Education Plans
The third biggest financial goal for a family is saving for a college education. Buying a house and retirement are the first two goals. With the cost of higher education on the rise, parents are beginning to try and set aside money for education as soon as a child is born. There are two popular federal and state sponsored plans that make saving for college easy: the Coverdell and the 529 plan.
The Coverdell Education Savings Account
The Coverdell is a federally sponsored plan that helps you to set aside money for higher education expenses. These expenses include tuition, fees, books and supplies, and even room and board.
The annual contributions are not tax deductible, making the withdrawals tax-free as long as they are used to pay for eligible education costs. There are limits to the amount of annual contributions that can be made each year.
The Coverdell is established as a custodial account, set up by the parent or another adult to pay for the education expenses of a designated beneficiary. The child must be under the age of 18 to establish an account. All balances must be spent within 30 days of the child’s 30th birthday.
Any financial institution that handles IRAs can assist you in setting up a Coverdell, including banks, investment companies and brokerages. The Coverdell is like an IRA in that it is an account. You can put your account funds into any investment you want – stocks, bonds, mutual funds and certificates of deposit are just a few options.
You can establish as many Coverdell accounts as you want to for a child. For example, you could have one account at your local bank and one at a brokerage. Some plans have many fees associated with them. Make sure that the management fees for the multiple accounts don’t cancel out your overall return.
If your child decides not to go to college, he or she will lose a great deal of money. When he turns 30, he must withdraw the balance of the account within 30 days. Any money withdrawn that isn’t used for educationally eligible expenses is taxed and charged a 10 % IRS penalty.
If your child decides not to go to college, that doesn’t mean that his or her child won’t. The child can roll the full balance into another Coverdell plan for another family member, including siblings, nieces and nephews and sons and daughters.
529 College Savings Plans
These state sponsored 529 plans are named after the federal tax code section that provides for their use. All 50 states and the District of Columbia offer 529 plans. The contributions to the plan are not tax deductible, but your withdrawals are tax-free when you use the money for a qualified educational expense.
529 plans fall under two categories: prepaid tuition and savings/investment plans.
The prepaid tuition plan allows you to purchase units of tuition for any state college or university under today’s price. You are buying a semester of attendance for a child. What you buy today will be good for any future date, no matter how tuition rates rise. With private and out-of-state colleges, the child’s prepaid tuition does not include the rise in tuition costs. For example, if you buy two years of college tuition for an out-of-state tuition, you may only receive a single semester in ten years.
Either the beneficiary or the contributor must reside in the state that the 529 is formed in.
With savings plans, an account is opened and investments are chosen within the account. If you start the plan when a child is young, you can choose some aggressive investments for long term growth. As the child ages, you can move your investments into more conservative options.
The withdrawals are tax-free if they are used to pay for college expenses. These expenses can include tuition, books and room and board. An easy way to think about a 529 savings plan is as a 401(k) dedicated to educational expenses. As with a 401(k), there are many different investment choices. Many states programs are open to nonresidents, so look around for the best plans.
If your child decides not to go to college you have three options. You can hang on to the savings plan in case your child decides to attend college at a later date. The account can be transferred to another family member for college expenses. You could also cash out the account and just take the loss. Most states will charge a penalty of 10% of the earnings for any withdrawal not used for education. On top of this, a federal penalty of 10% will be charged also. There is no penalty for withdrawals due to death or disabled status.
The tax-free advantages of a college savings plan makes 529 plans beneficial, but they aren’t right for everyone. If you have a 529 prepaid tuition plan, applying for financial aid is affected by reducing your financial aid on a dollar per dollar basis. Low income families, who are often eligible for large amounts of financial aid, are advised not to participate in 529 plans.
Coverdell plans will also decrease the amount of financial aid available, but only by about 5 to 6% of the account’s value. College savings plans are great for families that will not qualify for financial aid or only qualify for loans. Many times a family doesn’t have enough money to pay for college, but has too much money to get help.
Critical Thinking and Your CLEP Exam
If you are planning to take a CLEP exam, and wanting to pick up a skill that can help you prepare for your CLEP test easier, try learning critical thinking. Critical thinking is an important part of effective CLEP preparation.
Critical thinking skills help students have success with CLEPs in two main ways. First of all, critical thinking skills help students better analyze CLEP preparation material to make for a more effective knowledge transfer. Secondly, when a student is actually taking their CLEP exam, critical thinking skills can help a student analyze exactly what is being asked in the question, as well as what the best answer choice is.
Many colleges are beginning to make critical thinking more and more a part of their curriculum, and the CollegeBoard is not behind in any way. In the new College Composition CLEPs, which will be released in July 2010, additional critical thinking testing will be one of the things that make it different than the previous English Composition CLEP.
Overall, critical thinking is a great way to get an edge on your CLEP tests. It is part of the CLEP, and if you know it, you will have an advantage.
College Application Essay Will Be Remembered
There are lots of mind-boggling questions swirling around students’ minds, as they hold their pen and wonder what to write for a piece of paper called College Admission Essay. Some of the questions that bother them are the following: what is the style of writing they should adopt for this specific kind of essay, what is the tone to use, and what topic to talk about. The students are really interested in knowing what the admission officers would like to read in a College Application Essay. For them, hitting the bull’s eye with their College Application Essay will definitely increase their chances of admission to their desired university. Entrance to a top university is a tough competition that one has to outwit, outplay, and outlast everybody with their creatively written essay.
Writing one’s College Admission Essay is not the same as writing a research paper. This means that one’s essay should not be formulaic as though one is just stating facts about oneself. There’s a tendency for most admission essays to be boring and lifeless if one writes it in the form of research paper. The moment that the admission officers discover that one’s writing and essay is a complete drag, they are likely to miss the important details contained in the essay even though the credentials are excellent. The first thing an applicant has to remember is that Admission officers want the essay to be personal and imaginative. The next thing they have to take note of is how to write something personal without making it appear as a lifeless paper. The trick for this is to make the tone of the essay a conversational one. Since one is talking about his life, narrate it in a light humorous tone as though one is talking to another person like a friend. In this way, one will definitely get the focus and the hearts of the admission officers. People should freely express themselves. It is observed that the grammar is not given so much concern because the Admission officers are not reading an essay to find out if the applicant knows about subject-verb agreement. The application essays were created so that the Admission officers will know the applicant’s attitude and outlook in life.
The student’s goals in writing their College Admission Essay should always be to make it memorable. The applicant should ensure that the readers will peruse the essay from beginning up to the end. One can use witty catch phrases as well as funny stories and jokes as a springboard to start introducing one’s topic. Speaking of topics, it is best to stick with personal experiences rather than re-stating one’s resume or academic transcripts. Admission Officers are on the prowl to find unique personalities that will blend with the school’s standards and environment. They are after the authentic person behind the numbers and statistics i.e. grades. Another thing that the students have to remember in writing College Application Essay is to be original and individual. This means that their writing should reflect the unique individual creature that they truly are. Being creative and imaginative does not really have to be fictional. One’s admission essay should be true, honest, and most importantly sincere. The Admission officers can go beyond the beautiful words and detect if it’s true or not. Aside from that, Admission officers read thousands of essays, and they can’t recall everything they read. Thus, it is the applicant’s job to make a real impression on the reader. Make your essay fun and exciting. Don’t simply provide a lifeless detailed paper about yourself; instead show them colors and wonders of your personality.
