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Financial Planning to Help Save Money For Your Child's Education

Life Stages Blog Series Part 5

For you new parents out there, it might be hard to imagine that, one day, your precious child will grow up to become a young adult. Of course, it’s not the biological process of aging that’s so difficult to understand, but it’s the fact that you blinked your eyes and suddenly your toddler is entering kindergarten, embarking on their K-12 journey. It’s well known that, as you age, your perception of time seems to accelerate. When it comes to parenting and raising kids, things are really going to start speeding by.

Preparing For The Future Starts Now

From a not-so-sentimental financial perspective, you’ll want to start saving sooner rather than later for your child’s college education. Even if a traditional four-year college experience isn’t what your child ends up wanting, it’s still important to set aside funds for some type of post-high school learning or enrichment experience. This crucial bridge from their late teens to their early 20s is truly a segue into a fledgling professional career, and as a parent, it’s your responsibility to send your children off and make sure that they have the resources necessary to thrive in the “real world.”

Helping You Plan Your Life Every Step Of The Way

This is why NebraskaLand National Bank, your friendly Community Bank and reliable source for lifelong financial advice, is here to help you save money and allocate funds for your children's future. Our seven-part blog series on the financial challenges of life chronicles major milestones and how to effectively navigate each unique financial situation. Seeing as many parents save and either outright pay or help pay for their child’s college education, let’s take a close look at how you can start to invest in your kid’s future.

Start Saving Early

This might be fairly obvious tip right off the bat, but opening a separate personal savings account for your children’s future education and slowly adding to it when they’re young is a smart move. When you start setting aside funds when your children are...well, children, they’re probably a little too young to have a serious conversation about if they want to go to college, and if so, where they’d like to attend, what they want to study, and so forth.

Saving money in an additional personal savings account allows you the flexibility to withdraw funds for reasons other than qualified education expenses without any penalties. This way, if your kid grows up and decides that pursuing a higher education isn’t the right path for them, you can use your saved up funds and spend or invest them elsewhere. If college is on their radar, now you’ll have a good amount of money to reinvest in another education savings vehicle.

529 College Savings Plans

This popular college savings vehicle is also known as a Qualified Tuition Program (QTP), allowing you to withdraw funds (and any subsequent investment gains) tax-free provided that they’re used for qualified education expenses. Typically, these expenses include college tuition and book costs, but can include other related expenses. The downside with a 529 plan, however, is that you may encounter fees and tax penalties if you withdraw your funds for anything not related to higher education expenses. In other words, it is a good idea to move your money into a 529 college savings plan once you’re sure that your child does, in fact, want to attend college.

The Nebraska Education Savings Trust, or NEST 529 Advisor Plan, offers a savings vehicle for our fellow Nebraska residents with no minimum dollar contribution amount. There’s also no ongoing contribution requirements for this flexible college savings option, and the tax benefits are more than noteworthy. You can learn more about the NEST 529 Advisor Plan by visiting here.

Roth IRA Tax-Advantaged Retirement Savings Account

Most people typically think of a Roth IRA as a savings vehicle for retirement, but what they don’t know is that you can also save funds in a Roth IRA to be used for your children’s college education. Similar to a 529 plan, you’ll contribute post-tax money and any investment gains that you make can then be withdrawn tax-free. However, in the case of a Roth IRA, most people tend to withdraw funds when they’re almost 60 years old for the purposes of retirement.

If you’re a little more advanced in age compared to a relatively young parent, investing in a Roth IRA tax-advantaged retirement savings vehicle could be worth your while. After five years, you’ll be able to withdraw funds for qualifying educational expenses tax-free and penalty-free. However, you can also withdraw funds for other purposes like putting a down payment on a house without worrying about various penalties and fees.

Bear in mind that there are income and contribution limits with a Roth IRA savings option. Naturally, we’re more than happy to discuss if this is the right savings option for your (and your kids).

Prepaid College Tuition Plans

If your child is seemingly destined to go to college or they’re absolutely bent on attending a specific university, you can take advantage and lock-in on cheaper tuition rates years before they’ll actually be attending school. Seeing as exponential tuition hikes are inevitable, engaging in a prepaid college tuition plan can literally save you thousands of dollars down the road.

While advantageous — especially given the federal tax exemption accompanied by many prepaid college tuition plans — these plans tend to have limited availability, and some states might be temporarily closed to new enrollment. Still, depending on your savings situation and where your child wants to attend college, this savings vehicle is worth asking us about.

Coverdell Education Savings Account

Coverdell ESAs are similar to 529 college savings plans in that they are tax-advantaged provided the funds are used for qualifying education expenses. However, Coverdell plans tend to offer more flexibility in terms of what is considered a “qualifying” expense. A K-12 private school tuition, as opposed to tuition for universities, could be financed through Coverdell ESA funds without any tax penalties. Bear in mind that you can only contribute $2,000 per child every year, and eligibility is restricted to couples earning less than $190,000 a year or single people earning less than $95,000 a year.

Work With NebraskaLand National Bank To Ensure a Sound Financial Future

The truth is, there are many different college savings options out there, and the best thing to do is to simply start setting aside money when your kids are at a relatively young age. Additionally, meeting with our network of friendly Community Bankers in North Platte and Kearney will help you find a savings option that works for your life situation.

Time and time again, NebraskaLand National Bank makes personal banking easy. Contact us today with any questions.

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