Moolah

COLLEGE, getting an entry-level position and working your way to the top. Even for those with a path to success by way of a trade school, you will still need to fund that higher education.

So, how will you pay for it? When should you start saving? How much is enough? What if you save too much?

Each situation is different, of course, but there’s one tip everyone should follow: Start early, know your desired path and make savings a habit. Your future you will thank you! And yes, children are our future, but let’s not plan for them to support your future income needs.

First things first, do not plan to use your retirement assets for your children’s higher education costs. You will need those funds for your retirement income. Instead, plan it out and get to work.

There are a number of different account types that a parent or family member can establish to begin saving for a child’s (beneficiary’s) future education. They come in all shapes and sizes, meaning they have different features and benefits. Let’s go over a couple and discuss just a few of the pros and cons of each.

Pros: All the withdrawals from these accounts that are for education purposes are taken tax-free. Yup, even the amount that is investment earnings. Thirdparty contributions are accepted. That means literally anyone can contribute to a child’s plan—even nonfamily members. The plans are transferable from one beneficiary to another, so one child to the next or even

to parents who want to further their education. There are no age limits on these plans. Your contributions grow over time because it’s an investment account.

Cons: These are state-specific plans. Meaning, depending on the plan you select and/or the state where you live, the rules will be different. This can include any tax benefit on contributions and the annual allowable contribution amount. Additionally, if you take money back out of a 529 plan for general purposes (not education-related) you could possibly pay a 10 percent government penalty and income taxes.

Side note: Folks can invest in plans from other states. For example, a North Carolina resident can purchase a Virginia-based plan. This allows for specific features of state plans to be used, if they are more suitable than the resident state. Look for plans specific to North Carolina at cfnc.org/save-for-college. If you want some help in determining the state plan that is the best fit for your needs, contact a financial advisor.

Pros: Besides tuition and fees, funds can be used for qualified elementary and secondary education expenses along with qualified higher education expenses. This Pro was expanded in the Tax Cuts and Jobs Act of 2017 to 529 plans as well. These accounts also become tax-deferred or free when withdrawals are used for education expenses. Your contributions grow over time because it’s an investment account.

Cons: Except for special needs children, no contributions can be made after a child reaches age 18, and withdrawals must be made before the beneficiary reaches age 30. There are both lower contribution limits and a maximum income limit with these accounts. Therefore, not everyone can benefit from owning one.

Pros: No limit on contribution amount AND no restrictions on types of expenses. These can be used to save for many future expenses, not just education. No penalties on withdrawals, no investment restrictions and no income limits or phase-outs.

Cons: The owner is the child’s custodian until the child reaches age of majority. Age is restricted to minor children only. That means your child will If you’re thinking of being that scholarship hunter for your child (and you probably should), it’s a myth your child will lose all the savings or not be eligible for a scholarship because of savings.

become the account owner at age of maturity. These accounts offer little to no tax benefits.

So, you see there are options! And saving even a small amount each month, systematically, can have a significant helpful impact on a child’s future education costs. There are many generic calculators available online to illustrate the power of savings over time. It is always best to talk with a financial advisor to help determine what level of savings and risk is suitable for your specific needs and goals.

Also, if you’re thinking of being that scholarship hunter for your child (and you probably should), it’s a myth your child will lose all the savings or not be eligible for a scholarship because of savings. How amazing would it be to cover additional expenses or even that graduate school bill just because you saved up and planned?

If your education costs might include Federal Student Aid (FSA), contact me and I’ll send you a two-pager from one of our many mutual fund partners titled Understanding the effects of income and savings on financial aid.

Want a more detailed outline and the source of some of the data above? FINRA.org has a College Savings Comparison Chart at finra. org/investors/learn-to-invest/typesinvestments/saving-for-education/collegesavings-comparison-chart.

As always, when searching and researching on the internet, be mindful of the source. There are a lot of “sales” tactics and misinformation out there! Remember: Start early, know your desired path, make savings a habit and your future you will thank you!

Affiliated with Capital Investment Advisory Services, LLC. Securities offered through Capital Investment Group, Inc. Member FINRA/SIPC, 100 E. Six Forks Road, Ste. 200, Raliegh, NC 27609 919.831.2370