College Funding Options (Updated March 2016)

ryan@oncoursewm.com |

How can you cover your child’s future college costs? Saving early (and often) may be the key for most families. Here are some college savings vehicles to consider.

College Funding Options

You can plan to meet the costs through a variety of methods.

 

Provided by OnCourse Wealth Management

 

How can you cover your child’s future college costs? Saving early (and often) may be the key for most families. Here are some college savings vehicles to consider.

 

529 plans. Offered by states and some educational institutions, these plans let vary, so it is requested that any discussion of these be one-on-one.

 

Coverdell ESAs. Single filers with adjusted gross income (AGI) of $95,000 or less and joint filers with AGI of $190,000 or less can pour up to $2,000 annually into these tax-advantaged accounts. While the annual contribution ceiling is much lower than that of a 529 plan, Coverdell ESAs have perks that 529 plans lack. Money saved and invested in a Coverdell ESA can be used for college or K-12 education expenses. Coverdell ESAs offer a broader variety of investment options compared to many 529 plans, and plan fees are also commonly lower.3,4

 

Contributions to Coverdell ESAs aren’t tax-deductible, but the account enjoys tax-deferred growth and withdrawals are tax-free so long as they are used for qualified education expenses. Contributions may be made until the account beneficiary turns 18. The money must be withdrawn when the beneficiary turns 30 (there is a 30-day grace period), or taxes and penalties will be incurred. Money from a Coverdell ESA may even be rolled over tax-free into a 529 plan (but 529 plan money may not be rolled over into a Coverdell ESA).2,4

 

UGMA & UTMA accounts. These all-purpose savings and investment accounts are often used to save for college. When you put money in the account, you are making an irrevocable gift to your child. You manage the account assets. When your child reaches the “age of majority” (usually 18 or 21, as defined by state UGMA or UTMA law), he or she can use the money to pay for college; however, once that age is reached, that child can also use the money to pay for anything else.5

 

Cash value life insurance. If you have a “cash-rich” permanent life insurance policy, you can take a loan from (or even cash out) the policy to meet college costs. The principal portions of these loans are tax-exempt in most instances. Should you fail to repay the loan balance, however, the policy’s death benefit will be lower.6

 

Did you know that the value of a life insurance policy is not factored into a student’s financial aid calculation? That stands in contrast to 529 plan funds, which are categorized as a parental asset, even if the child owns the plan.6

 

Imagine your child graduating from college debt-free. With the right kind of college planning, that may happen. Talk to a financial advisor today about these savings methods and others.

       

OnCourse Wealth Management may be reached at (561) 337-5333 or ryan@oncoursewm.com.

http://www.oncoursewm.com/

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.     

   

Citations.

1 - irs.gov/uac/529-Plans:-Questions-and-Answers [8/24/15]

2 - time.com/money/3149426/college-savings-esa-529-differences-financial-aid/ [8/21/14]

3 - figuide.com/new-benefits-for-529-plans.html [1/13/16]

4 - time.com/money/4102891/coverdell-529-education-college-savings-account/ [11/9/15]

5 - franklintempleton.com/investor/products/goals/education/ugma-utma-accounts?role=investor [2/3/16]

6 - investopedia.com/articles/personal-finance/102915/life-insurance-vs-529.asp [10/29/15]