Saving for College
There are a number of options to consider as you plan ahead for ways to fund college for your children.
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.
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.
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
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.
- Tax Adviser