How to Plan for Your Kids’ College While They’re Still In Diapers
Any parent will tell you — kids are expensive! From their basic necessities to extracurricular activities, there always seems to be a reason to open your wallet.
While you can’t plan for every single expense, such as that trip to the emergency room, there are a lot of expenses that you can prepare for. The biggest expense you should start planning for immediately? Education.
Here are some ways that you can put your mind at ease and start to save for those expenses now, even if your babies are still in diapers.
Minnesota 529 College Savings Plan
This type of account is one of the best ways to save for your child’s education. In addition to having multiple tax-related benefits, MNSaves is one of the lowest cost plans in the country. So for all my Minnesota friends - take advantage of it!
Coverdell Education Savings Account
A Coverdell ESA is a trust account established solely for the purpose of paying for education-related expenses. A Coverdell ESA can be designated to cover higher education costs as well as elementary and secondary education expenses. If you have a child attending a private school, this account may be a good one to look into.
Eligible Savings Bonds
The education tax exclusion allows taxpayers to exclude all or part of the interest of certain savings bonds when they cash them in the same year that they are paying education-related expenses. There are strict qualifications to this exclusion but it’s a good idea to explore.
Roth IRA
A Roth IRA could be an excellent vehicle for retirement savings that can sometimes double as a way to pay educational expenses. Some educational expenses are considered a qualified distribution if they are used at an eligible educational institution within the year of the withdrawal.
Regardless of which route you take for educational savings, teaching your children about financial literacy early is the best way to set them up for financial success. For further reading and some great tips on how to get your children thinking about money in a smart way, check out our blog: 8 Ways to Teach Your Kids About Money.
If you want to explore more ways that you can prepare for you and your children’s financial future, schedule an appointment with the Gretchen Rehm Financial team.
Participation in a 529 Education Savings Plan (529 Plan) does not guarantee that contributions and investment return on contributions, if any, will be adequate to cover future tuition and other education expenses or that a beneficiary will be admitted to or permitted to continue to attend an educational institution. Contributors to the program assume all investment risk, including potential loss of principal and liability for penalties such as those levied for non-educational withdrawals. Check with your state’s guidelines prior to withdrawing the funds.
An investor should consider, before investing, whether the investor's or designated beneficiary’s home state offers any favorable state tax treatment or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Consult with your financial, tax or other adviser to learn more about how state-based benefits (including any limitations) would apply to your specific circumstances.
For more complete information, including a description of fees, expenses and risks, see the offering statement or program description.
Contributions to a Roth IRA are not tax deductible and there is no mandatory distribution age. All earnings and principal are tax free if rules and regulations are followed. Eligibility for a Roth account depends on income. Principal contributions can be withdrawn any time without penalty (subject to some minimal conditions).
