Читать книгу Mutual Funds For Dummies - Eric Tyson - Страница 75

Few subject areas have more misinformation and bad advice than what is dished out on investing for your children’s college expenses. Too many investment firms publish free guides that contain poor advice and scare tactics. Their basic premise is that, by the time your tyke reaches age 18 or so, college is going to cost more money than you could possibly imagine. Thus, you’d better start saving a lot of money as soon as possible. Otherwise, you’ll have to look your 18-year-old in the eyes someday and say, “Sorry, we can’t afford to send you to the college you have your heart set on.”

Yes, four-year colleges, especially private ones, are generally expensive, and it’s not getting cheaper. But what the financial services companies don’t like to tell you is that you don’t have to pay for all of it yourself. Thanks to financial aid, most people don’t. By financial aid, I mean the fact that colleges and universities charge different families different prices based upon their assessment of your family’s ability to pay. Only the most affluent families pay the full sticker price — the vast majority of families pay much less.

What’s really unfortunate about the scare tactics some investment companies use is that these tactics effectively encourage parents to establish investment accounts in their children’s names. The drawbacks for doing so are twofold:

 You limit the amount of financial aid for which your child is eligible. The financial aid system heavily penalizes money held in your child’s name by assuming that about 20 percent of the money in your child’s name (for example, in custodial accounts) should be used annually toward college costs. By contrast, only 6 percent of the nonretirement money held in your name is considered available for college expenses annually.TIPS ON HOW TO AFFORD COLLEGESo how are you going to be able to afford sending your children to Prestige U. or even Budget Community College? Gain financial aid and plug the gap between what college costs are and what you can afford with these tips:Fund your retirement accounts first. Self-centered as it may seem, you’re really doing yourself and your kids a tremendous financial favor if you fully fund your retirement accounts before tucking away money for college. First, you save yourself taxes. As discussed in the section “The golden egg — investing for retirement,” earlier in this chapter, 401(k), 403(b), and SEP-IRA plans give you an immediate tax deduction at the federal and state levels. And after the money is inside these retirement accounts, it compounds without taxation over the years.Second, the more money you save and invest outside retirement accounts, the less financial aid (loans and grants) your child qualifies for. Strange as it may seem, the financial aid system generally ignores the money you invest inside retirement accounts.Apply for financial aid. College is expensive and, unless you’re affluent, you and your child will need to borrow some money. Consider these educational loans as investments in your family. Much financial aid, including grants and loans, is available regardless of need, so don’t make the mistake of not applying and researching.The financial aid system examines your income, assets and liabilities, number of children in college, and stuff like that. Based on an analysis, the financial aid process may determine that you can afford to spend, for example, $26,000 per year on college for your child. That doesn’t mean that your child can consider only schools that cost up to that amount. In fact, if your child desires to go to a $62,000-per-year private school, loans and grants (price reduction) may be able to cover the difference between what the financial aid system says you can afford and what the college costs. If you don’t apply for aid, you may never know what you and your child are missing out on.Investigate all your options. In addition to financial aid, you may be able to use other sources to help pay college expenses. If you’re a homeowner, for example, you may be able to tap in to home equity. The kids’ grandparents also may be financially able to help out. (It’s better for the grandparents to hold the money themselves until it’s needed.)Teach your children the value of working, saving, and investing. If you’re one of the fortunate few who can pay for the full cost of college yourself, more power to you. But even if you can, you may not be doing as well by your children as you may like to believe. When children set goals and find out how to work, save, and make wise investments, these values pay dividends for a lifetime. So does your spending time with your children instead of working so hard to try to save enough to pay for 100 percent of their college costs.Encourage your children to share in the cost of their education. They can contribute in different ways, either upfront or by paying off some of the outstanding loans after they graduate. Either way, your children will appreciate their education more.

 You give your child free rein over your hard-earned investment. When you place money in your child’s name, they have a legal right to that money in most states at age 18 or 21. That means that your 18- or 21-year-old could spend the money on an around-the-world junket, a new sports car, or anything else their young mind can dream up. Because you have no way of knowing in advance how responsible your children will be when they reach age 18 or 21, you’re better off keeping money earmarked for their college educations out of their names.

If you can and want to pay for the full cost of your child’s education, you have an income tax incentive to put money in your child’s name. Under what’s known as the kiddie tax system, income generated by investments held in your child’s name is usually taxed at a lower rate than your own. But remember that by saving money in a child’s name, you’re reducing that child’s chances for financial aid. That’s why I say don’t invest in your child’s name unless you want to pay for your child’s full college costs yourself.

You get the benefits of tax-deferred growth and professional investment management by mutual fund companies through 529 plans. You may derive some state tax perks as well by using a 529 plan. Because the money in 529 plans is earmarked for college, however, investing in these plans may have some negative consequences on college financial aid.