No matter whether you’re rich or poor, if you have children with high aspirations, you’ll need to save for college for your children. College plans for the rich and poor are different, though. Wealthy and middle class people have different college plans than people who don’t make much at all. Here is some information on different college plans for people in different income brackets.
If you don’t have a lot of money, tax advantaged college plans aren’t your best option. You don’t pay a lot of income tax, anyway, so these plans won’t end up saving you a lot of money. In addition to this, some of these plans can later interfere with your child’s ability to get needs-based grants and scholarships. The best college plans for those in the lower 15% of income brackets are ones which let you keep all the money in your own name. Money in your name will affect your child’s financial aid less than money in your child’s name. Home equity and retirement savings are a good college savings option for those in this tax bracket, too.
If you fall into the higher tax brackets, tax advantaged college plans are more up your alley. Coverdell accounts and 529s can be good college plans for you. They’ll cut down on your income taxes, and you can use Coverdell money to pay for private school expenses before college, too. Custodial accounts can also be good college plans for those in the top tax brackets. Just make sure you’re careful about fees and things in these college plans.
No matter where you are on life’s financial road, saving for your child’s college education is important. Don’t just assume that traditional college plans are for you, then grit your teeth as the expenses mount. It’s more than worth your time to spend some time understanding all the different plans available, so that you can choose the one that is best for your child – and best for your wallet.
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