Podcast: Play in new window | Download
Special guest Rachel Cruze discusses ways to pay for kid’s college as we talk about Dave Ramsey’s Baby Step 5.
Baby Step 5: Save for kid’s college
Once we have gotten ourselves out of debt and started to save 15% in retirement it is time to save for our children’s higher education.
College expenses have skyrocketed over the past decade – taking many parents by surprise. Combine that with the lack of financial education in our schools and we begin to understand why so many of our young graduates enter adulthood already behind the 8-ball (debt).
Enter Rachel Cruze
Rachel Cruze travels all across America to speak with High School students about the dangers of debt and how to get through college without burdening themselves with thousands of dollars in student loan debt. She has an unusual platform from which to speak: She has no debt, has never used a credit card, and has no FICO score.
How could anyone survive without their parents giving them the head-start into adulthood by co-signing for a credit card? Our culture would tell us that she is at a great disadvantage. Well, Rachel will tell you the opposite. By learning how money really works and staying out of debt Rachel and her husband simply use the money they earn from working to pay for all the things they need.
Rachel joins us on the show to discuss:
- Is a college education important?
- How can parents with no money help their college-bound kids?
- What can High School students do to pay for their higher education?
Smart Tax-Saving Ideas for College
Where you put college savings could save you as much as going to an in-state school versus out-of-state. Some of the best tax-saving ideas are:
Pre-paid Tuition 529 Plan: Pre-paid tuition plans allow you to “invest” your money in a way that matches education inflation by paying for future college tuition at today’s prices. Note: Not all states offer this plan.
Savings 529 Plan: You can shovel up to $14,000 into a 529 Savings Plan that offers you many investment options (as of 2013). The money grows inside the account tax-free can be used for qualified educational expenses.
Coverdell Educational Savings Account (ESA): Save up to $2,000 a year in an ESA and allow the money to grow tax free. This is the most flexible plan for how the money can be used and is not restricted to college and universities – it can also be used or primary and secondary schools.
UTMA (Uniform Transfer To Minors Act): A way to save money for your minor child but beware: The money becomes theirs at age 18 or 21 (check with your state to find out more).
My recommendation is to start with the ESA ($2,000 a year) and then choose a 529 that allows you to pick the mutual fund investments inside of the plan so you maintain control of the earnings.
Other mentions from the interview:
Dave Ramsey’s Speakers Group: Rachel Cruze – Contact Rachel for speaking engagements at your High School. Make sure you mention that Steve MoneyPlan SOS Stewart sent ya!
Follow Rachel on Twitter – @RachelCruze
Custom College Guide Kit – This handy product creates a customized book for you based on your specific eligibility and financial information as well as the colleges you have chosen.
Inspirational Quote of the Week:
[stextbox id=”twitter”]The standard changes every time someone steps out and does something different (Click to Tweet)[/stextbox]