Save Up For Your Child’s Future with an Education Savings Account

When a child is born, it’s only too common that parents will start thinking about the child’s future. This includes saving up for college and evading the need for student loans. Usually, parents start a college savings fund, but what about the high school and elementary years? Fortunately, there is a fund that covers both expenses called the Coverdell Education Savings Account or ESA.

What Is ESA and What Does it Have To Offer?

The ESA allows contributors to deposit up to $2,000 per year on the fund. The best thing about it is that depositors don’t get taxed on earnings from interest, appreciation and dividends. This allows more growth of the money that parents put in for their children. Regular savings account would normally charge taxes on the earnings of an account, but this levy does not apply for the ESA.

How to Qualify?

Your modified adjusted gross income or MAGI will be the basis for qualification. Aside from the parents, friends and relatives may also contribute to a child’s ESA as long as they meet the qualifications. Several factors will determine qualification of income, and a table for income ranges and contributions has already been set.

Basically, you can contribute $2,000 per child if your income is less than $95,000 for single individuals, and $190,000 for a married couple. Individuals with a MAGI between $95,000 and $110,00 can contribute a portion of the $2,000.

Avoiding Tax Deductions

Although the ESA is a tax advantaged investment, there are also instances when your child will pay tax on earnings. This would be because of violation of the fund’s rules. Some policies include choosing a school that allows federal financial aid, using the money for other expenses not included in the table of qualifying education expenses, and not using the money by the time the child turns 30. There are also regulations on putting in too much for a child.

The rules state that only $2,000 in deposit is allowable per year.
There are certainly some advantages with investing in an ESA for your child. Tax benefits are one of the strong reasons why an ESA would be a good replacement for that usual savings account or college fund. Also, if the funds are unused by the time the child turns 30, there is a provision that allows the rolling over of the money to another family member.

Being Wise with College Credit Cards

College Student with Handful of CashIn the past credit card companies have been able to set up booths around colleges and universities nationwide and offer free giveaways to those who are willing to sign up for a credit card.

This is much like you see at a Major League Baseball game or at the county fair.

“Sign up today and we’ll give you a shirt.” (or some other piece of junk you do not need.)

Now the Credit Card Accountability, Responsibility and Disclosure Act stops such action from credit card companies.

The act means that credit card companies, if marketing on campus, cannot offer free goods.  It also requires consumers ages 18-21 to prove they earn enough to pay the credit card bill, or be force to have a co-signer.

The issue is that students are not paying their credit card balances.  According to Sallie Mae 82% of students did not pay their monthly balances in 2009. This lead to seniors graduating with an average of $4,100 in credit card debt.

So if you are a college student here are some tips for finding the best credit cards.

  • Find Cards with No Fees: You do not need to pay any monthly or annual fees in order to have a credit card. You also shouldn’t have to pay to open the credit card.
  • Be sure they have online access to check your account: Use this access to track your purchases, if any hidden fees pop up and you are charged you will be able to deal with that issue immediately.
  • Do not sign up because of a “Free Gift”: Sign up because of the benefits of the credit card and the benefits of building strong credit.  If you need a new shirt or iPod shuffle just go buy one.
  • Ask about any extra fees there are with the credit card: Sometimes credit companies include extra fees for certain things related to payments, missed payments, grace periods etc.  Be sure to ask about these fees.  They are in the fine print, but they should tell if you ask.

Be wise about picking out the right credit card.  Credit cards can benefit your or hurt you so do your research and make good decisions.

Check out different types of credit cards here.