College Financial Planning Assistance
At Assured Retirement, we can help you reduce the stress of college financial planning by providing valuable and up-to-date information about your education funding options.
College expenses are high. That is why being able to save for tuition is crucial. Below we discuss a few college financial planning options to help you, your children or grandchildren save for higher education.
Common College Financial Planning Options
Custodial Accounts (UTMA): If you want to create a financial gift for a minor, these accounts will allow you to do so. Once the minor turns 18 or 21 (based on state law) he or she will have access to the account and will be able to use the money on tuition or other expenses. However, there is not stipulation that the money needs to be used for education only.
529 College Savings Plans: These accounts are usually sponsored by educational institutions, states or state agencies for qualifying college tuition and expenses. 529 accounts will remain under your control and also offer some tax and contribution benefits.
Coverdell Education Savings Account (CESA): If you open one of these accounts, you will be able to make contributions until your child turns 18, unless the child in question is a special needs beneficiary. There are tax benefits associated and the funds can be used toward elementary, secondary or college tuition and expenses. However, you may only contribute $2,000 annually.
Traditional or Roth IRAs: You may distribute funds from IRAs without penalty for eligible educational expenses, for you, your children or your grandchildren. However, taxes may apply if you make an IRA or Roth IRA withdrawal. These accounts are not considered assets when institutions calculate financial aid options, though withdrawals are counted as financial aid income for parents.
Additional College Financial Planning Options
• Federal or State Government financial aid programs
• Part-time student jobs or work study programs
• Private, federal or college sourced loans
• Grants and scholarships
• Gifts from family
Borrowing from Your Retirement Account to Pay for Education Expenses
Another options is to borrow money from your retirement account or home equity or to reduce your retirement contributions and use the extra money for college expenses. The drawback with this option is that you will need to work longer before you retire. You may discourage your child from taking out a college loan – like a Stafford Loan – because it will place them in debt. Remember that they will have much more time to work off the debt than you will have before you retire.
Other Considerations When Creating a College Savings Plan
Speaking with a financial adviser will benefit you as you begin to formulate your plan to pay for college. If you do, remember to ask the following questions:
• How is the best way to resolve competing expenses like retirement with the cost of education?
• How do institutions calculation the basis for financial need?
• How can college savings plans impact financial aid eligibility, taxes and tax credits?
• Based on your risk tolerance, what kind of options will you have the you need to access the funds?
• Which, if any, of your currently available funds have penalties associated with an early withdrawal?
If you are looking for college financial planning assistance in the Minneapolis, MN region, contact the financial professionals at Assured Retirement Group by calling 952-657-7470 or by contacting us online and we will get back to you ASAP.