College is expensive and prices are climbing higher every year. If you want your child to reach his or her dreams, you may be wondering how you can start saving now. Michigan Education Trust is a state-sponsored college savings plan that lets parents, grandparents, businesses and others pre-pay undergrad tuition for Michigan kids. It’s a “529” plan, which simply refers to a federal IRS code that means it’s exempt from state and federal taxes. These funds can be used at any Michigan public university, community college, private or out of state institutions.
Brian Newman, a certified financial planner at Hantz Financial Services in Southfield and Taylor, explains what plan works best for each family’s budget – so no matter the circumstances, you can rest easy knowing your child’s future will be as bright as he or she is.
1. ‘Our family is able to purchase a full four-year plan confidently and knows that these funds will not be needed for some other purpose.’
The plan: Lump sum
Families who have enough money to purchase a full four-year plan in one lump sum will have the convenience of having their child’s primary college costs settled. However, it’s important to know that MET investments typically are unavailable until the child turns 18, so those funds aren’t available for financial emergencies. If you want to buy less than four years, the pay-as-you-go option is the same rate but allows you to fund the plan over time.
2. ‘Our family is comfortable adding an extra monthly bill and want to lock in payments at the current rate.’
The plan: Monthly
You can buy semesters or years of credit at a MET rate set for the current enrollment period (rates just increased slightly in May) – but you can spread those payments over a set period of time, allowing you to make fixed monthly payments.
3. ‘Our family is able to start saving for our child’s college while they are very young.’
The plan: Monthly
With this plan, your payments can be spread over a four-, seven-, 10- or 15-year period. The younger your child is when you start, the lower your monthly payment cost.
4. ‘Our family is able to start saving for our child’s college, but they are older.’
The plan: Lump sum
Try this approach if you are comfortable purchasing a four-year plan. The rate is set by the MET program for the current enrollment period and avoids the financing charge that accompanies the monthly plan.
5. ‘Our family wants to start saving for our child’s college now, but we don’t want to be committed to a specific payment.’
The plan: Pay-as-you-go
This may be right for you if you don’t feel confident removing a significant lump sum from your savings or adding another monthly bill to your household expenses. With this plan, you won’t be committed to any payment plan and can instead contribute as you are able. You can start this plan by purchasing at least one credit hour. Once the contract is opened, additional payments of at least $25 may be made at any time.
6. ‘Our family wants to start saving for our child’s college, but friends and family would also like to make contributions.’
The plan: Pay-as-you-go
The contract remains open so that you, your friends or other family members can continue to purchase whole or fractional credits at the rate in effect at the time you buy until the beneficiary is ready to attend college.
Get more information and get started at SETwithMET.com.
