Expenses associated with higher education are rising faster than inflation. As a result, it is common for students to take on a massive amount of debt in order to attend the college of their choice.
For many, the burden of monthly student loan payments puts other important goals out of the question. Young adults are waiting to purchase homes and start families while they try to get education debt under control.
If you know tuition bills are somewhere in your future, now is the time to start planning. A smart strategy now may offset the impact of future education expenses. You have a number of choices when it comes to setting money aside for higher education. With the right guidance, you may be successful in reducing the impact taxes can have on those funds as you work towards building your balance to eliminate the need for student loans.
Experienced financial planners will help you explore all of your options to find the college savings account that is right for your situation. These are two popular choices you can consider:
Each state has its own version of the 529 plan, and some are better than others. Fortunately, you can participate in any state’s 529 plan, whether or not you are a resident. These college savings products offer tax advantages to help you grow your balance more quickly. There is no income ceiling to own a 529 plan, and contribution limits are significantly higher than other types of tax-advantaged programs.
At one time, you had to use 529 distributions for expenses related to secondary education. However, today the law permits funds to be used for K-12 tuition, as well. That’s great news for families with children of all ages, because it means more opportunity to save on taxes.
Education Savings Accounts (ESAs)
Also known as Coverdell accounts, ESAs have their own set of tax benefits. The primary differences between these programs and 529 plans are the income and contribution limits. There are other nuances between 529 plans and ESAs that might make them particularly
appealing for some families.
For example, when it comes to K – 12 education expenses, funds from 529s can only be used for tuition. ESA funds, on the other hand, can be applied to just about anything related to enrollment and attendance. That flexibility can make a big difference for some students.
A college education is one of the biggest purchases you will ever make. Make sure you are prepared with a solid education savings strategy that increases your opportunity for success. Please feel free to contact us to schedule your appointment with a Pence Wealth Management education planning professional.
Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.