Kids grow up fast. Eventually, the time will arrive to use the money you and your soon-to-be college student have been saving. That time will get here sooner than you think — I know it is for me. When that time does come, you’ll need to know which types of withdrawals to make from those accounts … and when to make them.

Withdrawals for Qualified College Expenses

In an ideal world, you would only withdrawal from your college savings plan for qualified education expenses since you’re charged penalties for non-educational  distributions. Most college education plans simply require you to submit a form to make a withdrawal and you can generally download these forms from your plan’s website, then print them out, and fax or mail them to the plan’s administrative office. The plan’s office will then issue a check, which you can deposit in your regular checking account. Make certain you keep good records of these distributions and how you spend them.

Why track your educational expenditures?

Once you receive the funds from your college savings plan and deposit the money into your checking account, it’s your responsibility to keep accurate records of all qualified expenses that you pay with that cash. You don’t have to open a separate checking account for these expenses — you can even commingle the money with your personal funds — but it is critical to keep track of how you spend it. Why? Because no one monitors or dictates how you spend money withdrawn from your college savings account, not even the government (yet). But if the IRS does decide to take a look at your finances by conducting an audit of your personal income tax return, you’ll need a record of your qualified expenses to avoid the steep penalties triggered when you cannot show where you spent the funds.

Which expenses should I track?

Keep track of expenses such as:

• Tuition (obviously)
• Fees – some programs have fees for labs or equipment
• Books – figure at least $700 per semester unless you use College Book Renter
• The laptop or tablet he or she will need
• Supplies – backpacks, paper, notebooks, binders, and other office supplies
• Housing – probably the second largest expense
• Food – even a meal plan may not be enough!
• Laundry – it never seems to end, does it?
• Cell phone – if you’re planning to keep them on your plan or pay theirs
• Internet service – many schools provide it while on campus
• Parking and transportation – don’t forget car insurance, fuel, and parking fees
• Clothing – take into account the climate and culture of your child’s school

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How to track education spending

One of the best ways to keep a record of your education-related spending is to keep a file of all canceled checks that you write to fund qualified expenses. Many banks will still mail your canceled checks to you each month, but it’s easier to print copies of canceled checks on your bank’s website, especially with the PerkStreet Checking Account.

When to Withdraw

You can withdraw money for qualified college expenses as soon as they come due. If you have more than one college savings plan, it makes no difference whether you draw from one account before the other, or from both at once, I’d advise you to withdraw from the account with the highest fees first — that way you’ll drain your costliest accounts as soon as possible, pay fewer fees, and still cover your expenses

Withdraw from Coverdell accounts first

There’s one more important rule of thumb concerning withdrawals: if you own more than one college savings account and one of those accounts is a Coverdell Savings Plan, withdraw from your Coverdell first. Coverdells treat the beneficiary rather than the contributor as the owner of the account. Since assets held in the student’s name make it harder for the student to qualify for financial aid than assets held in the parent’s name, you should spend the money in your Coverdell account as soon as possible—ideally during the student’s first year or two of college. That way, you can increase your child’s chances of qualifying for financial aid while continuing to use and contribute to another college savings plan that lists you as the owner.

Withdrawing funds for other purposes is expensive

If you withdraw funds for any purpose other than a qualified expense, you’ll pay tax on the investment earnings plus a 10% penalty on any funds you withdraw. Unless it’s a dire emergency, withdrawals from a college savings plan for any reason other than education expenses is a bad idea.

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One of the more frustrating things about attending college is the incredible cost of textbooks. Students, especially freshmen, are generally cash cows for local bookstores as students hurry to buy the correct textbook for each class. Wait until the class starts and you may have to buy a new textbook rather than that used one for 25% off. THEN, when you attempt to re-sell that new $150 textbook back to the bookstore (a textbook you may not have even used), you’re offered $8 … unless there’s a “new edition” and then you’re offered nothing but forever have a large 600 page paperweight on Basic Chemistry. Doesn’t come in too handy when you’re a business major.

I wish CollegeBookRenter.com had been around when I was attending college. I was essentially renting my textbooks anyway since I always sold them back to the bookstore at the end of each semester (unless there was a new edition). The new edition problem wouldn’t have even been an issue if I had rented them. By renting I could’ve save some serious money since the average student saves 60% or more (up to 85%) by renting textbooks rather than buying them. Plus I could’ve waited until the class started to see if I needed the book at all (some professors use the textbook listed for the class extensively, some minimally, and some not at all).

What is the rental process with CollegeBookRenter.com?

After you set up your account, it’s a simple matter of selecting your textbook using either an ISBN, the title, or the author. Once you find your book you’ll need to choose from three different rental periods – 60 days, 90 days, or 130 days. Next the textbook to your cart and click on the Checkout button, following all the prompts for your shipping and billing addresses along will your payment information. Once all of that has been completed, you’ll be able to review all of your personal and payment information before confirming your order. Once you have confirmed your order, you’ll see a receipt page. That same receipt will be emailed to your account.

Click here to get started with CollegeBookRenter.com … or buy a Gift Certificate for your student!

If you find you’re going to need your book longer than the rental period you originally specified, extending your rental is also easy. Simply log in to your account, select the book you wish to extend, and click on the Extend Rental button. You’ll see a drop down menu that lets you choose how long you want to keep the book, and then continue to the checkout.

What about shipping costs with CollegeBookRenter.com?

Books are shipped within 1-2 business days and you’re offered 4 options.

1. Standard Service

Cost is $2.99 + $1.99 each additional book per order (5-14 Shipping Days).

2. Premium Ground Service

$5.99 + $1.99 each additional book per order (4-8 Shipping Days)

3. Priority Service

$9.99 + $4.99 each additional book per order (2-3 Shipping Days)

4. Priority Plus Service

$15.99 + $9.99 each additional book per order (1-2 Shipping Days)

What about returning books to CollegeBookRenter.com?

You just can’t beat free return shipping. CollegeBookRenter.com returns are simple, fast and free. Just log into your account, print the FREE return label, and send it back.

Get more information on a private student loan through a Credit Union HERE!

A few caveats

1. Don’t write in your rented textbooks. A small amount of highlighting is acceptable however.
2. When you return textbooks, make certain you ONLY send back the books you listed on your packing slip. They won’t send back any books sent to them in error.
3. If you lose you book, you’ll be charged its full list price so treat your books as assets.
4. If you book is damaged, you’ll be charged full list price. Books are thoroughly inspected when returned to make certain your book. Examples of damage include:
   • Torn or missing pages
   • Damaged cover or spine/binding
   • Stains on or inside the textbook
   • Water damage
   • Writing or excessive highlighting
   • Any other damages that would determine the book unusable
5. If your textbook is not returned and or a UPS Return Label has not been generated by the last day of your rental period, then your credit card will be charged a 15 day extension fee.
6. If your textbook is not returned and/or a UPS Return Label has not been generated by the last day of your 15-day extension, then your credit card will be charged the list price of the textbook minus the 15-day extension fee. You will be notified via email of these charges!

Not going to college but know someone who is? Gift Certificate!

Even if you’re not planning to attend college anytime soon, chances are pretty good that you know someone who is. Consider a gift certificate from CollegeBookRenter.com and help them save.

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I ran across this infographic at the Consumerist and was granted permission by CollegeScholarships.org to host it here on The Wisdom Journal.

Student loans are certainly unique in why they’re used and how they’re eventually collected, but this infographic crystallized the history and information surrounding this “gateway drug to debt slavery” in a way that really hit home for me. Personally, I’ve been making payments on student loans since 1988.

Infographic by College Scholarships.org. Used by permission.

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Okay, you did your job: You child is no longer a child. She’s grown up, has one of those “getting started” jobs, has a car that you mostly paid for, has a cell phone that you mostly pay for, and is heading off to a college … that you’ll mostly pay for. She needs a budget (and you do too!).

YNAB is probably your best bet for getting a college student prepped for her financial life as an adult, but you don’t have to buy award winning software to create a budget. You CAN use the ancient technique of pencil and paper. Yes, it still works.

Buy-in is critical for a college student on a budget

The most important aspect of creating a budget with another person is their buy-in with the whole process. NOT getting buy-in is a huge mistake. Buy-in insures communication and assures your student that you’re open to modification is expenses exceed your expectations.

Flexibility with a budget is vital

What’s next? Flexibility. This is her freshman year and she won’t know what to expect … she CAN’T know what to expect, and most likely, neither can you. Setting strict, inflexible limits on her grocery bill or entertainment expenses just isn’t feasible. You can set reasonable limits on her total amount of spending, however, and that’s probably the best way to proceed. Studies show that people are generally pretty good at keeping things in line financially when faced with a year’s expenses, but not so good at estimating what they’ll need next week! You probably should expect your student to be any different.

Where will your college student get her income?

To begin, you’ll need to know how much is at her disposal each month. Will you contribute as a parent? Start with YOUR budget first, then add in any scholarship or grant money that she expects to receive over an above her tuition, books (hint: try College Book Renter), fees, supplies, room and board. Be sure to include any of her accumulated savings as well as any earnings she will receive from a work-study or part-time job. That gives you a general framework for your college bound student’s budget.

Fixed and variable expenses

Next, you’ll need to get a handle on her fixed expenses such as car insurance, cell phone, off-campus rent, etc. Then we get to the variable expenses such as clothing, food (outside the meal plan), transportation, and “fun.” This is the tricky part of your calculation. Remember what it was like when YOU were in college?

Ask for budgeting help from the college

Stop by the schools financial aid office and ask if they can provide a sample budget for new students. Even if they don’t have one, they probably have a list of common expenses to help you formulate a spending plan.

Once you have your annual numbers, you’ll need to break it down into months and if she’s comfortable with it, into weeks. It’s a smart idea to get it down to the weeks calculation because if she gets ahead of herself and overspends one week, she’ll know to make adjustments next week to get back on track.

Help her learn money management, not just budgeting

One way to force her to budget properly is to keep her monies in an online savings account at a bank that also has checking (ING Direct Checking or Everbank Checking). This way you can set up periodic transfers from savings to checking. She will earn a little interest and will learn to make wise use of her money!

If … or when … she makes a bad money decision

One final note: if she blows it, dipping into her savings account to buy her new boyfriend the electric guitar of his dreams or to take her “bestie” on a road trip to the beach for Spring Break, DON’T bail her out. If you do, I will personally guarantee that she will do it again next semester, and the one after that. A better bet is to have regular budget meetings over the phone with her to insure she stays on track and learns money management. I would also recommend checking her online bank accounts to make certain that what she tells you matches reality.

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In today’s world, it’s necessary to have at least one degree if you want to be taken seriously by employers and stand a chance in the competitive job market. So as a high school graduate, the question you need to ask yourself is not whether you should go to college, but which one you’ll attend and what you’ll study. However, when it comes to a graduate degree, don’t make a quick decision. Make certain your graduate degree will make a marked difference in your career and your life.

So when does a master’s degree really count?

When you know it’s going to help you advance professionally

Most professionals choose to work soon after graduating from college because it allows them to start repaying their student loans and earn enough money to live comfortably. They don’t think of doing a master’s degree unless they’re going into medicine or law or research. However, there may come a time when you feel that you’re stagnating in your job and that additional educational qualifications could help you move up or bring about a positive change. So if you do decide to go back to school, ensure that your time, effort and money are not wasted in the pursuit of a degree that is worthless as far as your profession is concerned. Choose a major that is relevant to your line of work and one which is a requisite for a promotion you want and/or which will help you gain additional skills and knowledge to boost your standing in the workplace.

When it is a personal milestone

Some people want to obtain a master’s degree upon graduation from their undergraduate school but are unable for various reasons. They may be forced to find a job, family responsibilities come up, or they may not have the financial wherewithal to afford a graduate education. However, they may get the opportunity to go back to school to earn the degree they’ve always wanted at a later date. When it’s a case of personal triumph and achievement, your master’s degree is really worth the effort and time.

Ron’s Note: This was my exact situation when I decided to get MY Master’s Degree in Business Administration. I wanted to get it for the sheer personal satisfaction.

When it is a stepping stone to a greater goal

The choice of an undergraduate major normally decides the career you want; however, there are general streams like the arts and sciences that allow you to set up a basic foundation and then decide what you want to build on it. Some people choose to become doctors or lawyers and go on to choose their master’s degree accordingly. Others prefer to stick with the same major to do research and earn a doctorate. They prefer to stay in the world of academia as researchers, scientists and professors who communicate their knowledge to future generations. When your master’s degree is a stepping stone to a greater aim, it’s worth every drop of sweat you’ve shed to earn it.

Ron’s Note: I’ve considered using my MBA as a springboard to teach part-time after I retire.

When you don’t spend more than you have to in order to earn it

If you’re getting deeper into debt in order to earn your master’s degree and you know that there’s no job on earth that will help you repay all that you’ve borrowed, it’s just not worth the time and effort to go to grad school. No matter what your dreams and aspirations, you must be practical when it comes to financial matters. You don’t want to live like a penniless pauper who’s rich only in terms of degrees.

Ron’s Note: We probably all know someone who paid more for their degree than it could possibly be worth. Don’t let this happen to you. The people I’ve met in this situation are pretty bitter about it. But it shouldn’t have surprised them.

When it decides your career

Some master’s degrees span four or more years – they’re a combination of both bachelor’s and master’s degrees rolled into one for people looking to consolidate the admissions process. These degrees are great for people who want to change careers after completing college. They help you finish a graduate’s degree in less time than usual and they save you some money too.

Ron’s Note: I sincerely wish I had taken this route but as an 18 year old freshman, I just didn’t have the drive or the self discipline to take this step.

Don’t stay on in school just to avoid facing the responsibilities that await you in the real world – choose to go on to graduate school only because your degree is totally worth it professionally and/or personally.

This guest post was contributed by Mark Macaluso from Masters in Accounting.net.

Photo by ilamont.com

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