Planning for your children’s or grandchildren’s college expenses is simple in theory. In execution, though, the process is often complex and confusing. Allow one simple principle to guide your plans: the earlier you begin saving, the more your money can benefit from tax-advantaged growth potential. After determining expected college expenses, use these tools to help put your kids or grandkids on the road to success:
529 plans offer some of the best benefits for families saving for college. Most plans take a “set it and forget it approach” to saving. Automatic investments are made from a payroll deduction plan or linked bank account, making it easy to contribute without thinking twice. 529 earnings are federally tax-free and will not be taxed once money is withdrawn. Funds can be used for a broad range of school-related expenses, giving beneficiaries flexibility over how the money can be spent.
Many people associate Roth IRAs with retirement planning, but this tool can also come in handy when planning for college expenses. Contributions are not counted towards grant eligibility and financial aid, making them a great option for college savings. Maximize your Roth IRA investments – your kids or grandkids might qualify for scholarships and not need money for college, but everyone could use some extra money in the retirement fund.
Want to gift your college student tuition money? A uniform trust for minors account, or UTMA, may be a good option. The first $2,000 of investment income from these types of accounts get special tax treatment. The first $1,000 of income is tax-free. Investments above the $2,000 threshold will be taxed at your capital gains or income rate. The only drawback to this option? Once a minor reaches 18, assets in UTMA accounts become accessible to them immediately. Since UTMA money is not limited to educational purposes, your student could cash in on a fancy new car instead.
It is never too early to begin laying the groundwork for your child or grandchild’s future academic plans. Working with an estate planning attorney at Your Legacy Legal Care can help you understand your options, how to protect those savings, and make the best decisions to protect your loved ones. To schedule your appointment with our team, call us at (281) 885-8826 or schedule online here.
Kimberly Hegwood is the Managing Attorney of Your Legacy Legal Care, a Houston estate planning law firm. With more than 25 years of experience practicing law in Texas, she represents clients in a wide range of legal matters, including elder law, asset protection, estate planning, Medicaid crisis planning, probate, guardianship, and other estate planning practice areas.
Kimberly received her Juris Doctor from the South Texas College of Law and is a member of the State Bar of Texas.
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