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Saving for Your Child’s College Fund

by Sally Kelsies

Let’s face it, the high price of college tuition really isn’t going anywhere. This means that you will most likely need to help your child pay for their college. Even if they get large sums of money in the form of scholarships, they still might need some financial assistance. Here we are going to tell you some of the best methods for saving for your child’s college fund.

Before we dive in, there is one common theme to all of these methods. Be sure not to have any of these assets in the potential student’s name. The more assets they have, the less likely they will qualify for financial aid.

So, what are the best methods for saving for your child’s college fund?

Whole Life Insurance

While this may sound surprising, whole life insurance often provides a tax deferred or tax free method of saving. Although the rate of return you will get on this financial product will not be as high as more traditional methods of saving, there are other benefits to consider.

Along with the tax deferred or tax-free growth on the cash value, if the owner of the policy passes away, the beneficiaries will receive a lump sum. This lump sum payment is most likely tax-free. You can use this for anything, including housing, college, and other bills. So, there is a lot more flexibility here than other college savings methods.

529 Plans

Another way to start saving for your child’s college fund is by opening a 529 plan. A 529 plan are very popular for several reasons. First, they grow tax free and offer a lot of flexibility when it comes to financing a student’s education expenses.

The funds in a 529 plan will grow tax-free if used for secondary education. In additional to this, you can roll the funds over to another plan. This plan can be for any potential student of any age if you do not use the full balance. However, if the balance does not go towards college expenses, the withdrawals will be subject to tax. Plus, you may face a possible 10% penalty.

There is also a cap on how large the account can grow before contributions can no longer be made.

Traditional Brokerage Accounts

There are other ways you can save for your child’s college fund outside of a whole life insurance policy or a 529 plan. One of these is a traditional brokerage account. This account, which you can open with many different financial institutions, can offer a lot of benefits and flexibility. Financial institutions that offer brokerage accounts include Fidelity, Merrill Lynch, and Charles Schwab.

A traditional brokerage account does not grow tax free though. This is one of the downsides when you compare it to a 529 plan. All interest, dividends, and capital gains will be taxable. There are no penalties for withdrawal for any use. However, you will most likely get taxed for any transaction made within the year.

However, on the upside, the assets in the account can be used for any purpose, not just your child’s college fund. Plus, there is no cap on how much you can contribute. Just think of this type of account as an emergency fund that you are not going to touch until you need it for education expenses. You can hold all of the traditional investments in this type of account, including stocks, bonds, mutual funds, and more.

Ready to start saving for your child’s college fund?

With this information, you should now be able to start saving for your child’s college fund. There is a ton of flexibility when it comes to this. You can open a traditional brokerage account, or open a tax advantaged 529 plan superficially designated for your child’s education expenses. If none of those options seem appealing, you can even open other types of financial products like a whole life insurance policy to save for your child’s college fund.

If you have any questions, your accountant or financial advisor should be able to help.

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1 comment

Strategies for Minimizing Tax Liability on Overtime Income - The Daily CPA September 19, 2023 - 10:55 pm

[…] Plans – Provides tax benefits when used to pay for a child’s or other beneficiary’s qualified education expenses. Some states offer a deduction or credit for contributing. Earnings grow tax-deferred and […]


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