December 1, 2004  Email this  Print this
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COLLEGE
Eight Financial Aid Moves to Make Now
(Page 2 of 2)
by Kimberly Lankford
For parents of younger children
You have plenty of time to build your savings before your child starts college. Now is a perfect time to make the most of several tax benefits before the end of the year:
- Contribute to a 529, especially if your state let's you deduct your contribution. See our 529 FAQs for more information about 529 plans.
- Contribute to a Coverdell education savings account. You can only contribute $2,000 to a Coverdell each year, which you can use tax-free for college, primary and secondary school expenses. With those low limits, it's a good idea to max out your contributions every year if you can afford it.
- Ask Santa for college-saving gifts. If relatives ask what to get your children for the holidays, suggest making a contribution to your child's college-savings fund rather than giving a toy they'll quickly outgrow. It's easy for them to contribute to a 529 or custodial account that's already been established, which is generally a better idea for long-term savings than savings bonds.
- Consider using any year-end bonus or raise to beef up your college savings -- a great way to add more money to the account before you can spend it on anything else.
- Make sure your college saving stays on track. Run your numbers through T. Rowe Price's College Investment Calculator, which lists prices for specific schools and uses Monte Carlo simulations, which is very helpful since nobody can predict exactly how well your investments will perform. This calculator runs your savings figures through 500 potential investment scenarios and shows how much you'd need to save per month or in a lump sum to reach that future goal in a certain percentage of the possible market scenarios (80%, for example).
For more specifics about college saving steps at various ages, see The ABCs of Saving for College.
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