6 college savings resolutions for 2014

http://www.savingforcollege.com/articles/6-college-savings-resolutions-for-2014

The date of your child's college enrollment creeps ever closer. As 2013 comes to a close, consider including the following items on your list of resolutions for 2014.

1. Commit to monthly contributions

If you are not already signed up for automatic monthly contributions through payroll or electronic funds transfer, get on board for 2014. The minimum automatic contribution in most 529 plans is very low, and your budget will easily adapt to the extra outlay.

To figure out how much you might want to contribute each month, check out Savingforcollege.com's World's Simplest College Cost Calculator. It's an easy and very flexible tool.

Once enrolled in the automatic contribution plan, you should still look for ways to make occasional lump-sum contributions to increase your college savings. Tax refunds, a bonus from work, or the cash gifts you or your child receive on holidays or other special occasions are perfect opportunities for extra savings.

2. Prioritize your savings

Saving for college is not your only financial objective. You have other contingencies to plan for such as retirement, future medical expenses, and unexpected events like a job loss, death, or disability.

Various tax-advantaged investment vehicles are available for these purposes. For example, contributing to a 401(k) plan to the extent those contributions are matched by your employer is pretty much a "no-brainer." Also, for those with a high-deductible health plan, a health savings account ("HSA") offers the advantage of a front-end deduction for contributions along with tax-free earnings when future withdrawals can be matched to medical expenses.

When considering your college savings needs and 529 plans, you should prioritize your goals and consider the advantages and disadvantages of the various vehicles mentioned above, as well as Roth IRAs, Coverdell education savings accounts, education savings bonds, custodial accounts, tax-efficient mutual funds, and life insurance and annuities.

3. Plan for your next child

The standard advice is to start saving for college when your child is born, because you have only 18 years before the money will be needed. But what if you started saving now for the child you expect to have in the future? You'll be that much further ahead by the time he or she is born.

You can go about doing this by establishing a 529 account in your name as beneficiary, and changing the beneficiary to your newborn at the appropriate time. Or if you already have children, simply load more into their 529 accounts and split off some of the balance into a new account after the next child comes along.

What's the worst that can happen? You end up not having a child, and you decide to take your money back out of the 529 plan for other purposes. Although you will owe taxes and a 10 percent tax penalty on the account earnings, you will have enjoyed tax-deferred growth for the entire period your investment is held within the 529 plan.

4. Explain your 529 account to your child

To save on income taxes, some parents will stow away a portion of their mutual funds and other taxable investments in their child's name under the Uniform Transfers to Minors Act (UTMA). But they will be concerned—rightfully so—about the child taking direct ownership of the UTMA funds at age 18 or 21, and so will be reluctant to share information about the account.

Have no such fear with a 529 plan. The account remains under your ownership and control for its entire existence, regardless of the age of your child. It also is treated much more favorably when applying for federal student aid.

So explain your commitment to college savings to your child—even review 529 account statements together. Doing this can be a powerful motivator. You are sending a message of love, support, and expectation that your child will remember and appreciate.

5. Talk to the grandparents

Grandparents often take pride in the opportunity to help fund the college education of their grandchildren. But too often there is a disconnect: Either the grandparents take steps to help financially but neglect to adequately communicate their actions or intentions to the parents, or the grandparents do nothing because the parents have not initiated any conversations about college needs and so they remain uninformed.

Bring up the topic of college savings to the grandparents. If they show any interest in helping, get them up to speed on the benefits of 529 plans and tell them how you are using a 529. The ability to retain control of the funds, and even take back the money if desired, removes a significant barrier many grandparents feel in making gifts for education. And for those concerned about estate or inheritance taxes, 529 plans offer special advantages.

6. Help others with college

The holiday season reminds us to think of others outside of our own immediate families. You may have friends or extended family members facing the burden of future education expenses. It's easy to help with their college savings by making contributions to their 529 accounts, either by contributing directly to those accounts or by using a service like GradSave.com (GradSave charges nothing beyond reimbursement of any credit card transaction fees).

You might even extend your generosity to help other children growing up in families that have few financial resources. Check out The 1:1 Fund, a wonderful organization helping to support the college dreams of deserving children by soliciting matching contributions into their college savings accounts.