College Plans You Should Consider for Your Kids
By Garry S. —
Published April 26, 2018
Planning for your kid’s future finances early on is the most efficient way of ensuring that they are equipped with sufficient resources when the need arises. However, it is imperative to pick the right savings channel for your kid’s future financial needs to ensure that they do not end up spending a major chunk of the seed money by way of unavoidable taxes and such. Read on for a complete list of some of the best saving plans to pool-in sufficient cash for your kid’s higher education.529 College PlanOne of the most popular tools for saving funds for your child’s college education, the 529 college plan works similar to the 401(k) plans and enables the parents to create a taxation-free education fund by means of different types of investments. You can pick an age-based package wherein the fund is first invested in more aggressive schemes in the early years and then switched to steadier, more balanced options as the child reaches college-going age.The biggest advantage of the 529 plan comes in the form of substantial tax benefits. The cash benefits on the 529 account are tax-deferred and the funds become tax-free once they have been invested in a qualified college tuition expense. The account is typically owned by the parents who can, in turn, choose to nominate a beneficiary. So, if later in life, your kid decides against going to college, you can always change the name of the beneficiary and ensure that your hard-earned savings will be used for educational purposes only.
Prepaid Tuition PlansThe prepaid tuition plans are a great option for parents who are positive about their kid going on to the in-state public university for higher education. As such, in this plan, the parents can prepay the tuition credits at a stipulated price while the child is still young. One of the major benefits of the prepaid tuition plans is unlike the 529 plans, they are not exposed to the stock market fluctuations. In addition to this, the prepaid plans offer all the required parental, financial aid and tax protections as provided by the 529 program. The only downside is that if your kid decides to enroll for a university in a different state, he/she will not be eligible for the entire maturity value of the plan and can only use the returns on the funds saved.UTMA and UGMAThe UGMA and UTMA accounts are an ideal option for ensuring standard tax breaks for minor kids who are not planning to enroll for college education and subsequently do not run the risk of missing out on their financial aid. Both the UTMA or Uniform Transfers to Minors Act and the UGMA or Uniform Gifts to Minors Act are types of custodial accounts which enable the parents to pass on their savings to the beneficiary (the kid) when he or she turns 18 or 21, depending upon their state of residence. Roth IRAOne of the most frequently used savings options by parents, the Roth IRA is designed to provide a sort of financial head-start to young professionals when they start to earn their own income. The kid gets to attain control of the Roth IRA account upon reaching maturity. However, there are certain restrictions on withdrawing funds free of penalty from the Roth IRA accounts until the investor reaches the age of 59 ½ with the exceptions of when the withdrawal is being made for support in a disability or covering qualified education spends.