How does saving for college (or any education) fit into your overall financial plan? There are steps you can take to help ease the burden of education costs and many you can start at any age.
The first step is to determine the educational goals and needs for the person you are planning to help with education funding. Remember, it doesn’t have to be a child who benefits from your funding strategy. Many grandparents, relatives or other relations set up plans for young people in their lives. Ask yourself: Will the child attend a public or private school? Is the goal to save for undergraduate/ postgraduate education, or perhaps a combo or other need? Am I saving for one child or multiple? Answering these questions can help you estimate the amount of funding needed.
You can then look at the financial needs in relation to your other financial goals and create a budget. At any level of wealth, budgeting for education expenses is important. You’ll want to determine how much you will set aside for each child and factor in inflation, especially if you are starting when they are very young.
A financial advisor can help you determine an investment strategy and discuss different funding vehicles to meet your education funding requirements. You will want to factor in your risk tolerance level and time horizon and may consider investing in 529 college savings plans, custodial accounts, and even post-tax investment accounts. They can also help when it comes time to use the funds for education, which would include being aware of the rules surrounding the use of funds, and also helping you factor in how scholarships, grants and loans can impact or subsidize the amount saved. Starting in 2024, 529 plan beneficiaries, who meet certain conditions, will be afforded the ability to rollover a portion of their unused savings into a Roth IRA, per the SECURE Act 2.0.
Depending on your time horizon, an advisor should also help you regularly review and adjust your education savings plan. Various needs or circumstances could arise that no longer align with your financial situation, goal or need and being able to adjust the plan can help protect your overall financial picture.
It is important to consider and include your education funding plans in your estate planning. By including education funding, it could help ensure your wishes are carried out should something happen to you and help you know your child(ren)’s education will be protected.
Don’t forget: Educating your children and grandchildren about financial responsibility can go a long way in relation to education funding. Building responsible financial skills can help them throughout their life. Many college students graduate with substantial student loan debt because they didn’t understand the implication of their financial choices. While you are working to help relieve some of that education financing stress, they will be a partner in making wise financial decisions along the way and being a good steward of the money they are given or borrow.
Saving for a child’s education requires careful planning and financial discipline. The goal is to ensure that the child has access to quality education with little to no financial stress.
Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Allos Investment Advisors®, LLC.
The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.
Published for the blog on December 5, 2023 by Allos Investment Advisors®, LLC.
