The cost of a college education grows tremendously every year.  It is important to plan early for your child’s future.  A good education will pay with a lifetime of benefits.  There are several options available for college savings.  Some options offer tax advantages, some are more costly to establish, some charge management fees, some require parental income to be below a certain level, and some impose penalties if the money is not used for college.  Below is a list of options with a brief description of each.

• 529 College Savings Plan – one of the most popular options, contributions are made into an investment account that grows tax deferred. If funds are used for education expenses withdrawals are federally income tax free. Each state has their own plan and may offer state tax incentives. Accounts receive favorable federal and estate gift tax treatment. Generous contribution limits, usually 100,000+. There is a 10% penalty if funds are not used for education expenses.

• Coverdell Education Savings Accounts – contributions are made after-tax, but if used for education expenses earnings are not included in income. See your Financial Advisor to determine your contribution limit. Tax-Free qualified withdrawals are subject to potential sunset revisions on December 31, 2010. At that time Congress may change the tax-free withdrawal status for qualified education expenses.
  
  
• Custodial Accounts (UGMA, UTMA) – established for the benefit of a minor, gifts made are irrevocable, parent or other manages until child becomes adult (18 or 21, depending on the state), then funds belong to child. May only be used for the child’s benefit, but is not limited to education expenses. Income earned by the account is taxed to the child.
  
  
• Investment Accounts – no special tax treatment, contribution limits, income limits or restrictions on the use of the funds. Investments may include stocks, mutual funds, bonds, etc. 

There are many factors to consider when choosing an Education Fund.  It is best to work with a financial advisor that can analyze your specific need, recommend the most appropriate/suitable type of Education Fund and assist in monitoring your progress.  At Peoples Financial Advisors, we are available to assist you in all of these areas.  We want to help you start saving today for your child’s future tomorrow. 

If you believe you could benefit from setting up an Education Fund or want to learn more, click on the link below.