Your kids are ready
for college – are you?
College Financial Planning
College financial planning for many families can be the largest wealth transfer they will ever deal with in their lives. Can your child afford to go to college? The answer is yes, but you need to carefully plan together how to pay for it.
There are many ways to reduce college expenses. For example, by choosing a lower-cost community college. Many full-time students at four-year colleges can apply for financial aid to help them. And you can save for your child’s college costs, tax free!
Many families put aside money from their paychecks for their child’s future education. You should know that there are special savings accounts that can benefit you: 529 college savings plans and Coverdell Education Savings Accounts (ESA). With these types of accounts, you earn interest on the money you put in, just like any other savings account. Unlike regular savings accounts, the money you contribute to the accounts, and the interest, will not be taxed. That means you will have more money for college! These accounts generally have minimal impact on your child’s chances of receiving federal financial aid, including grants.
With both plans, the money grows tax-free and isn’t taxed when you take it out — as long as it is used for qualified expenses. College costs include tuition, fees, room and board, books, supplies, personal expenses and transportation.
529 Plans: Type of investment account you can use for education savings. 529 comes from Section 529 of Internal Revenue code, which specifies the plan’s tax advantages. This plan offers several portfolios to choose from. You may reallocate the money within the portfolio twice a year.
ESAs: Sometimes called Coverdell ESA. This account lets you choose almost any kind of investment option including stocks, bonds and mutual funds. You cannot do this with a 529 plan. This plan has income restrictions and money must be used by the beneficiary by age 30, unless the beneficiary has special needs, or given to another family member to avoid taxes and penalties. A Coverdell ESA limits the total amount contributed for any one beneficiary to $2,000 per year.
Planning for College Expenses with St. Charles Financial Services
Someone who pays cash for college to help their children may prove to be very expensive and could be harmful to their retirement. You must remember that for every financial decision made earlier in life this will impact your financial life in the future at retirement. A well thought out plans starts early for your child. It should be reviewed each year and does not stop until your child is done. What happens if you planned on a four-year school and then your child decides to go to Medical School?
Each plan mentioned offers different features and each has their own rules to follow. Contact St. Charles Financial Services to speak to a financial professional who can discuss the advantages and disadvantages of each plan and help you decide what plan is best for you and your child.