In support of National Consumer Protection Week 2021, the Receivables Management Association International (RMAI) provides the following information. Additional information on this topic and more is available online from the Consumer Financial Protection Bureau. Visit RMAI’s webpage for Consumers for more National Consumer Protection Week articles about avoiding scams, shopping online, using credit and debit cards, and finding help for rent and mortgage payments.

With the rising costs of post-secondary education, be it a trade school, a junior college or a private college or public university, it is never too early to save for the future, particularly when it comes to your children’s educations. According to investment giant, Fidelity, most parents begin to save for their children’s future before they reach first grade. Starting early can make a difference, both in terms of the money you contribute over time and its potential to grow. You may not be on the hook for the entire college bill. Some of the other sources to cover college expenses include grants, scholarships, work-study, and contributions from relatives. Any amount you can accumulate will help.

While saving for college may seem like a practice designed only for those with discretionary income, it is actually one most parents can afford if they take advantage of accounts with special tax structures. There are basically three kinds of education savings accounts. Each is designed to help you make the most of your money when saving for the single purpose of funding the future education of your children or grandchildren.

  •  529 College Savings Plan

529 savings plans are flexible, tax-advantaged accounts designed specifically for education savings. Earnings on contributions grow federal income tax-deferred, and withdrawals taken to pay for qualified higher education expenses such as tuition, fees, and room and board are free from federal income taxes.

  • Uniform Gifts to Minors Act/Uniform Transfers to Minors Act (UGMA/UTMA)

UGMA/UTMAs are custodial accounts that let parents (and others) make an irrevocable gift to a minor that can be used for college or any other purpose.                For federal tax purposes, investment earnings are generally taxed at the minor’s tax rate, which is usually lower than a parent’s rate.

  • Coverdell Education Savings Account (ESA)

Coverdell ESAs allow you to save for college and withdraw money for qualified higher education expenses federal income tax-deferred. However, the annual contribution limit is only $2,000 per beneficiary and higher-income households may not be eligible.

These three types of accounts can propel your savings goals for your children’s educations. But for many, the thought of saving money for an event 18 years into the future is almost laughable. The needs of their family today far outpace their hopes and dreams for their children’s future. Yet investment advisors agree, one sure way to take a baby step in the right direction is to budget an amount you can save for education. Even if the amount is only $25 or $50 per month, save the amount as though it is like any other bill you have to pay such as a cell phone or electricity bill. You and your child will be pleasantly surprised to see the amount grow over time.

About the Bureau

The Consumer Financial Protection Bureau is a 21st-century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.

About Receivables Management Association International

Receivables Management Association International (RMAI) is a nonprofit trade association representing more than 550 companies that purchase or support the purchase of performing and nonperforming receivables on the secondary market. The Receivables Management Certification Program and Code of Ethics set the global standard within the receivables industry due to the rigorous uniform standards of best practice which focus on protecting consumers. More information about RMAI is available at www.rmaintl.org.