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In today’s job market, it’s difficult to find a high-paying job with opportunities for advancement without a college education. But the cost of attending college is higher than ever before, and university cost projections show that it’s only going to continue to rise. Unfortunately, you can’t always rely on scholarships and financial aid to help your child offset these rising costs of education. Instead, it requires that the student’s parents have the foresight to establish a college savings plan for their child’s future.
At Flaharty Asset Management, we care about the futures of our clients and their children, and can help you with all of your college planning needs. With proper education planning, you can help your child to receive the college education they need to succeed, and graduate without an enormous burden of student debt.
One of the first steps in education planning is to determine what type of college fund is best suited to your family’s needs. There are several different types of college savings plans, including the following:
An education savings account, or ESA, is a tax-advantaged investment account that can help pay for qualified education expenses. They offer tax-free withdrawals, so long as the funds are spent on qualifying costs towards education. That education doesn’t have to be for college either; funds in an ESA can be used for primary, secondary, or postsecondary education of any kind. So, if you send your child to an expensive private school or if they choose a trade school over a university education, the savings in your ESA can be used for these costs tax-free.
Contributions are limited to $2,000 per child each year, and there are income-based restrictions that will disqualify some individuals from using an ESA. All ESA funds must be used by the time the student turns 30 if you want to avoid penalties and taxes on withdrawals.
529 plans are among the most popular college savings plans, and operate similar to a Roth IRA. It’s important to note that there are actually two types of 529s: the education savings plan and prepaid tuition plans. Education savings plans can be used for any and all education costs, including room and board, books, and so on. Prepaid tuition plans can only be used to cover tuition and other mandatory fees.
Unlike an ESA, there are no income restrictions on a 529 plan, and the funds in these accounts can be used at any time throughout the child’s life. However, they do tend to have higher fees and fewer investment options than ESAs.
Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
These are technically custodial accounts that hold funds for minors until they come of age, but can be used as a type of college savings plan for your child. Because these funds can be used for more than just education expenses, it’s a good option if you want your child to have access to the funds regardless of the future they choose for themselves. Additionally, even if your child does choose to attend college, these funds can be used for basic living expenses, and not just qualifying education expenses.
However, having all those funds in their name is not always a good thing. Your student may not qualify for need-based financial aid with this savings plan.
Knowing which of these plans is best for your child’s future isn’t easy. The team at Flaharty Asset Management can help you navigate these and other college savings options to determine which option will give your child the best chance at a successful future.
Have questions about college planning and education funds? We’ve answered a few common questions below, but feel free to reach out to us for more personalized answers to your questions, and to receive expert advice for college funds.
The sooner, the better! It’s never too soon to start saving for your child’s future. Many parents opt to open a college savings account as soon as their child is born, while others prefer to wait until the child is old enough to start earning their own money and contributing to the account as well. Starting right now will give you the best chance of saving enough to give your child that head start towards a better future.
If you believe a higher education is necessary, then the answer is yes! Rather than hoping that your child will qualify for financial aid or scholarships, it is far better to take proactive steps to ensure that they have the financial means to receive the education they need to succeed in life.
The answer to this can vary widely depending on when your child will be attending college, the type of school they want to attend, and what their living arrangements will be. For example, if your child will attend a public college in the 2030-2031 school year, you can expect tuition to cost around $40,000. If they’ll be attending a private college in that same year, you can expect annual tuition costs to be over $90,000 for most schools.
Graduating with the burden of student loans can start your child off in a difficult financial situation. With proper college planning, you can give them the better start they need to succeed in life. Contact Flaharty Asset Management today to receive expert guidance in selecting and investing in the right education savings plan for your child.