Tips to Save Money for My Children – Part III

How can educational grants aid me in this situation?

There is a distinct difference between loans and educational grants. If you are having a tough time, it is safer and better to opt for educational grants. The advantage of grants supersedes the other because if you opt for educational loans, you will have to pay it back. This “pay back” facility can be avoided by opting for educational grants. Am I eligible for an educational grant? Well, that part is decided according to certain guidelines. The average annual earning of the breadwinners (for the family) along with the fee’s structure of the college will be the ultimate deciding factors. Some types of grants will be illustrated in the following sections.

  • Guaranteed Student Loans: The GSL has now been replaced with Stafford loans. The federal government with the aid of the local financial organizations normally grants the loan to the needy. One will have to bear in mind that the loan is normally provided in the form of a subsidy.  If you are eligible for it, you might even check out the non-subsidized version of the same program. The Stafford loans are usually termed as “loans that are based on needs”. In simpler terms, only the eligible will be provided with the loan.
  • Perkins Loans: This is another form of educational grant, which is gaining favor in the minds of many people. Just like the previously discussed Stafford loans, the federal government also provides this loan. In order to provide this grant, the government is noted to work in close tie-up with the schools and colleges. Hence, if you are interested in applying for the same, it would be wiser to contact the school or college administration.
  • Parent loans for undergraduate students: Furthermore termed as PLUS in the financial circles, the federal government will sanction the loan only to the parents. This is in stark contrast of the rest of the other two, which were discussed earlier. Inform the school or college authorities in order to discuss the guidelines for the PLUS program.

Is there any manner with the aid of which one will be able to augment the financial aid rendered to their child?

If you are looking forward to answering the above-mentioned query, here are certain steps that can be considered:

  • The name holder of your assets must not be bestowed to your child: This is seen as a risky situation by many financial organizations.
  • Maintain a clean credit record: It is mandatory to keep the credit score at feasible levels. Banks are noted to scrutiny these scores and will decide the eligibility only if they are satisfied with your existing financial situation. Pay your bills and taxes at the appropriate intervals.
  • Take a straightforward approach: It is imperative to stick with the truth when you are dealing with these officials. Ensure that the authorities are kept in the loop by explaining any/all the financial difficulties experienced by you.

How can I get rid of the taxes levied to the savings, which I had painstakingly collected all these years?

  • Watch out for the taxable income of your child: If possible, always maintain it below $1900. The threshold was $1800 in 2008. The 19-year age barrier must also be taken into thought.
  • US Saving Bonds: As I had mentioned earlier, it is better to opt for this type of bonds as the returns are always to the higher side.
  • Invest on stocks: You should have a clear understanding of the stocks that appreciate and depreciate over the course of years. Invest on those, which are steadily appreciating.
  • Employ your child: Yes, that is true – if you employ your child (at your business), you will be able to skim clear of the “kiddie taxes”.

Tips to Save Money for My Children – Part II

What are the important aspects of “kiddie taxes”?

Before explaining the concept of kiddie taxes, allow me to explain the situation that led to the issuance of these types of special taxes. There was a time when parents used to opt for investment plans (primarily in the form of stocks) by the name of   their child. Their children could in turn attain profit from the same because of the reduced taxes. However, according to the newly introduced “kiddie tax”, they will have to pay taxes equivalent to their parents. Nevertheless, this policy is only valid until the child reaches 19. Once the age limit is crossed, the tax amount is altered in order to tally with the child’s rate (which, by the way, is lower than the former).

The system was introduced when congress realized how investment options were being misused by a small section of the society.

What are the important features of Education IRA? Am I eligible for the program?

Firstly, it is improper to mention the program as the education IRA as it was replaced some time earlier with Coverdell ESA. The program is straightforward and is primarily intended for those parents who seek to give higher education to their children. It is often considered as an investment option – but it comes with the additional advantage that no form of taxes will be imparted when the program lapses ultimately the parents are bestowed with the entire sum. An age limit of 18 is presently set for this program and once the child reaches the age, the parents will have to stop making the payments.

The payments that are made on the behalf of the Coverdell program must be in cash. No other form of payment is accepted into the program. Many technicalities are associated with the paradigm, and it is hence better to contact an investment expert to understand the underlying concepts. High interest rates are provided over a period of 10 years. In order to illustrate the affectivity of the program, allow me to cite a suitable example. If you start the program by investing just $500, in 10 year’s time the amount might camouflage itself to $5000! Do you realize the potentiality of the program?

Help Me. I was foolish enough not to save any considerable amounts for my child’s college education. What am I supposed to do now?

Well, like they say better late than never! Here are some strategies that can be exercised so that you will be able to make the ends meet by the time your child is about to enter college!

  • Start saving now. Reduce the overall expenditure levels of the house. Start monitoring the bills and lower the consumption levels of household accessories. Never indulge in activities that will part you away from your hard-earned money.
  • Start making extra money. It is better to opt for a second job. I do realize that life is tough, and you will have to work hard to make the ends meet. If viable, allow the child to earn and start a savings bank account for him.
  • As a last resort, you can try for loans or grants, although the chances of obtaining one are slim these days. Maintain a good credit history and you might be given the green signal and ultimately the loan might be sanctioned.

Tips to Save Money for My Children

What is the best time to initiate money saving procedures for my child?

There are many pre-defined rules that must be considered before initiating money saving procedures for your toddler. Answering the query at hand – the sooner the better it is! Time is precious and with the passage of time, the cost of living is increasing rapidly. If you can initiate the investment procedures on this day, you might never have to repent on some other day in the future.  Here are some advantages of starting the procedure at an early stage:

  • The sooner you start, the skimpier will be the amounts required to save! Yes, this is true – if you are thinking about investing at a later date, you might have to spend more. The present economic condition of the country is grime, and I would never want to play with the future of my child.
  • The existing investment option, which is available in numerous forms, might not work out to be feasible later. Financial institutions are tightening their grip over their existing clients.

In what manner will my child’s college education cost me?

  • The cost is directly related to the type of college that is opted for the child. The fee’s structure of private colleges is always to the higher side. You might be able to find some respite, if you opt for state funded colleges. You will have to shell out approximately $34000 annually if you prefer private colleges. On the other hand, you will have to part away with just $14000 if you seek the aid of state education. In fact, the $34000 (mentioned above) is just an approximate cost – I have come across certain private colleges charging precisely $55000 per annum!
  • It is not a bright idea to fund the entire college education with your savings. The government has come up with certain financial aids to ease the financial burden. If possible, choose these grants because you will be able to procure $10200 for each year (if your child is attending a private college) and $3700 (if your child is attending a state-funded college). Bear in mind that these costs are merely approximated, and you will have to consider these costs to increase in the coming years. Okay, what is the approximate rate at which the cost might increase? Economists have put this rate at 7 percent by the year.

In what way should I start expending for my child’s college education?

Well, this delicate issue must be handed appropriately to realize the maximum benefits. One will have to consider the simple fact that investments might or might not grant you any returns. Hence, it is better to start investing with smaller amounts. Once you start realizing the profits, it is better to invest more into the same paradigm. In addition, there are no pre-defined rules that must be considered. Yet, I will be highlighting certain methods to be thought about if you are looking for realizing maximum profits.

  • Investing on bonds – If you are looking for a perfect investment solution, then this is the way to go.  Two types of bonds might materialize ahead of you; they are Series EE bonds and US Government bonds. I will be explaining these in depth in the following sections.
    • Firstly, we will consider Series EE bonds. Here are certain factors that must be considered while choosing to invest on these bonds. You will be provided with a fat interest rate according to the nature of bond opted and, the same interest amounts can be used as a whole (without any kind of taxes) for educational purposes. Bear in mind that the name of guardians must be placed in the bond.
    • Secondly, we will consider the US Government bonds. As I had mentioned earlier, this type of bonds works out to be highly feasible for funding the college education of your child. Keep a sharp look out for the date of maturation of the bond. It is better to withdraw the amounts once this maturation date is reached. Else, you will have to face significant losses. Unlike the previously mentioned bond, taxes will be charged for the amounts withdrawn through this system.

Various other investment schemes might also suit the discussion at hand. Opting for certificate of deposit or municipal bonds is also recommended.

  • Certificate of deposit – Most of us are already aware of this simple, yet efficient manner of moneymaking! The certificate of deposit (or a CD as it is commonly known in the financial circles) is analogous to a savings bank account. Interest rates will be added up to the existing amount, and you will be able to withdraw amounts at preset intervals.
  • Municipal bonds – If you are blessed with high-income levels (and if you happen to be paying ever higher income taxes), then this is the best manner to proceed with. One should have a clear understanding of the taxable and non-taxable amounts that will be bestowed to them at later stages.

Here is another method that is commonly practiced by many, these days. Well, I am speaking about the stock market returns. As with any other investment option, you must have ambient risk tolerance levels. If you are afraid of the included risks, it is better to opt for a mutual fund program. Bear in mind that it is going to take some time in order to realize the profits. Therefore, it is better to opt for a suitable program at an earlier date probably when the child is enjoying its first year!

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