The cost of a college degree is continuing to rise. With no end to this trend in sight, it’s important to start saving for higher education as early as possible. For many, however, this may be easier said than done. Many families struggle to balance all of their financial obligations, and it can be difficult to select the best savings vehicles for your college planning needs. Our team at Good Life Financial Advisors of NOVA can help you to understand your college funding options and work with you to incorporate them within a comprehensive financial plan.
Learn about popular options for funding college below, and contact us today to request a consultation in our Alexandria or Woodbridge, VA offices.
Balancing Other Financial Obligations
We understand that you may be saving for college while juggling other financial obligations, such as retirement. Thankfully, there are plenty of ways to save for college while still working toward your other financial goals. We will work closely with you to understand your current situation and goals before making any recommendations.
Consider Your Options
A simple savings account may sound like a reasonable option to save for higher education, but it may not provide the highest return. The right option for you will depend on your unique financial situation. Here are some popular options to consider:
A 529 plan is one of the most popular college savings accounts. These plans offer tax advantages that basic savings accounts simply do not. Contributions are made with after tax dollars, but earnings and withdrawals are tax free (as long as the withdrawals go toward education expenses). An added benefit of these accounts is that the funds can go toward tuition expenses at any level, which can include elementary school, middle school, and high school.
Another key advantage is that the parent, grandparent, or other owner maintains control of the money and how it is distributed. So, you don’t have to worry about your 18-year-old son or daughter using their college fund to buy a new car!
Two potential drawbacks to these accounts are that there may be penalties if the funds are not used for education, and there are some investment restrictions as well.
UTMA or UGMA
Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) accounts are another popular option for college savings. The main differentiator between these accounts and 529 plans is that upon reaching a certain age (18 or 21), the child gains full control of the account. The child then has the ability to use the funds for whatever they choose—be it college, a gap year in Europe, or a new car. Depending on the situation, this could be viewed as either an advantage or a disadvantage. If selecting this account, it’s important to have clear discussions with your child to help them understand the intent of the funds.
Education Savings Account (ESA)
Another common savings option for college is an ESA. While contributions are post-tax, returns are tax free. One thing to keep in mind, however, is that your contributions are limited to only $2,000 each year. There are also income limitations for these accounts. Your financial advisor can help you understand your eligibility and if an ESA may be right for you.
Saving for college may feel daunting, but this best time to start is now. At Good Life Financial Advisors of NOVA, we can help you to create a plan to save toward your child’s education while working toward your other financial goals as well.
Contact us today to set up a consultation.
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.