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Saving for College

Education after high school is one of the most important investments you and your family can make. Like any other investment, it requires careful planning. Here are a few easy, practical ways to save money for college:

The Texas College Savings Plan (The Texas 529 Savings Plan)

The Texas College Savings Plan is a qualified 529 savings plan that offers:

  • 20 different investment portfolios,
  • A choice of savings options,
  • Tax-free growth for your investment, and
  • Tax-free withdrawals on earnings used for qualified higher education expenses, including books, room and board, transportation and more.

For more information, visit the Texas College Savings Plan website.

The Texas Tuition Promise Fund

Lock in tomorrow's college tuition costs at Texas public colleges and universities at today's prices. The new Texas prepaid tuition plan, the Texas Tuition Promise Fund?, will give you an important opportunity to prepay and save for your child's future education. The Texas Tuition Promise Fund, managed by NorthStar Financial Services Group, LLC, is open to enrollment each year from Sept. 1 through Feb. 28 (29 in leap years) and newborns can be enrolled from Sept. 1 to July 31. For more information on the plan, please visit the Texas Tuition Promise Fund website.

For information on state-sponsored tuition plans in other states, visit the College Savings Plans Network (CSPN), an affiliate of the National Association of State Treasurers (NAST).

Education IRAs (Education Savings Accounts)

Taxpayers may withdraw funds from a regular Individual Retirement Account (IRA) without penalty for their own higher education expenses or those of their spouse, their child, or even their grandchild, but Education IRAs offer additional opportunities.

For each child under the age of 18, families may deposit $2,000 per year into a special Education IRA in the child's name.

Earnings in the Education IRA are tax-free, and no taxes are due upon withdrawal if the money is used to pay for post-secondary (after high school) tuition and required fees (minus grants, scholarships and other tax-free educational assistance), books, equipment, and eligible room and board expenses.

After the child reaches age 30, his or her Education IRA must be closed or transferred to a younger member of the family.

A taxpayer's ability to contribute to an Education IRA is phased out when the taxpayer is a joint filer with an adjusted gross income between $150,000 and $220,000, or a single filer with an adjusted gross income between $95,000 and $100,000

There are a few restrictions. For example, a student who receives tax-free distributions from an Education IRA may not, in the same year, benefit from the Hope Tax Credit or Lifetime Learning Tax Credit.

For additional information on Education IRAs, check out the IRS publication on Education IRAs.

Some important things to remember:

  • It's okay if you don't have the enough to pay for the entire cost of college by the time you or your child enters college. What you've already saved can be supplemented by part of your earnings during the college years, the student's earnings, grants, scholarships, loans and even tax credits.
  • These aren't the only ways you can save money for college, but they are a good place to start. You should talk to your bank or a financial or investments counselor about other opportunities that can help.
  • Remember to save as much as you can afford and do it on a steady basis. Always keep the bottom line in mind—through careful planning, you can afford college.
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