College Planning
Children grow up fast, one minute we are changing their diapers and the next, we are rushing them off to college and adulthood. College expenses are increasing dramatically year by year, will you be prepared? Below you will find different options available to you for planning for college. These are only brief overviews of the available options and should each be evaluated for their pros and cons by you and your advisor before you begin investing for your child’s education.
Developed and adopted by each state independently, these plans allow you to lock in your child’s future tuition costs at today’s tuition rates. In other words, your investments in these programs will be used to fund tomorrow’s tuition at an in-state school at today’s rate.
If your child decides to attend a school out of state the amount accumulated in these plans converts to a dollar amount and can be applied towards the tuition at these out of state institutions.
A qualified tuition program (also known as a 529 plan or program) is a program set up to allow you to either prepay, or contribute to an account established for paying, a student's qualified education expenses at an eligible educational institution. These expenses are the tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution.
Distributions from 529 plans for eligible educational expenses are exempt from taxes.
Education IRA (formerly known as Coverdell ESA)
An Education IRA or Coverdell ESA (education savings account) is an account setup for a minor to cover eligible education expenses. Education IRAs can be used to cover primary and secondary education as long as they follow certain rules. There are limits to how much can be contributed to an Education IRA for a specific child or beneficiary in a tax year, therefore caution must be taken to ensure that these limits are maintained and the tax status is preserved.
Distributions from Education IRAs for eligible educations expenses are exempt from taxes.
There are other vehicles that can be used to fund your child’s education expenses. These other vehicles, however, do not have the tax advantages that the previous accounts have. On the other hand, with proper planning of your investments for education, you can control your taxes, pay for your child education and limit the restrictions on the use of the funds.
