Make the Grade: Start Your Child’s College Savings ASAP
I spend a lot of time in East Lansing, so it should come as no surprise that Michigan State University (MSU) has been on my mind this past month. Because I work at a financial institution, when I see all the students moving back to campus each fall, I can’t help but think about the financial aspects of college.
As a proud MSU alum (Go Green!), I wholeheartedly believe that a college education is worth the financial investment. The only issue is, no matter how you do the math, college is expensive. For those of you planning to send your children to MSU or another university or college in the future, there are savings options to make those educational costs more manageable.
Planning Ahead: Start Saving Today
Ideally, you’re at a point where your son, daughter or other loved one is still young, and college is far off on the horizon as that’s the best time to start saving for college. If that’s not the case, don’t worry! There are options for paying for college whether tuition’s due in a month or in 15 years. The key is to start saving sooner rather than later; when paying for college, your goal should be to save up so you can take on as little debt as possible.
As a first step, I recommend setting savings goals. Would you like to save up enough money to pay for four years of college expenses or perhaps set aside a certain amount for each of your children? Once you’ve determined your goal, take advantage of online calculators to get an idea as to how much you need to save to meet your target.
Now that you have an idea of how much money you need to set aside, you’ll want to figure out ways to save that work best for you. You can save money in accounts not specifically designed for college funds, such as basic savings accounts, money market accounts, savings bonds or other investments, and there are several options designed exclusively for college savings.
College Savings Options in Michigan
The following savings plans are available in Michigan, but if you’re out of state, similar options are likely available where you live as well.
Michigan Education Trust (MET)
Simply put, the MET is Michigan’s prepaid tuition program. You purchase credit hours for one or more semesters and lock in a child’s future tuition at today’s cost. The costs will vary based on the age or grade of your child. The MET may be used for in-state tuition at public four-year colleges and universities in Michigan or for in-district tuition at Michigan public community colleges. This savings option can offer tax benefits such as deductibility and tax-deferred earnings, transferability if the intended recipient of your MET investment does not wind up using it, and flexibility in terms of the options you purchase and when your child uses these funds. Additional information is available at www.michigan.gov/setwithmet.
Michigan Education Savings Program (MESP)
The MESP is Michigan’s 529 college savings plan. A 529 plan is an education savings plan operated by a state or educational institution (in this case, the State of Michigan) that’s designed to help families set aside money for future college costs. The MESP can provide numerous tax benefits including tax-free contributions and earnings and tax deductibility for contributions. This option also allows a lot of flexibility with everything from minimum contribution amounts (as of October 2012, you can contribute as little as $25) to where your child uses the funds — the MESP is not limited to educational institutions within the state of Michigan. Find out more about this savings plan at www.misaves.com.
Coverdell Education Savings Account (ESA)
Coverdell ESAs are offered at a variety of financial institutions and investment firms and are not exclusive to Michigan like the MET and MESP. This type of account does not offer tax deductibility like the other two college savings options, but it can provide tax advantages such as tax-free distributions for qualifying educational expenses. This option offers lower contribution limits than the MET and MESP, but it is unique in that an ESA’s funds may be used for primary and secondary school expenses in addition to college and university expenses.
Do Your Homework
Although it’s ideal to start saving for college as soon as possible, be sure to take enough time to do your research and ensure you’re investing money in a way that works best for your child and you. I highly recommend meeting with a financial advisor to receive more information about college savings options. Check with your child’s school district as well as local universities and your financial institution to see what resources are available, and be sure to take advantage of the many online resources and financial calculators that can help, too.
Tags: college savings programs, Financial Facts, msufcu
April Clobes is Executive Vice President/Chief Operating Officer for MSU Federal Credit Union in East Lansing. She can be contacted by e-mail or by calling (517) 333-2254.