The price of college tuition today can seem overwhelming, but a college education for their children remains a goal of many families. Our team assists clients in developing options to fund the education of a child or grandchild. The best advice is to start early.
Before clients select a plan, our advisors will help them analyze many factors including tax benefits, who controls the funds, how much risk is involved and contribution limits.
Funding options include the following:
Named after the section of the IRS code that created them, these plans help families save for college, offer tax benefits and help parents retain control of these funds. With parents in control, our advisors assist in the allocation of the assets in each account.
The Uniform Transfers to Minors Act allows parents to transfer assets to a child without establishing a costly trust. Although these accounts are not designed specifically for college savings, they offer advantages including multiple investment options and limited tax benefits. However, contributions to the accounts are irrevocable and parents lose control of the funds when the child becomes 21. This age may vary by state.
Parents can withdraw funds from their IRA to pay college expenses without incurring the 10% penalty. However, withdrawals may still be subject to income taxes, and parents should realize they are spending their retirement funds.
Parents may be able to borrow from their 401 (k) or 403 (b) plan, but there are disadvantages. Interest rates are typically higher, but you are paying the interest to yourself. The loan must be repaid in five years. Should parents change jobs, the loan will be due immediately.
Although it is typically inappropriate to buy an insurance policy for the sole purpose of funding college expenses, the cash value of certain types of policies can be used to pay higher education expenses. This option also has some disadvantages including specific guidelines for withdrawing funds.