When it comes to college savings plans, there are a variety of options available. How much should you be saving? And which option—or combination of options—is right for you?
How much does college cost?
In a recent survey of college pricing, a moderate college budget for an in-state public college for the 2016-2017 academic year averaged $24,610. A moderate budget at a private college averaged $49,320.
In an ideal world, it would be great if you could save at least $100,000 per child to cover expected college expenses. For many parents, that isn’t possible. According to recent research, a more realistic goal is to save one-third of your child’s expected college expenses. That amounts to saving around $150-200 a month from your child’s birth to 18 years of age. The other two-thirds would come from current income (along with grants and scholarships). So, what are some of your college savings plan options?
Coverdell Education Savings Accounts
One option is a Coverdell Education Savings Account (Coverdell ESA), an investment account designed to encourage savings for future education expenses. In a Coverdell ESA, savings grow tax deferred and proceeds are withdrawn tax free for qualified education expenses. Such expenses include tuition, tutors, books, supplies, room & board, uniforms, transportation, computers and internet service.
One key advantage of a Coverdell ESA is that distributions can not only be used for higher education, but also for elementary and secondary education expenses!
Another option is a 529 plan. Like a 401k for college savings, this account is state-sponsored and specifically for higher-education expenses. It is similar to a Coverdell ESA in that the savings grow tax deferred and can be used for similar expenses.
However, since 529 plans vary by state, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free, but tax treatment at the state level may vary. Please consult with your tax advisor before investing.
Now that we’ve covered some of the benefits of each, let’s show some of the qualifications side-by-side.
|Coverdell ESA||529 plan|
|Contribution limit||$2,000 per year per child||Limit set by state offering plan|
|Income limit||Eligible incomes up to $220,000||No income limits|
|Age limit||Must use by age 30||No age limit|
|Asset use||In addition to college expenses, assets may be used toward qualified elementary/secondary education expenses||Eligible expenses at accredited public/private colleges/universities only|
Whether you’re considering an education savings plan for your child, grandchild or other loved one, there are several options to consider.
Interested in a Coverdell ESA or have questions about other education savings options? Give us a call!
To open a Coverdell Education Savings Account, visit any Vantage branch location.
800.522.6009/request to speak to a Vantage Investment Services Group representative
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