One common option is to delay your entry into college for a year. You can usually apply, be accepted and then defer your start date for up to a year. By doing this, you have a guaranteed spot in next year's class and can focus all of your energies on working and saving money. It can also give you a year to relearn some old study skills. Use the time to catch up on reading and strategies that will help you in your course of study. This will not only make your transition to college easier, but it will also insure that you'll graduate on time.

If you are planning to take a year off, we strongly recommend that you still apply to college. Then, after you are accepted, defer admission by a year. You will need to talk to the admissions office to make sure this is possible. Knowing that you have a guaranteed spot in college will save you a lot of stress.

Individual Development Accounts (IDAs) are designed to help low-income workers quickly increase their savings by matching it. The idea is that if you work but are a low-income family, you need to be able to improve your status by building your savings. To help speed this process along, the Individual Development Account (a network of non-profit organizations) will help qualified participants to set up a goal, for example, saving $2,000 for college. When you reach that goal, the IDA network will match what you saved by a ratio of two, three or even seven times that amount. Matched funds come from financial institutions, foundations, religious congregations and state and local governments.

For example, suppose that you want to save enough money to purchase an asset such as a house, business or education. If you receive a 2:1 match, which is the most common, each time you deposit $10, you will get an additional $20 credited to your account. In the case of college tuition, the money would be released directly to your college when you reach your goal. Having your savings matched speeds up the time it takes for you to accomplish this.

IDA programs usually set their own specific participation requirements. In general, you must be within 200 percent of poverty. This works out to less than $18,000 for an individual or $37,000 for a family of four. (Be sure to check with your participating IDA program since these levels do vary.) IDA participants must also be employed and agree to take financial planning classes sponsored by the non-profit organization.

The hardest part of participating in an IDA program is finding them. Since the network of IDA providers is composed of a hodgepodge of agencies, there is no national directory. You will have to do some digging. Start with all the foundations and non-profits in your area. Also try contacting the managers of your local banks. Visit the IDA Network web site http://www.idanetwork.org and click on "IDA Directory." This is not an official or even complete listing of organizations, but it will give you an idea of what you are looking for and it is a place to start.

Like any investment, 529 Savings Plans don't guarantee specific returns but rise and fall with the market. The tax-free benefits, which are really the major benefits of the plan, only apply to the earnings that are generated. This means if you only have a year or two before you enter college, you probably won't notice much of a benefit. 529 Savings Plans work best when you have five or more years to save before entering college.

Nevertheless, there are valuable benefits to some 529 Savings Plans, which may still make them a useful option for you. These include getting state tax deductions for your contributions and also estate planning benefits that allow relatives to contribute a significant amount of money to your 529 Savings Plan. All of the money that you put into your 529 Plan will grow free from federal income tax. Depending on your state, the plan may also be free from state taxes as long as you use the money for qualified college educational expenses.

If relatives have cash that they want to give you to help pay for college, they are limited by the current $12,000 annual gift exclusion. This means that if they give more than $12,000 per year, they will be subject to gift tax. However, with a 529 Plan, they can actually make five years' worth of gifts in one year. So that means that they could give you $60,000 if they are single (or $120,000 as a couple) and count it as a gift made over five years. You will not incur any gift taxes, and you will have access to this significant sum of money. This may be an excellent way for parents or grandparents to transfer a large part of their estate without incurring additional taxes.

• chevron_left
• 1
• 2
• 3
• chevron_right