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The Importance of Planning for Your Child’s College Education
Chances are, if you are a college-educated person in the United States, you took out a significant amount of money in student loans. Approximately 40 million Americans are currently repaying some form of student debt. With time and proper planning, you can make that a burden your children will never have to bear. Unfortunately, while studies show that more parents are actively putting money away for college expenses, nearly half of families who want to send their children to college are doing nothing. A survey conducted in 2014 found that nearly three-quarters of parents had no idea what a 529 plan is (more on that later).
Considerations When You Are Planning for Your Child’s College Education
The first thing to understand is that the costs of a higher education are substantial (current average is $9,000+) and are going up every year. But the benefits are there—a study by the Economic Policy Institute found that college graduates earned nearly 60% more annually than their classmates who went to work right out of high school.
Of course, financial aid is available, but much of it is in the form of student loans. But that puts a tremendous burden on college graduates, most of whom start out in pretty low paying jobs. A study by CNBC found that the average college grad leaves school with more than $37,000 in student loan obligations. If you factor in the need for housing, transportation and other essentials, it’s easy to see why some many young college graduates are struggling financially.
Smart Ways to Save for Your Child’s Education
What is a smart strategy for putting away enough money to pay for your child’s college education? Start early, so that your dollars have time to grow. There are a number of different vehicles you can use to build your college education fund:
- An UTMA or UGMA account—The Uniform Transfer to Minors Act (UTMA) and the Uniform Gift to Minors Act (UGMA) both allow you to set up a custodial account where you can put stocks, bonds and other investments that are reserved for your children when they go to college. The amounts you put in these accounts will be considered by college financial aid officers, but if you start early and put enough into these accounts, you may not need to worry about financial aid.
- The Coverdell Education Savings Account—This program allows you to contribute up to $2,000 annually into a trust or custodial account for your child’s education, with tax-free growth and tax-free withdrawals.
- 529 Savings Plans—These are plans offered by states, state agencies or educational institutions that allow tax-free growth and distribution of funds for college education expenses. The savings plan allows you to open an investment account and make regular contributions of after-tax dollars.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Investing involves risk including loss of principal. 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.
Contact The Pinnacle Financial Group
At The Pinnacle Financial Group, we’ve provided professional risk management advice to individuals and businesses in New York and Connecticut for two decades. We understand the critical role planning plays in your financial future. We’ll carefully explain your options and the different strategies available to you, so that you can make the right decisions for you and your loved ones.
To schedule a free initial consultation, call our offices at 516-763-9700 or complete the form provided below.
