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Get schooled on education

savings plans

Accounts to pay for college or even
private high schools can be a smart
way for parents to prepare for their
children’s futures. Not every account is
the same, and certain savings accounts
could affect financial aid eligibility and
taxes. It is in parents’ and students’
best interests to educate themselves
on the various education savings plans
available to them — and which ones
make the most sense for their families.

Families should do their research and
work with professionals who understand
the subtleties of school savings plans.
For example, according to Cappex.com,
a college information site, students’
income and savings have a larger, more
negative impact on the availability
of financial aid than the portion of
their parents’ assets factored into the
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equation. Students with sizeable savings • Coverdell Education Savings recipients can use the funds in whatever
accounts in their name may end up Account: Coverdell accounts are manner they choose. However, UGMA
adversely affecting their financial aid versatile in that they enable the money may affect financial aid eligibility.
eligibility. A financial advisor and loan to be spent for elementary through
expert can advise families on these college education, which is a larger • Roth IRA: Parents can open up a
confusing financial facts. Roth IRA in their child’s name once
range than other plans. This is another the child begins earning income.
• 529 College Savings Plan: tax-free plan when used for school Even though there are penalties to
529 accounts are a popular education purposes. Coverdell contributions taking earnings out before the age of
savings plan. They operate in a similar are capped at $2,000 per year, and 59.5, exceptions include purchasing
fashion to IRA and 401(k) plans in that they’re only available to families below a first home or qualified education
savings for education are earned tax- a specified income level, says the expenses. A Roth IRA isn’t subjected
free through investment opportunities. resource SavingforCollege.com. to legal and administrative fees that
SallieMae says 529 plans are offered by
states or educational institutions under These accounts are not traditionally another savings avenue.
| • Uniform Gifts to Minors Act Account: can come with trusts, which are
2022, 26 June, Sunday Code. These tax-advantaged plans designed for education but can be Parents can help finance their
Section 529 of the Internal Revenue
established to offer gift assets to minors.
children’s educations through various
generally have no income limitations
The custodian of the account can sell
savings plans. A financial advisor may
and high contribution limits. The usage
shed more light on which products are
of funds in 529 accounts are subject
the assets for the child’s benefit at any
18 to regulations. time, and once the child reaches 18 or 21, best for families.