This is not a last-minute, quick fix for scrounging up money when your child is a senior. But for those late in the game (a child in high school), it does do an excellent job of explaining how financial aid works, why you should fill out the application for aid even you’re sure you won’t get any, and what to do with your assets (and when) to increase the possibility that you will get aid. It also gives advice on working with colleges to see if your child can get a better aid package than the one he or she was initially awarded.

I also really liked the fact that the book isn’t just about getting financial aid. Just because you don’t qualify for federal aid doesn’t mean that paying for college is easy. The author does a nice job giving examples of strategies for a variety of income levels. We won’t qualify for need-based aid, but I learned that there is more I can do in terms of our savings and investments to help pay for college.

The book also isn’t just about the money. I appreciated the discussion on the importance of selecting the right college, not just sending my child to what she thinks is her dream college. I have changed my mind about the importance of the college visit prior to making a decision. I didn’t do this when I chose a college, but will now think of that as an investment rather than an optional, possibly unnecessary expense.

Overall, this book gave me a much greater appreciation for the interconnectedness of my two most important financial goals in life and very useful strategies for working toward fulfilling both. I think they should hand this book out at the doctor’s office along with “What to Expect When You’re Expecting.” We have done a decent job with our finances over the years but I wish I had had this epiphany back when my first child was a baby. I have highlighted passages in this book, which I never do, and will keep it close by until my last child orders her collegiate cap and gown.

Thanks so much for responding to my questions. It’s pretty difficult to wade through all the options some times. But I don’t feel nearly as knowledgable as you! I haven’t even looked beyond the Roth because until we are maxing that out, it doesn’t seem to make sense.

I am really enjoying these insights and tips – great series Ratna!

I may have to look into a Coverdell. I didn’t realize you could use 529 funds out of the state that they were saved in – good to know.

GREAT thorough insight into the differences – thank you Ratna!

ANSWER: the only advantage to contributing to your state’s 529 is the immediate tax benefit or matching funds (if you have a state that matches). The kid can attend ANY School in the nation- Harvard to Community College. If you move, no biggie. You can keep both – ie. Colorado’s account is still there and then you can open a new one in the new state to get the tax benefit or deduction. Make sense?

Thanks, Daria- great Questions.
(1) First, YES -you can have both accounts and even ROLL a Coverdell into a 529. So it is a good deal that you can get the tax advantage later on the Coverdell.

(2) Correct while the Coverdell offers flexibility in moving the money around several times a year, keep in mind you can only contribute $2000 per child per year.

(3) The reason I do not address ROTH IRA or 401K in this is because To me and to most people, ROTHS are for retirement – MY RETIREMENT but there are a lot of people using them for college savings. I found a great blog on advantages and disadvantages:
http://www.biblemoneymatters.com/should-you-use-a-roth-ira-for-college-savings/
Check it out!

Advantages of the ROTH are: 10% penalty waived (see the IRS rules though – there is a 5-year minimum requirement of the money staying in that ROTH prior to withdrawal) and also, if your kid does not go to college, you can then stop worrying about losing the money and use towards retirement.

BUT here are the CONS: you can contribute $5000 a year to ROTH (maybe- if you have over $179K AGI per year combined you cannot contribute ANYTHING), but in a 529, you can contribute as much as you want per child. This is HUGE for dual-income middle class families who get taxed to death but then also have to save for college.
Another disadvantage of the ROTH for college v. 529/Coverdell is that you ARE TAXED on your withdrawals when you withdraw so if you are not yet retired, you will be in a high tax bracket and have to pay taxes on all of that- THAT IS HARSH if you are in a 20-25% bracket even.

Also keep in mind that you are reducing YOUR retirement in place of college spending and that may stink 10 years later for you or you will have to work longer if you do not have a 401K or other retirement savings.

I am not a tax advisor, accountant or financial planner, but I would recommend you talk with one about your specific situation. You know your AGI (you just did your taxes), and you know your retirement situation or what it should be… but my recommendation is to keep retirement separate from educational savings if you expect your kids to go to college.

Very thorough, thank you Ratna!

Steve- good question. Yes, my research indicates and personal experience as well, that there are fees. On the 529s, this is the biggest CON- sometimes the fees can be higher than the performance of the investment plus since you are limited to only one transaction in the 529 per year, you can lose a lot more than gain if the fees are high. On the Coverdell, there are management/investment fees as well but because you can move the money around more, you may see more gains to help offset the fees.