Financial Planning: College
As a financial advisor, I’m frequently asked for advice on college saving. The first thing I tell my client is that it’s never too early to start saving for college, which will allow the money more time to grow. And, it’s also never too late to start.
Busy lifestyles and multiple priorities make investing and college saving more challenging than ever. In today’s complex and ever-changing financial marketplace, it’s important to evaluate and talk about all of the available options for college planning.
529 Plans
A 529 plan is a tax-advantaged savings plan designed to aid in saving for the cost of higher education. 529 plans are “qualified tuition plans” sponsored by states, state agencies or educational institutions. These tax* advantages and sponsorships are authorized by Section 529 of the Internal Revenue Code.
There are two types of 529 plans: prepaid tuition plans and college savings plans. All 50 states and the District of Columbia sponsor at least one type of 529 plan. In addition, a group of private colleges and universities sponsors a pre-paid tuition plan according to each state’s website. Ohio sponsors two 529 plans that offer a variety of investment options that you can manage yourself and one that offers professional guidance. One of the biggest benefits of 529 plans is the tax advantages* they offer if used for college expenses.
As with all investment products, you should read the information carefully and consult with a financial advisor for product details. You can also visit www.collegesavings.org for more information.
Savings Bonds
While they may not provide as high a return as other investments, they’re easy to purchase and their value is easy to estimate. The interest is exempt from federal and state income taxes* when used for certain college expenses such as tuition but not for room and board.
Savings Accounts
Savings accounts are typically used by students already in college who need access to liquid funds. Most savings accounts don’t cost anything to set up, and the money is FDIC insured. In today’s rate environment, savings accounts earn little to no interest, so these accounts may not grow much.
Certificates Of Deposit
CDs are also FDIC insured, although they lock up the money for a specified time, limiting their liquidity. The CD benefit is that the money is more secure. The current disadvantage is that the interest rate is likely less than 1 percent. CDs are a good option for students who will go to college in a year or two, already have significant money saved in a 529 plan and don’t want any additional investment risks.
At the end of the day, college savings options are a personal choice and depend on a family’s individual needs.However, 529 plans, overall, offer bigger benefits because they allow the investments to grow tax free* if used for college expenses.
Given that tuition costs continue to rise, the need to save is great. With whatever vehicle a family decides, the more planning or saving you do, the more prepared you’ll be. And like any other type of planning, there is no silver bullet or program that will ensure success. It takes years of saving and a good strategy. That’s why it’s important to talk to a financial advisor to assess your needs and make the best decisions.
/ Karrie Stefanov is a Financial Advisor with FirstMerit Financial Services, Inc. She has been helping clients in the Akron area with their financial goals for more than 20 year. She can be reached at 330-733-4407.
*FirstMerit Bank, N.A., and its representatives do not provide tax advice. Consult your personal tax advisor before making tax-related decisions.
Securities offered through FirstMerit Financial Services, Inc. Member FINRA, SIPC; Advisory Services offered through FirstMerit Advisors, Inc.; Insurance Products offered through FirstMerit Insurance Agency, Inc., affiliates of FirstMerit Bank, N.A
Investments and Insurance Products are:
• Not FDIC Insured
• Not a Deposit
• Not Bank Guaranteed
• Not Insured By Any Federal or State Government Agency
• May Lose Value