Presented By: Bo Thibodeaux
Even though it feels like summer just started, it’s nearly time to go back to school shopping, strap on those backpacks, and send the kids back to class. August brings with it a lot of preparation for the upcoming school year and making sure your child’s education is adequately funded is crucial.
Here, we will go over some of the most common education funding programs and how those accounts can be used.
A 529 Plan is an education savings plan operated by educational and state institutions that help families save for future college costs. It is named after Section 529 of the Internal Revenue Code, which created these types of savings plans over 20 years ago.
One great thing about 529 plans is that although they are operated out of the state in which you reside, they can be used toward private, public, and out-of-state colleges. The choice of school usually doesn’t have an impact on using your 529 plan.
There are two types of 529 plans, Savings Plans and Prepaid Plans.
- Savings Plans are similar to 401(k)s or IRAs because you invest contributions in investments, like mutual funds, and you can choose which investments you want to invest in. Your 529 plan will adjust with the performance of the market.
- Prepaid Plans allow you to prepay all or some of the costs of an in-state, public college, which can then be converted for use at private universities or out-of-state schools.Before investing in a 529 plan, investors should carefully consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 plan.
Coverdell Education Savings Account
Coverdell Education Savings Accounts (sometimes called Education Savings Accounts or ESAs) are tax-advantaged investment accounts that allow savers to cover future education expenses such as tuition, books, and uniforms. These savings accounts can be used for elementary, secondary, and college costs and cover many more things than just tuition.
Coverdell ESAs are similar to 529 plans because the money grows tax-deferred and can be withdrawn tax-free for qualified education expenses. One key difference between the two, though, is that Coverdell ESAs can be used for elementary school, high school, college, and other various education expenses.
UGMA and UTMA Custodial Accounts
Uniform Gift to Minors Act (UGMA) and Uniform Transfer to Minors Act (UTMA) are custodial accounts that hold assets for minors until they reach the age of maturity and the assets can be transferred. Like other long-term accounts, UGMA and UTMA Custodial Accounts are usually comprised of lower-risk investments like stocks, bonds, and mutual funds.
One consideration with these trust accounts are that when a trustee reaches the age of maturity, they can use their funds for anything they want. The assets don’t have to be used exclusively for educational expenses like with 529 plans or Coverdell Education Savings Accounts. They also influence how much financial aid you may be eligible for when filling out your FAFSA because they are seen as assets belonging to the student.
A qualified financial advisor can help you decide which educational savings account is best for you and your family. Your child’s age, college goals, and your other savings needs all influence the decisions you make regarding education. Contact Bo Thibodeaux today to discuss further, and get those apples polished for the first day of school!
Bo Thibodeaux is a Financial Advisor offering securities and insurance products through Cetera Investment Services LLC, member FINRA/SIPC. Advisory Services are offered through Cetera Investment Advisers LLC. Cetera is not affiliated with the financial institution where investment services are offered. Investments are: * Not FDIC/NCUSIF insured * May lose value * Not financial institution guaranteed * Not a deposit * Not insured by any federal government agency. 135 West Colorado, LaGrange, TX 78945 (979)968-4500