How Will You Fund Your Children’s Education?

As a parent, you want the best for your children, especially when it comes to their education. Providing for a child’s education can result in a lifetime of benefits.

College education is often considered to be almost as important as purchasing a home or planning for retirement. However, with the cost of higher education steadily on the rise, you may have concerns about how to fund the quality education your children deserve.

What Is Educational Planning

Educational planning involves forecasting the educational needs of your family and creating a plan to satisfy those needs. Here are some aspects of Educational Planning to Consider

When To Start Planning For Education

As with most investment plans, it is best to start as soon as possible. This is true simply because the sooner you start, the longer the assets have to grow.

Planning for education early relieves the stress of trying to obtain funding when it is time for education to begin. Due to any number of life’s circumstances, money may be unobtainable or needed for other important or urgent issues.

Future Scholarships and financial aid are not guaranteed and not available to everyone. Relying on these and other such funding can leave you short when educational pursuits begin, so it is best to start planning sooner than later.

With the average cost of public college education at $21,950*, and an expected inflation rate of 5%, this results in a total projected cost of $230,909. By starting to save $408 per month when your child is born ($93,100 total savings**), this can fully pay for the cost of college. If you waited to start saving until your child is age 10, you would have to save $1,345 per month for the same education ($145,260 total savings**). So don’t wait to start saving!

* Average cost of college from

** Savings assumed to be until child reaches age 18; savings are invested in a tax-free 529 account earning 8.1% annually

Funding Options

There are a variety of funding options to think about. Among them are the following:

529 Plans: These are the most popular education savings plan as they offer tax-deferred growth, high or no limits on contributions, and tax deductions for some states (but not North Carolina!).  In addition, with the Tax Cuts and Jobs Act, 529s now are eligible to cover costs associated with public, private and parochial elementary, middle or high school programs.   If you don’t use the funds for education, however, you will owe tax and a 10% penalty on any growth you’ve experienced in the account.

The Education (Coverdell) IRA: Coverdell IRAs have a very low limit on contributions ($2,000 per year per beneficiary), and many of the benefits of these have been taken eroded since you can use 529s for private school expenses.

Variable Universal Life Insurance: Life insurance is often touted as a great way to save for college education, by means of taking a policy loan from the cash value.  This has to be weighed against the huge cost of the insurance itself, and the need to repay the loan at some point. We find that these policies often benefit the insurer more than they do the families.

UGMAs: UGMA (custodial investment) accounts are great options if you have funds that you want to be for your child but may or may not be used for education.  The main benefit is flexibility as you can invest in any stock, bond or mutual fund, and use them for whatever purpose you like.  The downsides to these are that these are taxable accounts that have to report income annually and that once your child reaches the age of majority for your state, the funds become theirs to use for whatever they like!

Prepaid Tuition Plans: Prepaid Tuition Plans are a type of 529 plan that allows you to pre-pay, or “lock in” the amount of tuition you will pay.  These are not as popular as normal 529 plans as they have limitations such as which schools will accept them.

Education Tax Credits: While not a funding plan per se, there are two different federal tax credits available for college: the American opportunity tax credit (AOTC) and the lifetime learning credit (LLC).  These credits phase out based on income, but will offer up to $2,500 per year per student.

U.S. Savings Bonds: Savings Bonds are a traditional form of education savings with some tax advantages and fixed interest rates. However, with current interest rates at 0.10% on series EE bonds, there are usually better options if you want to help a child or grandchild save for college.

Financial Aid: Financial Aid is a tremendous help to many college students. Financial Aid can take the form of grants, scholarships, work-study jobs, and loans. Obviously some of these (grants and scholarships) are more advantageous than others. Because you won’t know what type of aid your child or you may qualify for, these aren’t a great tool for planning, but more so a supplement to other forms of education planning. As you approach college years, however, some significant planning can be done to put you in the best position possible to receive more and better types of financial aid. This includes intentionally (but legally!) adjusting your income and assets for FAFSA, researching grant and scholarship opportunities and other strategies as well.

In addition, educational funding doesn’t necessarily have to rest entirely with parents.

Today’s college savings plans offer many alternatives that provide benefits for grandparents, aunts, uncles, and other family members as well as for the child.

Being Disciplined

As the saying goes, “Slow and steady wins the race”. The same can be true for investing in an educational plan. It is often best to pursue a plan that will allow you to invest regularly over time.

Most people cannot afford to produce a lump sum that would cover future costs for education. Once you have developed a plan it will be important to stay on course.

Shepherd Wealth Partners has you covered every step of the way to help you choose the most appropriate options and develop a plan that is the right fit for your family’s educational needs.

Customizing Your Plan

The right education plan for you will be determined by your goals, resources, tax situation and, of course, your child. There are many options when it comes to education planning and choosing the wrong strategies can cost you huge amounts in the long run.

Here are some things to consider when developing an educational plan:

  • How much college am I attempting to fund?
  • Do I want my kids to help pay for their education?
  • What strategies will offer the best the tax benefits?
  • How much risk am I willing to take?
  • Who should control the education funds?
  • How many years to I have to plan?
  • Are there other considerations such as contribution limits or gift taxes?
  • What will happen if my kids don’t’ end up going to college?

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