Never assume your child will not go to college. It is essential to start preparing for your child’s education now, even if you don’t believe going to a university or trade school is possible. In high school, preparing for wrestling and boxing matches was most important. College was an afterthought. Understandably, my father wasn’t prepared when he found out I was accepted to UCLA. Until we figured out how to start paying for college, my father and I resorted to selling our family vehicles to fund my first quarter. This can be challenging in Southern California’s car culture. Thankfully, nobody was too attached to the vehicles we sold. Fortunately, we discovered that because my father was a disabled Vietnam veteran and purple heart recipient, there were certain benefits for his children to attend state colleges. Every situation is different, and there are many ways to plan for education. Tuition is not getting cheaper, so it is never too late nor too early to start planning for education funding.
The annual inflation rate for tuition is 4.63 percent. In 2022, the average cost for a school year for private school tuition and fees is $43,775, $28,238 for out-of-state students at public schools, and $11,631 for state residents at public colleges (www.educationdata.org). Fortunately, several investment vehicles can help you beat inflation designed to fund education. Popular solutions are 529 plans and Uniform Gift to Minor’s Act/Uniform Transfer to Minors Act, also known as UGMA/UTMA accounts.
529 plans – These accounts offer several advantages. Tax advantages include a state income tax deduction if your state has a state income tax, and you live in the state where you opened the 529 plan. Also, any growth is income tax free for qualified expenses. Qualified education expenses for 529 savings plans include tuition and fees, books, supplies, and equipment, along with room and board of students enrolled at least half-time. There is no income phase-out for those who can participate. 529 plans are considered assets of the parent for financial aid purposes. There is a 10% penalty on earnings; the gains are included in gross income if not used for qualified education expenses. However, beneficiaries of 529 plans can be changed if needed.
(UGMA/UTMA) Accounts – Assets in these types of accounts are considered an asset of the child when determining financial aid. The UTMA account may include real estate as an investment, plus stocks, mutual funds, or bonds. The UGMA account only includes stocks, mutual funds, and bonds but does not include real estate.
Education funding can be tricky. Even sending a tuition check a certain way can save you thousands. We are here to help anyone preparing for their child’s education. In honor of my father and others who served our great country, if you’re a veteran, I will investigate VA education benefits that might be available to you free of charge.
About the Author
Edward Vela is an Investment Advisor and Estate Planning Specialist at empiriKal partners, llc©, with 15 years of wealth management experience. He earned a Journalism Certification from the University of Massachusetts, a BA in Political Science, a Financial Planning Certification at UCLA, and an MBA from the UCLA Anderson School of Management. You can contact Edward at 925-300-8805 or email edward@empiriKalpartners.com.
