Money Saving Mom®

I’m just curious if you have any advice on starting college funds for kids. I have two boys (nearly 5 and 2), and we are most likely going to be putting them in Christian school. How can we afford to put them in Christian school (which in our area is around $4,000 a year for elementary) and save for college. Do you think it’s a parent’s responsibility to pay for college? I know starting now will help with compounded interest, etc. but our monthly contribution will be quite small. I’m just wondering what advice you have for this major financial goal! -Angela

To answer your question directly, you really need to set priorities. If it is more important for your child to get an education at a Christian school now in elementary school then, say, go to an expensive college after he or she graduates, then you save for the elementary education and pray he or she receives scholarships and has great summer or part-time jobs to supplement and get by. It has been done many times and can be a great learning and character building experience.

You can always save what you can for college, but do not guilt yourself (or let others guilt you) into thinking you need to do more if you are doing all you can and you are setting your priorities as you feel led to do.

Besides saving for one’s house, saving for a child’s college is probably the most costly expense a family will face. And to many, not going to college is simply not an option. Because this is such an important aspect of a family’s financial plan, both Congress and state legislatures have set up special savings arrangements just for educational expenses. I am just now in the process of looking into these options for our children.

I believe that parents should help out if they can, but the child should also seek to help offset the costs of college whether it be through their accumulated savings, through working through college, through scholarships or through a combination of some of all these things. We’ve decided we do not want to be “boxed in” to only using any savings that we may accumulate for college or vocational training expenses as we want to have the option for the savings to also be able to be used for small business development or for a down payment on a house.

Because of this, we are looking into opening what is known in our state as a Uniform Transfers to Minors Act custodial account. In this account, any money saved is actually considered to be an asset of the minor child and we, as the parents, are merely custodians of the money for the child. Once the child reaches the age of majority, here 21, he or she will then receive the full account.

This has its drawbacks, as we do not know if that child will be mature or wise enough to handle anything coming their way, but by that time they will be adults and will be responsible for their own actions. It is my responsibility now while they are young to teach them and put them in the position where they will be wise stewards once that time arrives.

The other drawback to these accounts is that they are not treated as favorably for tax purposes as, say, Educational Savings Accounts or 529 plans. Nonetheless, that is the price you pay for flexibility.

As I said, there are several other options available for qualified educational expenses (see this link for what constitutes such an expense). These include the individual state-sponsored 529 college savings plans, the pre-paid 529 plans and the Coverdell Educational Savings Accounts (ESA).

From my research, anyone can open a 529 plan, regardless of income. There are even some 529 plans that allow residents from another state to participate in them. It is my understanding that the plan is preset in terms of diversification of investments to track the age of the child and to change investment holdings to get more conservative as the child gets older. With a Coverdell ESA (at least for 2011) you can save up to $2,000 per year per child pre-tax if you make less than $220,000 married filing jointly and any unused balances may be used by eligible siblings. This is definitely a good option if you have little ones and time on your side.

This is only meant to scrape the surface on these accounts. I am sure that many of you out there have already researched these out thoroughly and can explain some of the actual nuts and bolts of how the accounts work from personal experience. I would be interested in hearing what has worked for you. If you had to do things all over again, would you do the same thing?

Jesse Paine is a licensed attorney who owns his own law firm. He’s married to Crystal and is the numbers nerd of the MoneySavingMom.com team! If you have a question you’d like him to answer in a future column, you can submit it here.

The content of this column intended for informational use only and is not to be construed as providing legal, investing, accounting or other professional advice. Your situation is factually specific and you should accordingly seek qualified professional counsel concerning your specific legal, investing or accounting needs.