Military Members Saving for a Child's College Education

Giving your kids a college education is extremely important.  Like any investment, the best time to start planning and saving is now.  The military provided me with the resources to get my bachelor’s and master’s in business administration.  There are many options to properly save for your kids’ college education.  As in all proper financial planning, avoiding taxes is key.  Here are the main ways to save for a child’s college education.  If you’re a civilian, skip the Post 9/11 GI Bill.   

·         Post 9/11 GI Bill – One of the major changes when the Department of Defense switched from the Montgomery GI Bill to the Post 9/11 GI Bill was the ability to transfer the benefits to your spouse or qualified dependent.  The Post 9/11 GI Bill can pay for 36 months of tuition, provides a housing and book stipend.  Military members do not have to put money into this fund, but they must meet minimum Time-in-Service requirements.  As long as Tuition Assistance (TA) still pays for 100% of tuition (some Master’s programs will cost more than the TA provides) while on active duty, then many military members will be able to transfer their benefits to their children[1].  Transferring your benefits does come with a 4-year active-duty service commitment—which I’ve heard is incredibly hard to get out of.  

·         529 Plan – The most common method for parents to save for their kids’ education is to a 529 Plan.  These are state-sponsored programs that allow you to invest your money and not pay taxes while your invested money grows.  If the child uses it for qualified education expenses, the withdrawals are also tax free.  You can put $14K a year into a 529 plan.  If your extended family is looking for birthday and Christmas gifts, they can send you money to put into the child’s 529 plan.  You can invest in stocks, bonds, or mutual funds (or any investment) and it will grow tax free; however, this does expose your savings to market risk.  Once your child is ready to withdraw the money, you may want to read on tips how to maximize 529 plan deductions.  For example, for a couple making $160K, or $80 for a single parent, the first $2,500 of qualified education expenses are tax deductible under the American Opportunity Credit ($160K couple, $80K single, $2,500)[2].  Little tricks like that will help maximize the money you saved.  The Security and Exchange Commission has a great starting point for all things 529 plans. 

·         Scholarships – As a parent you should thoroughly research scholarships.  My parents provided me with absolutely no information regarding college.  I didn’t even know that scholarships existed.  Finding scholarships from schools and degree types will help you focus your efforts in preparing your children for college.  For example, many colleges have unfilled scholarships for females in golf, tennis, and most of the STEM degrees (science, technology, electronics, and mathematics).

·         Child ROTH IRA – A more obscure way of saving for your kids’ college education is to start a child ROTH IRA.  It works very similar to a 529 Plan, but the child doesn’t have to use it for a college degree.  It’s simply an IRA that you can use to avoid taxes when you withdraw the money for qualified education expenses.

NOTE:  Qualified Education Expenses: tuition, fees, books, supplies, and equipment and an eligible institution

This blog post assumes that you want to save for your kids’ college education.  Some parents don’t believe in paying for their kids’ college education.  What are your thoughts?  Should parents pay for college education or should kids have to “work for it”.

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[1] http://www.benefits.va.gov/gibill/post911_transfer.asp

[2] https://www.irs.gov/uac/American-Opportunity-Tax-Credit