Based on how many children you have, the expenses associated with college are the most expensive except retirement payments. With this in mind, it is obvious that problems can appear and mistakes can be done. The huge problem is that most people do not actually consider subscribing to the top finance blogs and this automatically means a lack of knowledge, which can lead to mistakes. Learn all that you can about the topic and never make the following mistakes when saving money for college.
Saving When It Is Just Too Late
If you have a child, it is time to save into a suitable 529 college savings plan as soon as possible. Now is the right time to do so. As a very simple example, when you put $200 monthly in this account for 10 years, you end up with close to $30,000. The average student can only borrow up to $31,000 so you can imagine how important this is.
The sooner you start saving money for your child’s education, the better! This is the number one lesson that parents need to understand. If you do not know how to save, start using the internet or talk to a financial planner in order to get the guidance you need.
401(k) Loan For Education Purposes
Some parents decide to take out a loan against assets in 401(k) plans in order to fund children education. Based on the rules, you may end up with huge problems in the near future as you can be disqualified for company matching funds.
It should be added that you would need to repay this loan in 2 months. Outstanding loan balance ends up being considered income in the event that it is not repaid in 60 days. This can affect Expected Family Contribution, which is a number that schools use these days in order to determine financial aid eligibility.
529 Distributions That Leads Towards Failing For Qualifications For Tax Credits
Internal Revenue Service currently prohibits the individuals from using 2 tax benefits with education reasons. To put it simple, you cannot use 2 tax benefits for one education expense. Parents that use the 529 earnings to pay the first college semester can end up being disqualified with the following semester if you are not careful. Never tap 529 plans until you will pay the very first $4,000 in the qualified education expenses.
Stopping The 529 Plan When It Is Not The Time
Too many parents end up stopping putting money inside the 529 college savings plans as soon as the children step on campus to start freshman year. This is not a good idea. You should consider the plan for as long as it is necessary. 529 will help you continue earning tax free money as the daughter or son is inside college. You can use the money for future semester education expenses. However, this means that you need to respect state rules. Learn all about them so that you are sure you respect them. Asking for help is never something that you should not consider when you feel you are way over your head.
Bio: Jeremy is financial blogger. Find more articles from him at http://www.modestmoney.com/