Today’s parents and guardians face many options when planning for their child’s education. Thankfully, federal and state college savings options offer tax advantages and flexible investment choices to help families prepare for almost any outcome. Founding partner H. Lee Wall of Wall Titus believes these plans are “a great way to save for college education,” especially if parents find the right plan to suit their needs.
If you’re a parent or guardian preparing for your child’s future, consider some of these tax-advantaged college savings options.
State Prepaid College Savings Plan
In some state prepaid plans, parents pay current tuition rates with some risk of the underfunding the account for future tuition rates. In other states like Florida, parents invest more than current rates with the guarantee that the plan will cover tuition and fees at the state’s public universities and colleges by the time the child graduates high school. If the child chooses an out of state or private school, the funds may be transferred at the risk of losing some value depending on the contract.
State 529 College Savings Plan
529 savings plans offer much more freedom since they can be used at any school for all higher education expenses. Parents can open an account at any time and choose from age-based portfolios that sometimes include a selection of stock and bond funds. Contributions are treated as gifts subject to gift tax limitations, but the plan doesn’t restrict investments until the account nears its lifetime cap. Investments can be as little as $25 a month and some states offer in state tax breaks. However, if the family’s state of residence doesn’t offer an in-state tax break, another state’s plan could offer more advantages. Parents can invest in a plan in any state even if the student chooses a school outside that state. Though contributions aren’t deductible from federal taxes, investments will grow tax deferred and withdrawals aren’t subject to federal taxes. States may offer tax deductions on contributions as well.
Independent 529 College Savings Plan
Over 270 private schools including University of Chicago and Wake Forest joined to offer the Independent 529 Plan for use at any member school. If the student isn’t accepted to a school in network, parents get their money back +/- the funds return capped at +/- 2%.
If you would like further assistance from Wall Titus regarding college savings options, please contact us today and be sure to subscribe to our blog to stay informed on financial news and strategies to increase your wealth.