College Savings for Your Child
Saving money for your child’s college is a way to try and guarantee them a better lifestyle as they age. A college education can be very expensive and depending on what type of college your children attend you could be looking at a rather significant sum. The global pandemic disrupted schooling and this in turn affected the amount that you would have to pay to send a child to college.
Certain colleges froze tuition or offered discounts ranging up to 100 percent for the 2021-2022 academic year because of the global pandemic. This is because many colleges and schools had to close their doors and figure out a way to keep their students and staff safe.
Now that things have returned to relatively normal rates are up this year, which means you will have to save even more. The average tuition and fees at private colleges have gone up by about 4 percent, according to data for the 2022-2023 school year. Public school tuition and fees rose by just 0.8 percent for in-state students and about 1 percent for out-of-state education.
“Saving for college can take a great deal of legwork trying to figure out what sort of investment is best for you and your family,” says Richard Eden Senior Vice President of David Lerner Associates, “Don’t risk your money. Rather find a sensible middle ground of investment that will yield results over time.”
If you want to save money for your child’s college here are some ways to do it:
Open a 529 Plan
A 529 plan is a savings plan with tax advantages that are designed to help pay for education. As of 2019 it now also covers K-19 and apprenticeship programs. Withdrawals are tax-free if they’re used for education expenses that are considered “qualified”.
A Coverdell Education Savings Account
A Coverdell education savings account or an ESA is a tax-deferred trust. These can be used to pay for elementary, secondary, and higher education expenses as well as room and board. Be aware that all funds must be used by age 30 or there are tax penalties.
These two savings vehicles are similar in that withdrawals for noneducational expenses incur a federal tax ten percent penalty. Both types of accounts include tuition and fees, including books, and even room and board bills.
Other ways to save money for your child to go to college include a Roth IRA or investing in mutual funds. You could also take out a home equity loan, but that could affect the amount of money you have left for your retirement when it comes to assets.
No matter what you decide to do, make sure that you get expert advice and don’t put yourself or your family at risk.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances.
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