CASE LAW FIRM LEGAL INSIGHTS
What is the Best Way to Save for my Child’s Education?
Posted on June 12, 2017 by Case Law Firm
Why worry? While your child might be a gifted scholar or phenomenal soccer player, the likelihood of getting a sports scholarship or scholastic scholarship to foot the college bill is slim. According to the NCAA “about 2 percent of high school athletes are awarded some form of athletics scholarship to compete in college.” CBSNews reports that “among full-time college students enrolled at four-year colleges, just .3% received enough grants and scholarships to cover the full cost of college.”
The time to plan for paying most or all of your child’s education is now.
Luckily there are ways to set aside money while your child is young that will benefit you; both at tax time, and when your child gets an acceptance letter to the college of their choice.
One way is to set up a custodial account. If done properly, this will qualify for an annual gift tax exclusion and the income produced is reported on the child’s tax return (if in excess of $1,050 – 2016 rate), not yours. The downside is that the amounts held in the account may make it more difficult for your child to get needs-based financial aid as the account is their asset. Students are expected to use about 20% of their own assets per year on their college education
If that is a concern, another option is a Section 529 Plan. This is an asset of the parent. As such, FAFSA will expect the parents to use about 5.5% towards the student’s college education. The earnings on this money are tax free when withdrawn for college expenses. There are two basic types of plans. Another recognized plan is the Section 530 Plan, or Coverdell ESA. This may be used for elementary and secondary schooling.
There are annual monetary limits, age limits on the beneficiary, and other factors to consider when setting up any of these accounts.
If you have children and want to plan for their education, we will be happy to meet with you and discuss your options. Make this a significant part of your estate planning. Please call our office at (860) 391-6393 to schedule a free consultation with one of our attorneys.
-Tina Case, Esq.
Disclaimer: While this blog provides general information, it does not constitute legal advice. The best way to get guidance on your specific legal issue is to contact a lawyer. To schedule a meeting with an attorney, please call one of our lawyers at (860) 391-6393. The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship.