How do I save money for my child’s education?
The 529 plan stands out as a highly effective way to save for education expenses. It offers tax-free growth and, in many states, tax deductions on contributions. One of its most attractive features is its flexibility. If one child doesn’t need the funds, the plan’s beneficiary can be changed to another qualifying family member.
Other Education-Focused Accounts
Education Savings Accounts (ESAs) and custodial accounts such as UTMA or UGMA accounts are additional options. However, these come with limitations. ESAs have lower annual contribution limits and income restrictions, while custodial accounts become the child’s asset at the age of majority and may affect financial aid eligibility.
Traditional Savings and Brokerage Accounts
While not tax-advantaged, traditional savings or brokerage accounts offer unrestricted use and flexibility. These accounts might be suitable for those who want more control over how funds are invested or used, but they lack the tax benefits of dedicated education accounts.
The Importance of Starting Early
No matter which option you choose, starting early is key. The power of compounding and the increasing cost of higher education make it essential to begin saving as soon as possible. Even small, consistent contributions over time can significantly reduce the financial burden later.
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Shawna Theriault, CFP®, CPA, CDFA®
Senior Financial Advisor, Wiser Wealth Management
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