What to know about starting an education fund for your children

Although most people do not start going to college until they are 18, it is never too early to start saving for your child’s education. There are a number of plans available that provide tax-advantaged savings opportunities for a child’s educational purposes. 

Deciding which savings avenue is best for you is a personal decision, but talking with a professional financial advisor can help. We want you to feel confident in the financial decisions you make, so here is a list of popular options for starting a child’s education fund. 

Open a 529

A 529 plan is a savings plan that allows adults to contribute to funds for college in the name of a child. This is a tax-beneficial account. In many states, 529 tax plans are deductible from your state income tax. While this is not the case for Florida, it is still beneficial because the investments that grow in the 529 are not subject to federal taxes if used for qualified college expenses. Another benefit is that family members outside of the nuclear family may also make contributions for the education of the child.

Open a Coverdell education savings account

A Coverdell education savings account is a tax-deferred savings account that allows you to contribute up to $2,000 per year. There is one caveat: A Coverdell education savings account is unavailable to you if your modified adjusted gross income is greater than $110,000 (or $220,000 for married couples who file jointly).

Coverdell interest earnings accumulate tax-free, and distributions are also not subject to taxes as long as they are used for educational purposes. All funds must be used by age 30, or the account holder will be subject to a tax penalty.

Buy eligible savings bonds

Savings bonds generally earn less interest than other savings avenues, but it is a good option for conservative savers or those who want to supplement their primary means of saving because they are guaranteed by the government and low risk. 

If you redeem eligible savings bonds and use the funds to pay for higher education, you can write it off from your taxes. However, room and board are not covered in this plan.

Open a Roth IRA

A Roth IRA is typically used for saving for retirement, but you can use it for saving for a child’s education as well. Contributions are made with after-tax dollars, but withdrawals are not subject to tax as long as you have been contributing to the account for at least five years before making a withdrawal. 

Unlike a 529, no other family members can contribute to a Roth IRA. However, if the child decides not to pursue higher education, you can easily keep contributing to the Roth IRA and save it for retirement.

Talk to a ProVise CFP® professional about saving for your child’s future

Every parent hopes their child can earn scholarships or be accepted into a tuition-free school, but you should not put all your eggs in these baskets. Whether your child is the age of 1 or 15, it is never too late to start saving for their education. If you are having difficulty deciding how to save for your child’s education, our team at ProVise Management Group can help.

Our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about saving for your child’s education? Contact ProVise today to schedule a complimentary consultation.