Welcome to the Weekly SUMmary - 04/09/2021
Parents often don't know where to start planning for funding their child's college. This can be scary.
First, how much will it cost?... That depends:
- Will they go to an in state college?
- Will they go out of state?
- Will they live on campus?
- Where will they live off campus?
- What will textbooks cost?
- What will they study?
- Will there be advanced degrees?
- AND the biggest question of all... Will they even go to college???
How should I pay for whatever comes next?
There are actually a lot of options. Some more tax beneficial, some more flexible/liquid.
- 529/Coverdell - specific education related accounts. Tax benefits. Penalties for non-qualified distributions (non-education related distributions). see more here
- Uniform Gift to Minors Act (UGMA)/Uniform Transfer to Minors Act (UTMA) - Custodial accounts that do not transfer to the child until a certain age (state by state). At one time more tax beneficial than current law. Wiki UGMA Wiki UTMA
- Brokerage - a separate account that you may label for the child, but ultimately belongs to the parent/guardian unless gifted to the child at a later date (tax implications may apply). No link, this is similar to a savings account, but set up through a brokerage account so the funds can be invested in securities.
- Life Insurance - This is a multi purpose tool and as such will likely be more expensive as you are paying for insurance. The benefit is that you will have insurance as well as potential funds available for distribution for use of your choosing. There is a potential for tax benefits, but a conversation with a professional is recommended to fully understand.
- Checking/Savings - These are common accounts and may be used for whatever purposes the owner chooses.
- Income - Some choose to pay for education expenses out of pocket from income earned while the child is in school.
College planning can be as complicated as you would like. The point that I would emphasize is to start sooner than later if you are planning on contributing to your child's education financially.
For more information, there is a good page on my site related to these costs. See here
As always, this post is for educational purposes. It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. I strongly urge you to seek a professional prior to making a final decision related to this topic.
Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing; specific plan information is available in each issuer's official statement, which can be obtained from your financial professional. Be sure to read carefully before investing.
Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.