College is expensive– you don't need a degree to figure that much out! And, while attending a college or university may provide endless opportunities and benefits, the burden of paying for higher education can be equally impactful.
As we trade in our beach bags for backpacks and head back to school, David Ragland, IRC Wealth CEO, shares three ways you can go about saving for your child's college education or paying off student loans.
1.) 529 Plan
- A 529 plan is a tax-advantaged investment account designed to encourage saving for the future higher education expenses of a designated beneficiary.
- The money you put into this account grows tax-free and can be used to cover tuition, books, and other qualified expenses related to your family's education.
2.) Uniform Gift to Minors Act Account
- The Uniform Gifts to Minors Act (UGMA) allows individuals to give or transfer assets to underage beneficiaries—usually, parents and their children. The amount is free of gift tax, up to a certain amount, and assets are usually placed in UGMA accounts on behalf of minors, eliminating the need for an attorney to establish a special trust fund.
- If you choose to establish a UGMA account, it will remain under your management as the adult custodian until the minor beneficiary comes of age, at which point they will assume control of the account. Parents can also elect to report their children’s UGMA accounts on their own tax returns, thereby taking advantage of the minor's lower "kiddie tax" rate, up to a certain amount.
3.) Pay Off Mortgage
- One of the less talked about tactics you can use to help prepare you to take on student loan or tuition payments is to focus on paying off your mortgage. If you have some time before your kids head to college, this is a great option!
- Traditionally, college is not paid for in one lump sum, but in installments. Taking care of your mortgage before your kids begin college means you can use the money previously designated for your mortgage towards the costs of education without having to seriously reallocate your budget.
To learn more about saving for your child's education, contact us here.