Saving for college? Here are some options to consider

June 20th, 2019

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Getting a college education has never been more important — or expensive. Parents (and grandparents) can give their children a head start by saving for college. But where do you start? Here are some options — and things to consider — when saving for your child’s future.

Randy Porter

Randy Porter - Wealth Management Investment Specialist.

How much should you save?

Consider what type of college — public, private or community — you expect your child to attend. Then use our financial calculators to estimate how much money you’ll need to save. From there, Randy Porter, a First Interstate Investment Specialist, suggests breaking it down. Divide that number by how many years until your child starts college. Then divide that by 12 to determine how much to try to save each month.

What are your savings goals?

If you are focused solely on saving for college, a 529 Plan and the Coverdell Education Savings Account allow you to make non-deductible contributions. Earnings are not taxed if they are spent on qualified education expenses.

Qualified expenses include tuition, fees, books, supplies, special needs, and some room and board. It’s good to note that 529 plans also cover up to $10,000 in tuition expenses at private, public and religious K-12 schools, while Coverdell covers some K-12 expenses. You can compare savings plans at savingforcollege.com.

If account withdrawals are used for other expenses, they will be subject to state and federal income taxes and an additional 10 percent federal tax penalty on earnings.

What if your child doesn’t need the money?

If your son or daughter gets a scholarship or chooses not to go to college, Porter said both the 529 and Coverdell accounts can be transferred to another beneficiary without penalty as long as the new recipient is a relative.

And more than one person can set up an account for the same beneficiary. So, if grandma also wants to save for junior’s college education, she can. You can also start one for yourself.

Are you saving for more than college?

Some parents will want to save only for college, while others may want the flexibility to save for their child’s first car, wedding or special trip. In that case, Porter said a Roth IRA or UGMA/UTMA might make sense.

The 10 percent penalty on early withdrawals from a Roth IRA is waived if the money is used for qualified higher education expenses. The qualified expenses are the same as allowed under a 529 Plan.

A UGMA/UTMA is an irrevocable gift to the child, which means they get the money at age 18 or 21, depending on state law. There are no restrictions on how the money is spent. But, Porter said, keep in mind that once ownership transfers, you’ll have no control over the money or how it’s spent.

As it applies to both of these accounts, the beneficiary can’t be changed.

It’s never too early or too late to start saving for college. Our team members will work with you to review your priorities and options and to make an informed decision on which savings plan is right for you. Find a representative to get started today.


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