Exploring the Various Ways of Funding a College Education
With all the demands and decisions that new parents face, one important aspect is often unintentionally overlooked in the early stages – college. However, with tuition rates rising, it should be at the top of every parent’s planning list … no matter what the child’s age.
What’s more, saving for a child’s education doesn’t necessarily have to rest entirely with parents. With the flexibility and convenience of today’s savings plans, many alternatives make good sense for grandparents, aunts and uncles, other family members and friends.
As your financial advisor, Capital Investment Services is here to assist. Our knowledge and professional guidance can help you give your child the opportunity for the bright future he or she deserves.
Start Planning Today
Although it’s best to start the college investment process when your child is young, it’s never too late to begin. It’s easy to put off thinking about these expenses, hoping that your child will receive scholarships or financial aid. But don’t count on them. While these awards do help with college funding, they’re not guaranteed, not always comprehensive and not available to everyone.
Investing for a Younger Child’s Education:
If your child is young, then time is on your side. Because you’ll have plenty of time, you may be able to invest less money now and, thanks to the potential impact of compounding returns, let your savings do much of the work for you.
Investing for an Older Child’s Education:
Don’t panic if your child is already in high school. While you may need to invest more money in a shorter time frame, you should still be able to afford at least a portion of college costs.
Take a close look at options without specific contribution limits, as they may be more appropriate for you now.
Also, talk to your child about specific goals. What schools is he or she interested in? Is college an option or does your child have his or her sights set on a vocational school? Some plans limit the beneficiary’s choices, so it’s important to understand your child’s expectations.
Which Plan is Right for You?
With many new college savings alternatives available, it’s critical to choose the one that’s appropriate for you. Selecting the wrong plan – or not investing properly within the right one – can prohibit you from maximizing your savings. However, with the help of our experienced guidance, choosing the right alternative can be easy.
What to Consider Before Selecting A Plan:
- What are the tax benefits?
- Who controls the funds?
- How much risk is involved?
- Are there contribution limits that may hinder your ability to meet savings goals?
- Are large contributions subject to gift taxes?
- What investment options are available?
The following alternatives address these issues with a variety of different savings features.
529 Savings Plans
These state-sponsored plans offer flexible, tax-deferred ways to save.
529 savings plans offer several advantages over other savings plans:
States may allow contribution deductions from state income taxes.
Earnings are free from federal taxes if used for qualified higher education expenses.
In most states, earnings are free from state taxes if used for qualified higher education expenses
You – rather than your child – remain in control of the funds.
Generous contribution limits exist, regardless of income level.
You choose the investment strategy that’s right for you and your student.
You can contribute to a 529 savings plan and a Coverdell Education Savings Account during the same year.
Your child may choose any accredited college, university or vocational school.
The account may be transferred to another family member.
Contributions are typically excluded from your taxable estate and may not be subject to gift taxes.
Some states may provide creditor protection. It’s important to review each plan and state laws to determine if they allow creditor protection.
While 529 savings plans offer many benefits, there are potential drawbacks.
Earnings are taxed and subject to a 10% penalty when withdrawn for uses other than qualified higher education expenses.
The portfolio allocations may only be changed once per year or upon a change in beneficiary.