College Savings Planning
As inflation continues to rise, so do the costs of education. Whether you are an expecting parent or considering college, developing a college savings plan is crucial. Getting a higher education can yield a massive financial commitment, and you want to be sure that you best set your children– or yourself– up for a stable foundation after graduating.
At M&F Bank, we help you navigate the various choices, such as attending a community college and transferring to a university or attending an Ivy League versus a state school. We want you or your child to get the most out of your college experience, and we are here to provide valuable resources while creating a plan of action just for you.
Whether your child is in middle school or crawling in diapers, now is the time to start thinking of saving for college. Likewise, suppose you are 35 and finally have the chance to go to university. In that case, the investments you make today can significantly improve– and even eliminate– the debt you accrue while pursuing higher education. We are here to guide you through the process, ensuring you make wise investments that lead to a brighter future.
College Savings Accounts: 529 Plans and ESAs
There are two main types of college saving accounts: 529 Plans and Coverdell Education Savings Accounts (ESAs). The first, named aptly after the IRS code 529, is a state-based savings account with no yearly limit of contributions. The second, the Coverdell Education Savings Plan, may limit yearly contributions per child. However, they offer more flexibility in the type of account you may choose.
Let’s further delve into the main features of these plans so you can assess which suits your individual or family’s needs.
What is a 529 Plan?
The 529 plan is an investment tool to allocate significant assets only toward educational expenses. It is state-sponsored and tax-advantaged.
Key facts about 529 plans include:
- Anyone can open a 529 account.
- Contributions are not limited to the account opener; friends and family can contribute.
- There are no income limits to open or fund a 529 account.
- Withdrawals, including other qualified educational expenses, can be used for any eligible U.S. postsecondary institution or apprenticeship program.
- A 529 plan has higher contribution limits than other education savings accounts.
- Lifetime contributions can total $400,000 or more per beneficiary.
- Allows for a substantial initial deposit (up to $75,000 in a single year, or
- $150,000 for a couple making a single deposit) without incurring a gift tax, provided it’s the only gift to that beneficiary for five years.
What is an Education Savings Account (ESA)?
ESAs, or Coverdell accounts, provide an alternative tax-advantaged education savings option. Essential facts about ESAs include:
- Couples with adjusted gross incomes below $220,000 and individuals below $110,000 are eligible.
- Until the beneficiary’s 18th birthday, contributions are capped at a maximum of $2,000 annually.
- The account must be liquidated at age 30. Still, the balance can be rolled over to another ESA for a family member without taxes and penalties.
- ESAs offer a broader range of investment options compared to 529 plans.
- For eligible expenses to a public, private, or religious school, there is no $10,000 tax-free withdrawal cap.
Custom College Plan
At M&F Bank, we are always ready to meet you where you are in your financial journey. Perhaps it’s clear which route you want to take regarding college savings plans. If not, you should know that it is possible to contribute to both types of plans simultaneously. As you can see, they both have pros and cons and investing in both could benefit some.
We are happy to discuss each plan in detail and other factors to consider – such as tax implications or what should happen if you or your child decide not to attend college. We know the amount of information can be overwhelming, so we’re here to help you every step of the way.
Securing Financial Futures
We understand the significance of building college funds and maintaining a prosperous financial future. We recommend a balanced approach to college saving – in other words, continuing your retirement savings contributions while utilizing tax-advantaged college savings options.
At M&F Bank, we believe strongly in closing the wealth gap, and that can only be done by empowering our community with the knowledge and financial tools to make university a viable option. If you are ready to secure a prosperous future for you or your loved ones, we are here to help. Take the first step today toward building a solid educational foundation.