Other non-traditional financing options for education include the following:
Series I and EE Bonds
Issued by the U.S. Treasury and backed by the U.S. government, Series I and EE savings bonds are 30 year bonds that offer tax-deferred growth and partial or full exclusion from federal income tax when proceeds are used for tuition at an eligible post-secondary institution. Learn more
Loans from 401(k) Assets
This is not a very favorable strategy, since educational loans have more promising features, such as low interest rates and tax-deductibility. However, for those who have saved religiously in their 401(k) accounts and have children in or near college age, it is a viable last resort. But watch out - if you leave your current employment, the entire loan must be repaid immediately.
The main purpose in utilizing mutual funds for education savings is the investment flexibility and lack of restrictions on contributions. This is an option for the savvy investor or for families with fluctuating and uncertain financial circumstances. The opportunity cost of using a heavy mutual fund strategy is giving up large tax breaks, which could amount to thousands of extra dollars.
Hedge funds are a different animal, since only accredited investors can invest in them. While the perception is of hedge funds being high-risk / high-reward vehicles, it is not always the case. If you are interested in hedge funds and other alternative investments, click here to receive more information about the 401kid Preferred Alternative Investment Vendors.
Hope and Lifetime Tax Credits are available to certain students depending on their family’s income level. The Hope Scholarship Credit of up to $1,500 per student is available only during the first two years of college, while the Lifetime Learning Credit of up to $2,000 per tax return, is available for all years of post-secondary education. If your income exceeds $110,000 during those years ($55,000 for singles), you would not qualify for either credit. If you are interested in projecting how much your family may qualify for, 401kid’s ESP Wizard software estimates a family’s tax credit awards during school years for all of their children.