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Educating Your Children Without Going Broke

Cynthia Marotz's soccer playing daughter eating a slice of bacon in her soccer uniformThe 14 year old is marching through the living room again on her way to the kitchen. Sometimes I wonder if I can afford to feed her. With 4-5 hours per day of soccer, she is constantly hungry. I continue to sit in the living room, opening the mail. Voila! In the mail is my pre-paid college statement. Beyond the cost of tuition, the statement gets me thinking of what I will spend on my 14 year old’s meals. I have yet to purchase a meal plan for her college, and I’m keeping my fingers crossed that she gets some kind of scholarship. is a great place to scare educate yourself about the growing costs of college. From the website, I learned that the average cost of in-state tuition at a four year institution is $25,396 while a private university costs on average $53,102 per academic year. Are you getting the picture? Your parents almost went broke educating you. Don’t let that be your destiny.

brunette biting thumb and writing on a spiral notebook with worried look pointed at her laptopCollege Savings Section 529 Account

One option for college savings is a pre-paid college statement. In these plans, earnings and withdrawals are free from federal taxes if used for qualified higher education expenses. A Section 529 Account beneficiary can be anyone: a child, a grandchild, a niece or nephew, a friend or even the contributor. The beneficiary may also be changed without tax consequences to another member of the beneficiary’s family and is available for 30 years after high school graduation! Also, the parent maintains control of the assets and decides when the money will be spent.

In addition, the plans allow you to make contributions of up to $15,000 a year ($30,000 for married couples) without gift-tax consequences. Furthermore, up to $75,000 ($150,000 for married couples) can be contributed at one time by accelerating five years’ worth of investments. Beyond that, anyone can contribute to your child’s 529 savings plan. So instead of Aunt Bertha buying another life sized stuffed animal, let her know how to contribute to the 529.

Lastly, certain student loan expenses and apprenticeship programs can be paid for by 529 assets. The Section 529 Account can be used for most higher education including college, graduate and post-graduate study and technical training. Tuition, room and board, books and certain other fees and expenses are all qualified higher education expenses at an eligible educational institution.

UGMA/UTMA Accounts:

Both the Uniform Transfers to Minors Act (UTMA) and the Universal Gifts to Minors Act (UGMA) accounts allow you to transfer financial assets to a minor without establishing a trust. UGMA and UTMA accounts are both custodial accounts, held in the name of the minor, but controlled by a parent or other relative until the child reaches the age of majority in your state. UGMA and UTMA accounts allow parents to save money and invest, as they maintain full control of the account until their child is an adult.

I’m not a huge fan of these types of accounts since you have to turn over the assets to the child at age 18 or 21 in most states. To me, this means Little Johnny could impress his girlfriend by purchasing that brand new BMW he saw last week once the funds are in his name. Not my ideal situation. In addition, there are taxes associated with earnings over certain amounts that can impact financial aid.

Coverdell Education Savings Accounts

Beyond a 529 plan, Coverdell ESAs, help you save for your precious little one(s)’s future education expenses. Similar to a UGMA/UTMA, the child will control the assets when they become an adult. Unlike a 529, the Coverdell assets must be used by the time the account owner turns 30. Another difference is that people of all income levels cannot contribute to a Coverdell Education Savings Account.

Blue sky and white clouds with two part road sign saying "Don't Wait"Should I Wait to Invest

All of the above plans have so many ins and outs, it’s hard to express them all in one blog, so be sure to research all of them as well as other alternatives, in detail. The most important rule: Don’t wait. Whatever your child’s age, the time to prepare for college expenses is now. Talk with your financial advisor today.

February 2021

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Investing involves risk including loss of principal.

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.

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