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How soon is too soon?
Families make an upfront payment in exchange for future tuition contracts or credits
- Pros: Prepaid plans aim to cover tuition no matter how much it increases.
- Cons: Some states, facing budget woes and rising tuition, have had to close their plans to new participants, raise prices or impose fees.
- Financial-Aid Impact: Minimal, if treated as parental asset.
DISCLOSURE: Investors should consider the investment objectives, risks, charges, and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing
Investors should also consider whether the investor's or beneficiary's home state offers any state tax or other benefits available only from that state's 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investment in any state's 529 Plan
It is never too soon to begin saving for your child's education. Many parents start as soon as a child is born. Some parents begin planning before children arrive. If you're planning on having a family "someday", start planning now. If you have a child on the way, start now. If you have an infant, toddler, grade-schooler or teenager, start now. Notice a theme here?
Qualified distributions are tax-free, and many states offer tax deductions or credits for contributions.
- Pros: Can result in big tax savings for families able to sock away substantial sums.
- Cons: Some plans may have limited investment choices and charge high fees, and savers can face taxes and penalties if the funds are pulled out for other purposes.
- Financial-Aid Impact: Minimal, if treated as parental asset.
DISCLOSURE: Investors should consider the investment objectives, risks, charges, and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing
Investors should also consider whether the investor's or beneficiary's home state offers any state tax or other benefits available only from that state's 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investment in any state's 529 Plan
Families can save for college in a standard taxable portfolio.
- Pros: Investors have complete control over their investment decisions; accounts can be used for any purpose.
- Cons: Investors are likely to face a tax bill on growth and withdrawals.
- Financial-Aid Impact: Federal aid formulas count the value of the assets in the account (minus any margin loans) at the time the federal financial aid application is filled out.
Coverdell Education Savings Accounts
How late is too late?
UGMA and UTMA Custodial Accounts
529 Savings Plans
Roth IRAs
Taxable Brokerage Accounts
Accounts in which the parent acts as trustee.
- Pros: Can be used for most anything as long as the proceeds benefit the child.
- Cons: Students gain control of the accounts when they come of age.
- Financial-Aid Impact: Since the accounts are in the child's name, they are counted more heavily in financial-aid formulas.
529 Prepaid Plans
If your child is already in high school, you may feel it's too late to start saving for college. But think again. ANY preplanning and saving you can do is better than nothing. If you are in a time crunch to save, start thinking of ways to reduce your monthly expenses and increase your cash flow NOW. Then look at some ways to invest what you've saved. There are many options beyond a traditional savings account, such as CDs or money market accounts. Do some research, or better yet, enlist the assistance of a financial professional.
When should you plan for your child's higher education?
If you haven't begun planning, start now -- there is no better time to get the proverbial ball rolling. You may be surprised how a little planning now can make a big difference in the years to come
Savings Bonds
The simple fact is - the sooner you plan, the better.
Where to Save
Here are some options to consider for college savings vehicles
Investors can generally withdraw their original contributions without taxes or penalties not only for college, but any reason.
- Pros: Offers more flexibility and investment options.
- Cons: If the parent is relying on the account for retirement, any withdrawals will chip away at the nest egg.
- Financial-Aid Impact: Assets aren't counted in aid formulas, although withdrawals of a contribution are treated as income under aid formulas.
Offer tax-free growth for education expenses.
- Pros: Cover a broad range of expenses, including college and K-12 expenses, while offering more investment choices.
- Cons: Impose income restrictions and a low $2,000 contribution limit. Current tax benefits extended only for two years.
- Financial-Aid Impact: Minimal, if treated as parental asset
At Gundrum Insurance & Investments, LLC, we'd like to assist you planning for your child's college expenses.
If you haven't begun planning, start now -- there is no better time to get the proverbial ball rolling
Let’s Get Started
It is never too soon to begin saving for your child's education and while you may feel that putting off your retirement for a few years is an acceptable trade-off, you should not have to sacrifice your retirement savings to put your children through college. While it's a noble cause, it's also easily preventable. Look below for more information on how to avoid this outcome.
Interest earned on the Series EE or I bonds is free from taxes if used for qualified higher-education expenses.
- Pros: Among the safest investments.
- Cons: Currently, bonds pay a relatively low rate of return while the tax break is limited.
- Financial-Aid Impact: Income from the bonds is considered income under aid formulas