Education Planning 101: Do you know your options? It’s never too soon to start planning.
Most parents (and many grandparents) have heard that it is never too early to start saving for a child's college education. "Start when they are in diapers!" "Don't even think about having kids without starting your savings plan!" On and on the "helpful" advice goes.
Just how much secondary education cost is absolutely staggering. According to the National Center of Education Statistics (NCES), since 1969, the cost of tuition at a public college has increased by 3009%. For a private school, it has increased 2310%. These are not typos. And that's just tuition!
Let's take a look at this in more recent terms. According to NCES, from 2007-8 to 2018, the cost of college, including tuition, fees, and room and board, has increased by 31% for public institutions and 23% for private institutions. That is in just ten years.
In comparison, the Dow Jones Industrial Average (DJIA) had a return of approximately 38% before considering any dividend reinvestments in the same time frame.
Why is this important? Imagine if you had invested in the DJIA or any stock, mutual fund, or bond fund. If an individual were to use these funds without proper education and tax planning, the net effect would be they would be short in funding college education due to the taxes that they would have to pay in liquidating these investments.
It can be quite daunting to plan out education savings for your children. You not only want to make sure you have the money needed for when the time comes, but you also want to make sure you understand and maximize the tax breaks available for education planning.
In our series of Education Planning blogs, we will look at the tax-free education savings plan options that individuals can consider based on their financial situation.
These are:
1. Coverdell Education Savings Accounts (CESA)
2. Roth IRA
3. Series EE Savings Bonds
4. Uniform Gift to Minor's Act (UGMA)
5. Qualified State Tuition Plans
6. Prepaid Tuition
7. 529 Savings Plan
8. 529 ABLE Accounts
These blogs are presented to you by Luminous to give you the information you need, in simple terms, to make the best decision for your family.
As you evaluate the options, you will also want to be aware of what you can expect when applying for college financial aid. It is essential to know what accounts would count towards the parent's assets and their impact on financial aid.
The final factor to consider is the eligibility to utilize The American Opportunity Credit or Lifetime Learning Credit, depending on your financial situation. It is never too soon, or too late, to plan to fund your child's educational future. At Luminous, we believe that many factors need to be considered when crafting an education savings plan - more than just understanding the available options. We are committed to working closely with you to map out your family's best choice.
Sources
1. https://nces.ed.gov/fastfacts/display.asp?id=76 2
2. . https://dqydj.com/dow-jones-return-calculator/