The Financial Planning Process: Education Funding

Setting up a custodial account in your child's name with a mutual fund company and making regular contributions to that account can help you towards reaching your child's college funding goals. Custodial accounts have significant legal and tax implications. For one there is the "kiddie tax, " which taxes the investment income of children over $2300 at their parent's top federal income-tax rate if the child is under age 18 and the child's earned income does not exceed one-half of the child's own support for the year, or, a full-time student who was under age 24 at the end of the tax year and the child's earned income does not exceed one half of the child's own support for the year (excluding scholarships).

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It’s important to be thoughtful and strategic when it comes to financing a child’s or grandchild’s education. For the last 30 years, college tuition prices have outpaced the overall rate of inflation and families are often unprepared for the hefty price tag of continued education. Or worse, so overwhelmed by the intimidating price tag they take no action.

At Christian Laver & Associates we’re here to partner alongside you to develop a plan that works for your family without destroying your other financial priorities. For example, a 529 College Savings Plan can provide you with a plan for a child’s college education funding, offering tax-advantaged savings, flexibility, control and professional investment management. We’ll work together to quantify the amount to capture, then identify efficient techniques to help make this goal toward reality.

One of the most important decisions to consider in life is: "What do I want to be when I grow up?" The answer to this question may certainly change over time. Helping your child or grandchild uncover this answer can be one of your most valuable gifts. In addition, there are many ways to help financially support education along the way even before college. You will want to consider if you need to set aside funds for private schools (K-12) and other educational activities leading up to the college years.

It's also important to consider that college is not the best option for all. If your child or grandchild desires to focus on specific trades or technology in their career, technological institutes and trade schools may be a better and more affordable route.

Many states and individual colleges offer tuition prepayment plans. With these plans, you make a series of payments or pay a lump sum now for your child's education. In return, the plan guarantees that your investment will cover the child's expenses when he or she is ready to attend. Some plans lock in the cost of future education at today's prices. Before choosing this route, though, be sure to find out what will happen to your investment if your child doesn't attend the sponsoring college.

If your child will be starting college within the next couple of years or has already started, there are still financing methods available for you to consider.

Most schools have a limited pool of funds, so you should file financial aid forms as soon as possible. Generally, the school will calculate how much aid your child will receive based on your financial situation. Also, your child should apply for all available governmental or private grants and scholarships.

Your child's aid package may include loans from the federal or state government, the college or a commercial lender. The loan offers may vary considerably, depending on the program, so be sure to carefully check the interest rates and terms of each. Home equity loans, retirement plan withdrawals, and the cash value of your life insurance are other possible loan sources you might consider.