College Savings Plans

Smart planning helps the math add up.

Education expenses can be some of the largest costs an individual can incur during a lifetime. If you are planning to send your children to college or help fund your grandchildren’s education, it will take careful planning to save the money you need. The right choices will likely depend on a combination of two or more available savings methods, as well as the length of time before you need to pay tuition.

We offer access to a variety of plans that may help you tax-efficiently save for education expenses, including:

529 Plans

Section 529 plans are established and maintained by state governments or agencies or eligible educational institutions.  Contributions must be kept in a qualified trust in order to be treated as a qualified tuition program. Investing in a 529 college savings plan is relatively simple. 

Parents or grandparents can contribute to the 529 plan and may want to consider it in order to to save for your child’s or grandchild’s education for several reasons:

  • Earnings are exempt from federal taxes and withdrawals are tax-free when used for qualified education expenses.* 
  • Plans typically have high lifetime contribution limits and investment minimums are low. 
  • A 529 plan is portable and open to residents and nonresidents alike. If you don’t like your state’s plan, you can take advantage of a 529 plan in another state. 
  • You can change beneficiaries without penalty; for example, from a son to a daughter or from your child to a grandchild. 
  • There are generally no age restrictions or income limitations on a 529 plan. Adults can even set up a plan for personal use. 

Coverdell Education Savings Accounts

The Coverdell Education Savings Account is an attractive education savings vehicle for many people. In fact, even if you like the 529 plan, you may still decide to contribute the first $2,000 of savings for each child into a Coverdell account. Contributions to the account are taxed, but earnings used to pay qualified* education expenses are not. Coverdell accounts can be used for pre-college educational plans, such as parochial or independent school expenses.

State-sponsored Prepaid Plan

State-sponsored Plans allow you to lock in the current cost of tuition for use in the future either by purchasing “units” of tuition or entering into a contract with a specified state. The money is released when the child is ready for college. Many states now offer these plans; you can find more specific information about these plans by visiting the College Savings Plans Network at (link is external).

With every program, there are advantages and disadvantages. At Northwest Financial Advisors, a representative will explain each program thoroughly and help you determine how much you will need to save based on your priorities and your situation. We can walk you through each of the college savings plan options listed above and also discuss alternate investing options that may work for you.

Contact us today to schedule your complimentary, no-obligation consultation.

*As with all tax-related decisions, consult your tax advisor. Withdrawals for expenses other than qualified education expenses are subject to income tax and an additional 10% penalty on earnings. Prior to investing in a 529 Plan 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. Tax treatment at the state level may vary.