College costs are rising at rates higher than inflation. A private 4-year college costs around $30,000. for tuition, fees, and room and board. At the most selective institutions, costs could run even higher.
There are 3 main things to consider when saving for a child’s education:
Tax advantages. For tax advantage reasons, many investors choose 529 College Savings Plans and Coverdell Education Savings Accounts because they offer opportunities for tax-deferred growth and potential for federal tax-free distributions. There are two types of 529 plans – Prepaid and Savings.
Time horizon. If your child is only a few years from college, you may want to concentrate your savings in an account that allows the largest contributions in the shortest time. These types of accounts include:
• 529 College Savings Plans
• Custodial Accounts under the Uniform Gift to Minors Act (UGMA)
• Custodial Accounts under the Uniform Transfer to Minors Act (UTMA)
If your child is more than a few years away from attending college, you will have more options available to you. In addition to the above options, you may also want to consider:
• Coverdell Education Savings Account
• Prepaid Tuition Plan
Financial aid. Any investments or assets owned by you or your child are likely to reduce your child's chances of receiving financial aid, or may decrease the amount he or she receives. Because public and private institutions offering aid typically revise their treatment of assets each year, it is difficult to estimate how assets owned may affect the amount of financial aid your child may qualify for.
Under the current federal aid formula, parents are expected to contribute a much smaller percentage of their assets to college costs each year than the percentage expected from the student's income. For this reason, you may want to keep most of your education savings in your name, not your child's.
Your family's education funding needs are unique. Your CONCERT Financial Advisor can discuss the options that are most appropriate for you.