College Tuition Savings Planning

When we meet with prospective clients, they usually identify some standard objectives. If they are retired, they want to make sure that they don't outlive their assets. If they are thinking about retirement, they want to do retirement planning. But if they are in the "retire later" phase of their lives, then some common goals include saving for the purchase of a home and/or saving for their child or children's college tuition.

One of the more popular ways to put away money for college tuition is a 529 plan. Each State has its own 529 college savings program. You don't have to be a resident of that state to fund its 529 plan, however, most clients will fund the 529 plan of the State in which they reside; sometimes because that State may provide a State income tax deduction up to a certain contribution limit.

It is also important to note that your child isn't limited to a college located in the State in which you have created a 529 plan. Your child can go to a college anywhere in the country and the funds from his/her 529 plan can be used to cover tuition. The real benefit from a tax perspective is when the funds are needed in this case, you do not pay any income tax on the appreciation within the 529 plan. In other words, if your total contribution was $100,000 and the plan grew to $125,000 and was used for college tuition, you are never taxed on the $25,000 of investment growth. Most State plans offer a number of different investment options that you can choose from to make sure the plan is invested properly.

Another option, separate from a 529 plan, is a minor's trust. Typically an attorney drafts a trust document, the trust is funded (generally by the minor's parents or grandparents) and the trustee is often given distribution rights to pay out for higher educational purposes. The trust provisions may allow for distributions for tuition, room and board, travel expenses to and from college, etc. In most cases, the Trustee has the right to distribute funds for other purposes, in addition to educational expenses, such as medical and support needs.

If you are interested in learning more about college savings planning, our team of qualified and highly skilled New York financial advisors can help you implement a well-constructed plan.

Serving Long Island and New York City clients with offices in Melville, Long Island and Manhattan, New York. Contact us today.

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