Saving for College

There are a number of options to consider as you plan ahead for ways to fund college for your children.

  1. Potential Direct Financial Impact

    • Potential state tax benefits for partial 529 contributions.
    • Tax free investment growth on your existing 529 college savings accounts.
    • Potential need to optimize the amount of your contributions, the types of savings vehicles, and your asset allocation.
    • Need to balance saving for college with preparing for your own retirement.
    • Reallocation of funds from kids activities (ie. sports or camp) to cover any out of pocket tuition costs when the time comes.
    • Costs associated with future college tuition and living expenses.
  2. Potential Secondary Impacts

    • Lifestyle impact if you need to reduce expenses to save more and get on track for college.
    • Rebalance or adjust your asset allocation periodically to ensure it is appropriate based on your objectives, time horizon, and risk tolerance
    • The need to balance saving for college with a brokerage account for flexibility of funding to cover non-qualified expense like non-campus housing
    • The potential need to balance paying down your own student loans with saving for college for your children.
    • The potential need to look into alternative funding sources like a Home Equity Loan of Credit (HELOC), grants and scholarships as an additional supplement to savings and student loans.
  3. Self Completion/Execution Risks

    • Sacrificing your own retirement to fund college for your children.
    • Missing out on potential state tax deductions for 529 contributions to your state sponsored plan.
    • Lost growth opportunity on dollars that could have otherwise been invested if you start saving too late.
    • Not super-funding a 529 plan up to the five year annual gifting limit if you have cash available to do so.
    • Funding a pre-paid college tuition plan only to have your child go to another school.
    • Not using different savings vehicles (529 and brokerage) to provide flexible funding for qualified and non-qualified expenses
  4. Situations where expertise adds the most value

    • Tax Adviser
      Consulting a tax adviser may be helpful to determine how best to structure your college funding across different savings vehicles like a 529 plan, Coverdell Education Savings Account (if under income limits), brokerage account, HELOC, and/or cash value life insurance to create flexibility to cover various types of qualified and unqualified expenses.
    • Legal Adviser
      Working with a trust and estate attorney may be beneficial to put a plan in place to leave assets to cover education costs for future generations.
    • Financial Adviser
      Working with a financial adviser may be advantageous to help you determine, and stick with the right investment mix, needed to meet your retirement and college savings goals. Additionally, a financial adviser may be able to help you create an updated budget that enables you to save more toward both goals.

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