4 Ways to Save for Your Child's Education

While parents aim to send their children off to college debt-free, this goal is becoming harder to reach each year with college costs and inflation rates on the rise. Plus, on top of saving for college, you have to worry about saving for retirement or possibly support aging parents.

It helps to have a plan for how you're going to save for your child's education. We recommend these four popular savings plans to help you meet your goals.

 

Section 529 plans, legally known as "qualified tuition plans" offer the benefits of tax-free distributions and tax-deferred growth, which have made them a popular option among millions of Americans. 529 plans are sponsored by states, state agencies or educational institutions and are authorized by Section 529 of the Internal Revenue Code, according to the SEC.

 

529 plans come in two forms: prepaid tuition plans and college savings plans. The prepaid tuition plan allows you to lock in future college tuition at today's rates, while college savings plans allow you to seek market returns on your contributions by investing them in securities, mutual funds and exchange-traded funds (ETFs). All states offer at least one of these Section 529 plans.

 

This tax-advantaged investment was originally established as Education IRAs with an annual contribution limit to $2,000. Many families use ESAs in conjunction with Section 529 plans to make them a more viable option.

Unlike 529 plans, ESA funds don't have to be used for college expenses, which could be beneficial if your child receives a scholarship, grant or other form of financial aid. ESA contributions aren't deductible, but they feature tax-deferred growth and tax-free expenses if the money is used for education expenses.

 

Custodial accounts are a common vehicle for college savings because they allow adults to transfer funds to minors. This makes custodial accounts especially popular among grandparents wanting to help their grandchildren fund their education.

The main benefit of custodial accounts are they allow the earnings to be taxed at your child's rate instead of your tax rate, assuming it's higher. Plus, there are no annual contribution limits.

 

Although their widely known as a retirement savings plan, Roth IRAs can also be a great college savings tool. You and your spouse can contribute up to $5,500 each, and up to $6,500 if you're over 50-years-old. You can withdraw Roth IRA contributions before you turn 59 1/2 years old for whatever reason you choose without any tax penalties. This way, you can withdraw funds from your Roth IRA to pay for college expenses while saving for retirement at the same time.

 

It's never too early to start saving for your child's education. But even if your child is nearing his/her high school graduation, however, it's not too late to start saving. The cost of sending your child to college continues to rise, so it's important to have a savings plan. Try setting financial goals for your savings funds and work with your trusted financial planner to help accomplish them. Financial planners are also a beneficial resource to have before investing your savings.

 

Our Customer Cussons Limiteders are here to help choose a college savings plan that's right for you. Contact us to start saving for your child's education.