Saving for a child’s education is an important goal to many families. There are many variables to consider in deciding how much money to save in this area:
- To what degree do we want to assist in paying for our children’s education? All? Partial? None?
- Do we want to save for college as though our children will be attending private or state school?
- Should we prioritize our own retirement over education savings?
- How much on average does tuition increase annually for a given school?
- Will grandparents or other family members contribute to education expenses?
Well-intentioned parents will often prioritize college savings over other areas of their financial planning such as their own retirement. Many times families are able to adequately save for both, but if resources are limited, one needs to understand that while there are student loans, there are no loans for retirement.
If there are adequate resources to build savings for education, we then explore the various accounts one is eligible to contribute to. The most popular college savings vehicle is a 529 Plan. 529 Plan funds are contributed post-tax, grow tax free, and may be accessed tax free as long as they are used for post-secondary education expenses such as tuition, room and board, books, etc.
One caveat to a 529 Plan is that if funds are removed for reasons other than education, you will be faced with penalties and taxes. For this reason, many families will fund a 529 Plan as though their children will be attending state school, and then withdrawal funds from other investments or savings if their children end up going to a private or more costly school.
The professionals at Westmark Wealth Management will run a projection to help you to determine how much you will need to save for education expenses, as well as provide guidance on the strategies best suited for the education savings goals of you and your family.