When it comes to saving for your children, what should you think about when deciding between a taxable brokerage account and an UTMA?
Jump start your journey with our FREE financial resources:
Reach your goals faster with our products:
Subscribe on YouTube for early access and go beyond the podcast:
Connect with us on social media for more content:
Take the relationship to the next level and become a client:
Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life….(read more)
LEARN MORE ABOUT: IRA Accounts
TRANSFER IRA TO GOLD: Gold IRA Account
TRANSFER IRA TO SILVER: Silver IRA Account
REVEALED: Best Gold Backed IRA
When it comes to saving for your kid’s college education, it’s important to choose the right account to ensure that you can maximize your savings and take advantage of any potential tax benefits. With numerous options available, it can be overwhelming to decide which account is the best fit for your family’s needs.
One popular option for saving for college is a 529 plan. These plans are state-sponsored investment accounts that offer tax advantages for education savings. Contributions to a 529 plan grow tax-free, and withdrawals for qualified education expenses are also tax-free. In addition, many states offer state tax deductions or credits for contributions to their 529 plans. There are two types of 529 plans: prepaid tuition plans and education savings plans.
Prepaid tuition plans allow you to pre-pay for tuition at eligible colleges and universities at today’s prices, protecting you from future tuition increases. On the other hand, education savings plans invest your contributions in a portfolio of mutual funds, and the account value fluctuates with the market. These plans offer more flexibility, as the funds can be used for any qualified education expenses at eligible institutions, not just tuition.
Another option for saving for college is a custodial account, such as a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account. These accounts allow you to save and invest on behalf of your child, and the funds can be used for any purpose, not just education. However, once the child reaches the age of majority (usually 18 or 21, depending on the state), they gain control of the account and can use the funds as they wish.
While custodial accounts offer flexibility, they also have some drawbacks. The funds are considered the child’s assets, which can impact their eligibility for financial aid. In addition, any income or capital gains generated by the account are taxed at the child’s rate, which is typically higher than the parent’s rate.
Coverdell Education Savings Accounts (ESAs) are another option for saving for college. These accounts allow you to contribute up to $2,000 per year per child, and contributions grow tax-deferred. Withdrawals for qualified education expenses are tax-free, and the funds can be used for K-12 as well as higher education expenses. However, contributions are not tax-deductible, and there are income limits that may impact your ability to contribute to a Coverdell ESA.
When choosing the best account to save for your kid’s college, it’s important to consider your financial situation, your goals for saving, and the specific features and limitations of each account. Consulting with a financial advisor can help you make an informed decision based on your individual circumstances. Ultimately, the best account for saving for college will depend on your family’s needs and priorities.
The best investment into your children's college is to relocate to Europe.
@themoneyguyshow can you do an episode on how things specifically effect Estimated Family Contributions? I have three kids that will be heading off to college in the next 2-5 years and we are learning more and more how unprepared we are, specifically regarding the Estimated Family Contributions. EFCs effect protentional scholarships and other funding that may be available. Basically the higher the EFC, the less funding. Can the show expand on that with some insight? Would be awesome!
Thoughts on funding a Coverdell Educational Savings Account prior to a 529?
I have too many friends who wasted money on a college education. In 2011, I had a friend who was only 2 credits away from his degree. He quit! He said, why am I going to college when I'm making $130k a year at Georgia Power. That was good money back in 2011. He retired early a couple of years ago. He sold his mcmansion and rental property and build a small house on a large track of land that he bought while working.
My 19 year old has money from Grandpa that can be used for college or a house. She is leaving it invested. She is working and living for free. I'm encouraging her to invest in real estate.
what happens with leftover money in the 529 can i take ownership back on it?
Who offers a custodial Roth?