By Diana Palmieri
I hope you have given some extra thought to taking money from your retirement plans in to pay college expenses. I hope you find the additional information below helpful.
If you have a bit of time before your child goes off to college, here are some vehicles you can invest in over a period of time:
- Coverdell ESA (Education IRA)
- College Savings Plans (529)
- UGMA/UTMA Accounts
I feel it is important to mention that UGMA/UTMA accounts become the child’s property at age 18 (UGMA) or 21 (UTMA). If you are not comfortable with that, you may want to consider plans where you can be the owner at all times. It is also important to know that money in a child’s name could affect financial aid in the future, as colleges use formulas based on a family’s need. Consult your financial or tax advisor for guidance. There are also good old-fashioned savings bonds, too. You can buy them directly from your local bank or go to www.treasurydirect.gov to get them from the source.
If your child is approaching college age, there are federal and state programs available to you. There is also the possibility of a student loan. You can go to www.edu.gov and explore the different possibilities of federal grants and student loans. Your child will have to fill out a FAFSA form (Free Application for Federal Student Aid, www.fafsa.ed.gov) before completing high school to become eligible for any federal programs and loans. For your individual state, go to your state government’s Web site (New York, for example, is www.ny.gov.) and go to the education link. I visited several state Web sites, and there is a lot of helpful information regarding state aid for college.
This is a very tough decision to make, and you want to do everything for your kids. But I feel it is also very important to think about you and how this can affect your retirement. Do your homework, and come up with a plan that will benefit both you and your child. I had a client in my office recently who told me that she did not want to work at McDonald’s when she was 72. That really is something to think about.
The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisory.
Diana Palmieri is dually registered with Vanderbilt Securities LLC and H Beck Inc., which are unaffiliated. Securities offered through Vanderbilt Securities LLC, member SIPC/FINRA/MSRB.