Save For Your Child’s College Education & Retirement0
The trick in funding both savings goals is to start as early as possible, and save what you can during a period of many years. Here are just two examples of investment tools to consider:
- 529 Savings Plan: Nearly every state offers at least one 529 savings plan – which is a savings plan operated by a state or educational institution designed to help families save money for future college costs.
- Coverdell Education Savings Account (ESA): This is a tax-advantaged investment account designed to encourage savings to pay for education expenses. ESAs are also funded with after tax dollars. The investment grows tax-deferred, and distributions for qualifying educational expenses come out tax free. These accounts do have lower maximum contribution limits. From 2002 to 2012, $2,000 was the maximum contribution per year per child.
Note that earnings on non-qualified withdrawals from a 529 savings plan or an ESA are taxed as ordinary income and subject to a penalty.
Writing down your plan might help you prioritize your financial goals, track your progress and serve as a roadmap when you face tough decisions. Every family will have different priorities and values – and that’s okay. Your ability to achieve a financially secure retirement ultimately benefits both you and your children in the long-run.
When your child prepares to enter college, take time to talk with him or her about what you will and won’t help with financially. It’s okay to expect your child to contribute to the cost of education through part-time work options and student loans.
There is one last component to consider when saving for both your own financial future and the educational needs of your children. It can be difficult if you find yourself having to restrain your generosity or, on the other hand, not being able to give as much as you hoped when your child goes to college. To avoid some of this emotional distress, set boundaries with your children and other family members if they request financial help. Lending and borrowing within your family can lead to financial and emotional issues, so before you act, consider all the options and make sure you’re in a financially solid position to help.
Whether you’re just beginning your career, starting a family or if you’re nearing the time you’ll send your kids to college, consider working with a financial professional.
[AUTHOR: Judy Pirkowitsch, CRPC®, CDFA™ ] Judy is a Financial Advisor and Business Financial Advisor with Ameriprise Financial Services, Inc. Ameriprise Financial Services Inc. and its affiliates do not offer tax or legal advice. File # 149075