Parents everywhere share a common desire: to create the best life for their children. This often involves planning for their future, and in many cases, planning for college or post-high school technical education. One of the most common questions parents ask is, “What’s the best way to save for my child’s education?” There are four core options, and a fifth if you happen to be an older parent. Each has its own benefits and drawbacks:
- 529 Plans These plans first rolled out in 1996, and are now the most common vehicle for college savings. If you’re putting money away that you almost certainly intend for college costs, a 529 plan may be good to consider.
- Education Savings Accounts (ESA) ESAs were once the only truly dedicated education accounts available, and they’re still viable today. Though you’ll often hear more about 529s, many people still opt for ESAs.
- Uniform Transfer/Gift to Minor Accounts (UTMA/UGMA) Since UTMA/UGMA accounts have been around for years, and many people are aware of these. With these, you serve as the custodian of the asset until your child reaches adulthood. At this point, they convert to your young adult’s name.
- Keeping the money in your own name. This is the ultimate “I’ll decide later but I want to save today.” choice. This can work well if you’re not sure what your student will end up doing. When you keep an investment account in your name individually or jointly with a spouse, you can then opt to gift this later. Some parents prefer this as a means to have more control, versus accounts that name a child as contingent owner/beneficiary.
- Retirement Accounts This is a variation of Option 4. If you were in your 40’s when you had a child(ren), you may choose to put money in a retirement account in your name or in your spouse’s name. You may then be able to withdraw funds penalty free once you reach age 59 ½ , while your child is still school aged. There may be a more potential pitfalls with this option, so it’s a good idea to check with your Advisor first.
Saving for college may be daunting, but at Vantage Point Management, we’re prepared to help you weigh the advantages and disadvantages of each of the options above to create a plan that you and your family can follow confidently from crib to cap and gown. Though it may seem a long time between these stages, speaking as a parent of grown kids, this seemed to happen in the blink of an eye.
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