Written by: Jeremy Shafer
It’s that time of year again! Retail outlets load up on pencils and paper, backpacks, and every school supply under the sun.
It’s also a time to revisit a popular financial planning tool – college savings accounts. With college costs climbing at an average annual rate of 6%, many parents and grandparents are asking what they can do now to prepare. Here’s a quick primer.
What types of accounts are available?
There are a number of accounts that can be used to fund college expenses, including:
- 529 College Savings Plan
- 529 Prepaid Tuition Plan
- Coverdell Education Savings Account
- UGMA/UTMA
- Roth IRA
- Savings/Investments
Each type of account has benefits and drawbacks, so it’s important to determine which account would best fit your needs before committing to a plan.
What considerations should I take into account?
To help narrow your choices, consider your answer to these questions:
- How many children will I be assisting with college expenses?
- In how many years will the money be used for college?
- What is the current cost at the type of college I’m considering (2-year public, 4-year public, 4-year private)?
- How much of the total bill do I want to help with?
- Is saving for retirement more important than saving for college?
With these answers in hand, you can take your search to the next level. Consider discussing these questions with your tax/investment advisor:
- How do I balance retirement and college savings?
- What are the tax implications of the various plans?
- How will financial aid applications be affected by my plan choice?
- What option would best fit my needs?
If you’re looking to get started, or if you have an existing plan that you’d like to review, call or email today.
p.s. Did you know that one of the three plans offered by the state of Michigan ranks in the top 5 nationwide?
