Monheit Frisch Group is right by your side to help you stay up to date. Please visit our COVID-19 Resources Page for Legislative and Regulatory updates.

Check us out on FINRA’s BrokerCheck

Popular Ways to Save for College

Popular Ways to Save for College — Surprise, AZ — Monheit Frisch CPAs PLCPaying for their children’s future college plans is a challenge most Americans face no matter what their current financial picture looks like. With the rising costs of attending college and a great deal of uncertainty around exactly how to plan, many parents find themselves unsure even where to begin. To help you get started, here is a short guide to common college savings tools.

529 Savings Plans

529 plans are accounts that states provide for the express purpose of collecting money for qualified college expenses. These plans, like many retirement accounts, are tax-deferred. This means that any money you contribute during a given year is not taxable income to you. As long as you withdraw money only for qualified expenses, you also do not pay taxes when using the funds. 

One of the biggest advantages of 529 plans is that they have few limits to how much you can set aside or your own income levels in order to participate. Other family members can also open accounts to benefit your child or contribute to your own account. Finally, you can change the beneficiary on the account if one child decides not to pursue educational plans.

Coverdell Accounts

Educational Savings Accounts (ESAs) are often referred to as Coverdell accounts. These are more restricted than 529 plans. Contributions are limited to $2,000 per year and are not tax-free to the donor. In addition, the money must be distributed either for qualified educational expenses or directly to the recipient by their 30th birthday. The good news is that you can also transfer the money to a sibling if it’s unused.

While Coverdell ESAs have some additional rules, they do have advantages as well. The range of investment choices is greater, so a savvy personal investor has more control over where to put the money. In addition, you can use Coverdell accounts to pay more K-12 educational expenses than a 529 plan allows.

UGMA/UGTA Trusts

UGMA (or UGTA) accounts are not well-known to many. Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) trusts are special-purpose tools to irrevocably transfer assets to a minor. In a UGMA trust, you may only transfer cash and financial products (like stocks or bonds). The UTMA version allows you to transfer things like real estate, collectibles, or other non-liquid assets. 

UGMA trusts are good savings vehicles for family members who want to make a large initial donation that will grow rather than annual cash contributions. If you have a second home, for instance, you may opt to transfer it to the child’s trust for later sale to fund their education. In the meantime, they can’t spend the money on other things, and you can use the home by renting it from the trust when you want to get away.

In addition, a trust permanently removes the assets from the donor’s taxable income. If you don’t have need of the income from your oil and gas royalties, for instance, you could transfer them to your child’s trust and avoid paying taxes on unnecessary income. A family who wishes to keep their income at certain levels can divest income sources — but remember that transfers to irrevocable trusts cannot be undone.

Which of these school savings methods is right for your family? Clearly, any choice has its advantages and disadvantages, so professional guidance is valuable. At Monheit Frisch Group PLC, we understand all your savings and investment options no matter what your child’s future education plans look like. Call today to make an appointment and learn more about them. We look forward to helping you and your family.

Leave a comment

We have two locations for your convenience:

 

Want to stay informed? Sign up for our newsletter:

 

Surprise Regional Chamber of Commerce LogoCPA PFS Logo

Avantax affiliated advisors may only conduct business with residents of the states for which they are properly registered. Please note that not all of the investments and services mentioned are available in every state.

Securities offered through Avantax Investment Services SM, Member FINRA, SIPC. *Investment advisory services offered through Avantax Advisory Services SM ** Insurance services offered through an Avantax affiliated insurance agency

The Avantax family of companies exclusively provide investment products and services through its representatives. Although Avantax Wealth Management SM does not provide tax or legal advice, or supervise tax, accounting or legal services, Avantax representatives may offer these services through their independent outside business. This information is not intended as specific tax or legal advice. Please consult our firm and your legal professional for specific information regarding your individual situation.

Content, links, and some material within this website may have been created by a third party for use by an Avantax affiliated representative. This content is for educational and informational purposes only and does not represent the views and opinions of Avantax Wealth Management SM or its subsidiaries. Avantax Wealth Management SM is not responsible for and does not control, adopt, or endorse any content contained on any third-party website.