Education is priceless, but earning a college diploma is certainly expensive. Plus, it’s a sure bet that by the time your child is ready to matriculate, the average cost of college will have risen. The sooner you begin planning for your child’s college expenses, the better off you’ll be. Talk to a certified public accountant about your long-term savings goals.
The 529 college savings plan is one of the most popular vehicles for long-term education savings. You’ll fund the account with after-tax dollars. However, the funds grow tax-free and no taxes are accrued when qualified distributions are made. Qualified education expenses include tuition, room and board, technology items, and required books and supplies. The funds cannot be used to cover transportation, insurance, cellphone plans, or student loan repayment. States set their own contribution limits, but there are no income restrictions for parents. As another added bonus, the parent stays in full control of the account—permanently.
Coverdell Education Savings Account
The Coverdell ESA is another popular choice for parents. Like the 529 plan, it’s funded with after-tax dollars, the money grows tax-free, and no taxes are accrued on distributions if they are used for qualified education expenses. However, one of the downsides is that it’s subject to a contribution limit. Each year, parents can only contribute up to $2,000, so the sooner you start this account, the better. Once the child reaches 18, he or she assumes full control of the account.
UGMA Custodial Account
UGMA accounts are specifically designed for minors, but they aren’t intended for educational purposes only. This means that the money can be distributed however the account holder wishes, including for tuition. The child is the owner of the account, although he or she won’t take control of it until age 18 or 21, depending on the state.
THPK Certified Public Accountants provides a range of financial services for individuals and businesses in Steamboat Springs, CO. You can speak with a CPA about developing a college education savings plan for your child. Call their office at (970) 879-1787.