic advisers, Christina Romer, and by Vice President-elect Joe Biden's chief economic adviser, Jared Bernstein.
Obama announced the report on his weekly radio and Internet address. He had previously said his American Recovery and Reinvestment Plan would create or save 3 million jobs, but said the analysis from his advisers showed that number would range between 3 million and 4 million.
"The jobs we create will be in businesses large and small across a wide range of industries," Obama said. "And they'll be the kind of jobs that don't just put people to work in the short term, but position our economy to lead the world in the long-term."
His radio address comes just after official figures showed U.S. employers slashed more than half a million jobs from their payrolls in December, pushing the unemployment rate to 7.2% and bringing the total number of jobs lost last year to 2.6 million - the most since 1945.
Obama said his plan would create nearly 500,000 jobs by investing in clean energy, by committing to double the production of alternative energy in the next three years and by improving the energy efficiency of 2 million American homes.
"These made-in-America jobs building solar panels and wind turbines, developing fuel-efficient cars and new energy technologies pay well, and they can't be outsourced," he said.
Repairing infrastructure
Obama also said the report showed the recovery plan - which analysts have estimated will cost about $800 billion - will also put nearly 400,000 people back to work repairing infrastructure like crumbling roads, bridges and school and laying down miles of broadband lines.
"Finally, we won't just create jobs, we'll also provide help for those who've lost theirs, and for states and families who've been hardest-hit by this recession," he said.
"That means bipartisan extensions of unemployment insurance and health care coverage; a $1,000 tax cut for 95% of working families; and assistance to help states avoid harmful budget cuts in essential services like police, fire, education and health care."
Obama, who has faced tough opposition from both Republican and Democratic lawmakers over his recovery plan especially regarding tax cuts, repeated a warning that recovery will not come overnight and the situation could likely get worse before it gets better.
"But we have come through moments like this before," he said. "I am confident that if we come together and summon that great American spirit once again, we will meet the challenges of our time and write the next great chapter in our American story."
Though Obama did not mention it in the radio address, the report suggested that tax cuts, especially temporary ones, and fiscal relief to the states are likely to create fewer jobs than direct increases in government purchases.
"However, because there is a limit on how much government investment can be carried out efficiently in a short time frame, and because tax cuts and state relief can be implemented quickly, they are crucial elements of any package aimed at easing economic distress quickly," the report said.
WASHINGTON (Reuters) -- President-elect Obama said Saturday an analysis of his stimulus proposals shows that between 3 million and 4 million U.S. jobs could be saved or created by 2010, nearly 90% of them in the private sector.
The analysis of Obama's estimated $800 billion plan to lift the country out of a year-long recession was submitted by the chair of his council of economic advisers, Christina Romer, and by Vice President-elect Joe Biden's chief economic adviser, Jared Bernstein.
Obama announced the report on his weekly radio and Internet address. He had previously said his American Recovery and Reinvestment Plan would create or save 3 million jobs, but said the analysis from his advisers showed that number would range between 3 million and 4 million.
"The jobs we create will be in businesses large and small across a wide range of industries," Obama said. "And they'll be the kind of jobs that don't just put people to work in the short term, but position our economy to lead the world in the long-term."
His radio address comes just after official figures showed U.S. employers slashed more than half a million jobs from their payrolls in December, pushing the unemployment rate to 7.2% and bringing the total number of jobs lost last year to 2.6 million - the most since 1945.
Obama said his plan would create nearly 500,000 jobs by investing in clean energy, by committing to double the production of alternative energy in the next three years and by improving the energy efficiency of 2 million American homes.
"These made-in-America jobs building solar panels and wind turbines, developing fuel-efficient cars and new energy technologies pay well, and they can't be outsourced," he said.
Repairing infrastructure
Obama also said the report showed the recovery plan - which analysts have estimated will cost about $800 billion - will also put nearly 400,000 people back to work repairing infrastructure like crumbling roads, bridges and school and laying down miles of broadband lines.
"Finally, we won't just create jobs, we'll also provide help for those who've lost theirs, and for states and families who've been hardest-hit by this recession," he said.
"That means bipartisan extensions of unemployment insurance and health care coverage; a $1,000 tax cut for 95% of working families; and assistance to help states avoid harmful budget cuts in essential services like police, fire, education and health care."
Obama, who has faced tough opposition from both Republican and Democratic lawmakers over his recovery plan especially regarding tax cuts, repeated a warning that recovery will not come overnight and the situation could likely get worse before it gets better.
"But we have come through moments like this before," he said. "I am confident that if we come together and summon that great American spirit once again, we will meet the challenges of our time and write the next great chapter in our American story."
Though Obama did not mention it in the radio address, the report suggested that tax cuts, especially temporary ones, and fiscal relief to the states are likely to create fewer jobs than direct increases in government purchases.
"However, because there is a limit on how much government investment can be carried out efficiently in a short time frame, and because tax cuts and state relief can be implemented quickly, they are crucial elements of any package aimed at easing economic distress quickly," the report said.
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