 Feel like you’re behind on saving for college? You’re not alone. A recent study from Fidelity found that 70 percent of parents want to fully fund their child’s tuition and education costs. On average, however, parents are on track to cover only 29 percent of the costs by the child’s freshman year.1 College is a major financial challenge for many families. Unfortunately, it’s only getting more expensive. From 1988 to 2018 the average tuition for a private, nonprofit college rose 129 percent. Public college tuition rose 213 percent over the same period.2 The good news is there are savings tools available that are designed to help you accumulate assets specifically for education. Below are three such savings vehicles. Each offers its own benefits and considerations. Your financial professional can help you choose the strategy that’s right for you. 529 Plans
The 529 plan is a popular college savings vehicle, primarily because of its unique tax treatment. You make tax-deductible contributions to your child’s 529 account and then invest them as you like. Growth in the accounts is tax-deferred. As long as the funds are used for qualified educational expenses, all withdrawals are tax-free. Each state offers its own 529 plan, but there’s no rule that you have to use your state’s plan. You may be able to deduct your contributions from your state income taxes if you use your state’s plan, but that’s not always the case. It’s also possible that another state’s plan may offer features and investment options that better fit your needs. If you withdraw 529 funds and use them for something other than education, you may face taxes and penalties. That could be an issue if your child chooses not to go to college. Fortunately, you can change the plan beneficiary to a different child. To take advantage of the tax break, however, you must ultimately use the funds for education. UGMA/UTMA Accounts These accounts are popular among parents who want to control the funds but also want flexibility with regard to how the money is used. UGMA and UTMA accounts are general savings accounts for minors. When your child reaches the age of majority in your state—usually either 18 or 21—the accounts transfer to their ownership. Your child can then use the funds as they wish. You maintain control of the account until your child reaches adulthood, so you make all decisions about how the funds are invested and used. Also, while the growth in the accounts isn’t tax-deferred, it also isn’t fully taxable. Some growth is tax-free, and then, at additional levels, growth is taxed at the child’s rate. Roth IRA If you’re like millions of Americans, you use a Roth IRA to save for retirement. Did you know you also may be able to use it to pay for your child’s education? Normally, you can’t take out distributions from a Roth before age 59½ without paying a penalty. However, you may be able to get a waiver on the penalty if you’re using the funds to pay for college. You can also take out your contributions from a Roth at any time without paying taxes or penalties. If you withdraw your contributions, however, you’ll reduce your balance and limit your growth potential in the future. Ready to plan your child’s education funding strategy? Let’s talk about it. Contact us today at Sprouse Financial Group. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation. 1https://www.bankrate.com/finance/savings/3-ways-to-save-for-your-child-s-future-1.aspx 2https://www.cnbc.com/2017/11/29/how-much-college-tuition-has-increased-from-1988-to-2018.html Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 17742 - 2018/6/19
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