Potential Magazine Spring 2016 | Page 12

pay the way be prepared COLLEGE IS EXPENSIVE. WHAT’S YOUR PLAN? By Dave Ramsey Now that student loan debt exceeds credit card debt in America, you might feel like you need to do anything and everything you can to avoid going into debt to pay for your kid’s college. You won’t hear any argument from us about your commitment to avoid debt, but not all college savings options are created equal. So doing anything and everything could actually prevent you from reaching your goal. pre-pay anything, the return on your investment is equal to the inflation rate for that item. So, for pre-paid college tuition, your return is about 8% per year. As we pointed out before, you can do better with an ESA and good growth stock mutual funds. DO: Consider opening a 529 plan, especially if your income As you build your college savings plan, keep these dos and don’ts in mind: is too high or you need to save more than an ESA will allow. But choose wisely! Some of these state-sponsored plans perform no better than bonds or pre-paid tuition. Make sure your state’s 529 plan is “flexible,” meaning you can choose the type of fund you invest in and the amount you invest in each type, and you can move that money from one fund type to another. DON’T: Save for college using insurance. Never, never DO: Apply for all the scholarships you can find. Tons of save money inside an insurance policy like the Gerber GrowUp plan, which is simply whole-life insurance. These plans are expensive and rarely perform as projected. DO: Save money in an Education Savings Account, some- times called an Education IRA. You can contribute up to $2,000 per year per child if your annual income is less than $200,000, and your money grows tax free