With the rising price of higher education, the earlier families can start saving, the better. But with many other savings goals to balance, prioritizing college savings can be difficult. Thankfully, there are specific accounts that can help you prioritize saving for education while also providing unique advantages that help you make the most of the money you save.
Creating a plan to save for college can feel overwhelming, but Good Life Financial Advisors of West Virginia can help. Request a consultation to discuss your college savings plan options today.
Why College Savings Plans?
If you’re saving money, why does it matter if the money is saved in a savings account, brokerage account, or college savings plan? Well, college savings accounts actually have a few advantages over other accounts.
First, there’s a huge mental benefit to having your savings in a designated account. You’ll be less tempted to spend the money on other expenses—and many college savings accounts further deter you from spending the funds on anything other than education by enforcing penalties. Some dedicated college savings accounts can also help you to make the most of your money by offering tax advantages. Let’s take a closer look at these.
Types of Accounts
Here are a few of the most popular types of college savings accounts to consider:
529 Plan *
A 529 plan is one of the most well-known college savings plans, and for good reason. Contributions receive tax breaks, earnings grow tax-free, and withdrawals are tax-free as long as they’re used for education expenses. The major drawback to a 529 plan is that it offers less flexibility than some other account types.
UTMA or UGMA
Uniform Transfer to Minors Act (UTMA) and Uniform Gift to Minors Act (UGMA) accounts offer even greater flexibility. Once beneficiaries come of age (either 18 or 21), they can use the funds however they choose. This allows for more flexibility—but that may be cause for concern for families worried about the account’s funds being used for something other than education expenses.
Indexed Universal Life Insurance (IUL)
While an insurance policy might not jump out to you as a great way to save for college, IUL’s are a unique offering with a few distinct advantages. These policies allow you to allocate cash value amounts to a fixed or equity index account, which provides the opportunity for gains. Growth is tax-deferred, and cash value can be accessed at any time without penalties—allowing these accounts to potentially be used for education expenses. Plus, as assets are usually factored into financial aid calculations, IUL’s may offer another benefit: life insurance isn’t typically included in financial aid assessments, so using these accounts for education expenses shouldn’t count against your final financial aid award.
When preparing to fund college, there are many factors to consider. Contact a knowledgeable advisor from Good Life Financial Advisors of West Virginia to learn more about your options.
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.