How will you pay for your child’s education?
With all the chaos that comes from raising children, financial planning can be the last thing on a parent’s mind. After all, thinking of how to pay for school can be incredibly stressful, time-consuming, and anxiety-ridden.
But, it doesn’t have to be. We believe that every parent can set their child up for success and that doing it can be stress-free with our top four college-saving tips below.
1. Set up a 529 Plan
The younger your child is the better position you are in to start saving given the interest it will build up over time. One of the best ways to do this is by getting a 529 Plan. With this type of savings plan, the money invested can be removed tax-free to cover all college and college-related expenses.
People also like this type of plan because of its options. 529 plans come in many variations and can be based on the age of the child, stocks, bonds, mutual or money market funds, and more.
To begin investing in a 529 Plan, all that is needed is to provide personal information on the application and set up an automatic contribution directly from your bank account (to ensure funds are going in and the account remains active.)
If this type of plan is of interest to you, it is also a good idea to read up on local and state laws seeing as every state offers a different version of the plan.
2. Consider Roth IRAs
For a workaround for tax liabilities, consider using Roth IRAs to fund college. That’s because these retirement accounts go untaxed to the beneficiary. But there are some restrictions when it comes to this account. For example, the maximum investment allowed is $6,000 ($7,000 for taxpayers 50 and over) and only those making less than $144,000 are allowed to contribute the max.
Nevertheless, if you are looking to earn interest tax-free, and without penalty when withdrawing, consider putting money into Roth IRAs.
3. Pay with U.S. Savings Bonds
If you’re wanting a reliable investment, consider U.S. Savings Bonds. That’s because, in theory, this type of investment is guaranteed a return. It is also quite a low-risk option which is perfect for those that don’t want to make a bad decision. However, keep in mind that the returns also tend to be on the smaller side when compared to other investment options.
4. Open A Coverdell ESA
The Coverdell Education Savings Account (ESA) is a tax-deferred trust account created by the government for the educational expenses of families. The funds from this account can cover a number of things for grades k-12 and higher education.
But, unlike a 529 Plan, the money from The Coverdell ESA can be used for educational expenses other than tuition. To get this type of account families will need to establish it before the child is eighteen and will then need to use it by the time a student is 30. If it is not, taxes, fees, and penalties will be incurred.
It Is also important to note that the cut-off amount for family contributions is $2,000 a year. So, if you’d like to contribute more, this might not be the right plan for you.
Regardless of how you decide to invest, it’s best to seek the help of an advisor to review your current financial position and determine what’s right for you.
Consider hearing what suggestions we have for you by, contacting us today.
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