I am an active-duty Air Force member with two sons. What are
the best college-savings options for military families like
mine?
That's a great question, and one that my family has dealt with
ourselves. My husband, an Army surgeon, has transferred his GI Bill
benefits to my 9-year-old son, which will cover some of the costs
when he goes to college. We're also supplementing that money by
saving in a state-sponsored 529 college-saving plan. Here's what
you can do to make the most of both of these opportunities.
First, find out if you can transfer your GI Bill benefits to
your children. The Post 9/11 GI Bill covers the full cost of
in-state tuition and fees at public colleges for up to 36 months
(four academic years), or up to $18,077 per year for private
colleges and foreign schools, plus providing a housing stipend and
money for books and tutoring. The money may be used for
undergraduate or graduate programs, or for certain programs at
vocational and trade schools. And one of the best features of the
Post 9/11 GI Bill is that longtime service members may transfer
their benefits to a spouse or children. To qualify, you must be on
active duty or selected reserve, have served at least six years in
the armed forces, and agree to serve four more years (the extra
service requirement is shorter for service members eligible for
military retirement between August 1, 2009, and August 1, 2013).
For more details about the benefits, see the
GI Bill fact sheet
.
Note that you can transfer your benefits in one-month
increments, up to the 36-month ceiling.Your spouse may use the
transferred benefits right away; your children must wait until
you've served at least the full ten years. Service members and
veterans (and their spouses) must use the benefits within 15 years
of leaving the military. Children do not have the 15-year time
limit, but must use the benefits by age 26.
If you'd like to transfer your benefits to your children, apply
for the transfer as soon as you're eligible, even if your kids
won't be attending college for many years. The clock starts ticking
on the additional four years of service on the date the transfer is
approved. So, for example, even if you've already served 15 years,
you'll need to serve four more years. You can't add new
beneficiaries after you leave the military, so it's a good idea to
sign up both of your kids (and maybe even your spouse) for at least
one month of benefits as a placeholder; you may change the
allocation or remove beneficiaries until the time the benefits are
used. My husband transferred his GI Bill benefits when my son was 8
years old, so the service-requirement clock started ticking right
away. He also transferred one month's worth of benefits to me, just
in case I wanted to go back to grad school in the future.
For more information about transferring benefits, see the
Department of Defense's GI Bill transfer page
and the
Department of
Veterans Affairs GI Bill page
.
If GI Bill benefits only cover part of the bill for an
out-of-state or private college, you (or your spouse or children)
may qualify for extra help from the Yellow Ribbon program. More
than 1,000 colleges currently provide scholarships each year for a
certain number of students who are also using the GI Bill, and the
Department of Veterans Affairs matches the school's contribution.
See the
VA's Yellow Ribbon Program page
for more information.
Still, Yellow Ribbon benefits are not guaranteed and could
change a lot by the time your children go to college. Also, your GI
Bill benefits are unlikely to cover the entire cost of college for
both your children, especially if they end up going to a private
college or an out-of-state public school. Our family decided that
it was important to supplement my husband's GI Bill benefits by
saving money in a 529 plan, which can be withdrawn tax-free for
college expenses.
Although you may invest in any state's plan, it's usually best
to invest in your own state's plan if it offers a state income-tax
deduction. But for military families, the strategy can be slightly
different. Many members of the military maintain their legal
residence in another state even after they move. Look first at the
state where you pay state income taxes -- not necessarily where you
live now -- to see if you can get an income-tax break there for
your contributions. (See
www.savingforcollege.com
for more information about each state's tax rules.)
If the state where you pay taxes doesn't offer a tax break (or
if your legal residence is in an income-tax-free state), consider
some of our favorite plans. See
Smart Ways to Save for College
for some of our picks.
For more information about special benefits, laws and savings
opportunities for service members and their families, see our
Personal Finance for Military Families
special report.