A question we get asked quite frequently is about saving for college expenses.
It is very expensive and continues to increase every year. Fortunately, there are some good strategies that are available for us to help put together a realistic plan to help you save for those increasing college expenses. Indeed, one of the greatest gifts that someone can receive is the financial support and means to enable them to pursue opportunities at the college of their choice.
It’s a wonderful thing to see a plan come together. That’s where we can, as your advisor, help you construct a realistic plan to take advantage of the different strategies and opportunities that are available to you. I’m going to mention here a couple of my favorites.
One option would be a 529 college savings plan. The Internal Revenue Service sets up these plans. Most states have a state-sponsored plan with different investment firms. You can use any of these firms. You’re not tied to any individual state. What you do with one of those 529 plans is you start as early as you possibly can with your child, with the goal that you’ve got a good number of years to accumulate wealth for them, to use when they do become college age. These accounts are easy to set up. The beauty of the 529 plan is that as you’ve accumulated funds over the years, once your beneficiary/child is ready to start taking distributions from that account, which you control as the guardian, the qualified expenses for college, such as tuition, books, fees, computers, and, in some cases, room and board. It will be taken as distributions completely tax-free. So, it’s a wonderful tax-advantage savings program.
In addition to the college savings 529 plans, another plan that we like to use - sometimes in a combination with the 529 plans- is called a custodial account, or, for short, a UTMA account. For this account, one of the parents is typically set up as the custodian, with the child being the owner. Since the child is a minor until they reach whatever age of majority in their state, which is usually 18 or 21, the parent can invest money into this account that can be used for any type of expenses. The flexibility is that it’s not just tied to your college expenses. You can use these to fund clothing, entertainment, automobile transportation to and from college, or whatever miscellaneous expenses that we all know add up quite a bit of tuition.
In other words, there are some really good vehicles that we could sit down and talk with you about to see what is the best plan for your child, as you’re helping make your child’s important decisions, so they can have the opportunity to go on to college and pursue their dreams. We’d love to sit down and spend a few minutes constructing a well-laid-out, realistic plan and help you monitor that plan as your child grows towards college age.