Arguably, this is the best type of account for education funding. This investment account allows for contributions from the parent, grandparent, or anyone, and grows with the market. The investment options in a 529 Plan will usually be more aggressive during the child’s younger years and more conservative as the child approaches college age. Each state has its own 529 Plan, but the child doesn’t have to attend university in that state nor reside in that state to participate in the state’s plan. Click here for a great resource to compare various 529 Plans.
The acronym of this account stands for Uniform Gift to Minors Act/Uniform Transfers to Minors Act. This type of account allows you to transfer assets to a child without the need for a trust. The parent is considered the account “custodian,” since he/she has control of the account, but the ownership is actually in the name of the child. The funds in this account can be used for anything that benefits the child: tuition, housing, vehicle, laptop, etc. Be cautious, the UGMA/UTMA is considered an asset of the child, which can negatively impact the availability financial aid.
These loans are either subsidized or unsubsidized. With subsidized loans, interest does not accrue while the student is in school whereas the unsubsidized loans due accrue interest while the student is in school. Subsidized loans tend to be more need-based. Student loans typically become payable six months after graduating and tend to have a term of ten years. Learn more at https://studentloanhero.com/.
Even though paying for college is expensive, luckily the IRS provides a break with education tax credits. These credits directly reduce the taxpayer’s income tax liability. The two tax credits are the American Opportunity Tax Credit and the Lifetime Learning Credit. The American Opportunity Tax Credit is for undergraduate students and has a maximum credit of $2,500 per student per tax year. The Lifetime Learning Credit is for undergraduate and graduate students and has a maximum credit of $2,000 per family per year. The Lifetime Learning Credit and the American Opportunity Tax Credit cannot be combined. Only, one credit per year is allowed. A best practice is to keep track of college expenses and have them handy when filing taxes that way these tax credits can be utilized.
These are only a few methods of paying for education. At Strittmatter Wealth Management Group, we have helped many children and grandchildren of our clients with education planning, as it is an integral aspect of the financial planning process. Some of our clients even decide to return to college themselves! Paying for college can be a stressful experience, but our Lockheed Martin Retirement Specialists are here to make the process more manageable. We provide services in various aspects of personal finances such as retirement, taxes, estate planning, investment management, and of course, education planning. Our clients even have access to a 529 Plan through our TD Ameritrade platform and we do all the leg work to set up the account. It is never too early to start planning! Give us a call today to schedule your complimentary consultation.
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