Even if there are two wage earners contributing to your family’s income, for most families the thought of how to fund their child’s higher education is daunting. If you have several children whose education you’re planning to finance, the prospect can be downright terrifying.
As with most worries about the future, this one can be best addressed by facing the challenge head-on. Consulting with an experienced, highly skilled estate planning attorney is a good beginning. If you are located in Southeastern Massachusetts or Cape Cod, there is no more accomplished team to reach out to than Surprenant & Beneski, P.C.
Preparing for More than Just College Expenses
As a parent with children, you will doubtless be interested in all of the other aspects of estate planning too, so you can do one-stop shopping with our knowledgeable team as you avail yourself of our many services: preparing your will, creating trusts to protect your assets and for special purposes (e.g. spendthrift trusts, special needs trusts), making arrangements for business succession and retirement, and preparing documents you may need in case of incapacity.
Options for Saving for Your Child’s Future
We all know that higher education has become incredibly expensive over recent decades, just as it has become increasingly essential in order to get a job with a reasonable income. Our team has several suggestions for funding your child’s education. As long as you are earning a decent income, and start saving when your child is young, you should be able to accomplish what may seem to be impossible, hopefully without loading you or your child up with post-college debt.
How much money are we talking about?
Recent estimates of college costs anticipate that to pay for the education of a child born in 2018, parents should plan to put aways approximately:
- $250 a month for a public, in-state college
- $450 a month for an out-of-state public university
- $500 a month for a private, nonprofit school
Though this may seem a heavy burden, our estate planning attorneys have several tactics to assist you, including:
1. 529 MEFA Savings Plan for Massachusetts College and Universities
A 529 Plan permits you to save for your child’s college education tax-free. It has several advantages. For one thing, you can contribute a lump sum (it was $75,000 in 2019) and receive a $2,000 state tax benefit in Massachusetts for the year you contribute and for the following 4 years, a cost-effective solution compared to other investment opportunities.
There are, however, drawbacks to a 529 plan. For one thing, colleges will consider the 529 when distributing financial aid, meaning that your young student may receive less financial aid if you have a 529 than if you don’t. Some people circumvent this snag by having a grandparent hold the plan. This may be a good option, especially if you don’t believe the 529 plan alone will cover the cost of a college education.
The other potential problem is that if you withdraw money from your 529 plan for purposes other than education expenses, you will have to pay a 10 percent tax on it.
2. Roth IRA
The Roth IRA is more flexible than the 529 plan. While it doesn’t receive the same tax deductions, it can be used for retirement as well as college if your child’s pathway changes or her education is funded through some other means, such as a scholarship.
Also, you can withdraw money from a Roth IRA, without penalty, for any reason.
3. Combination Compromise
It should be noted that the best plan for many parents is a compromise that involves first establishing a Roth IRA and then later adding a 529 plan. This way, you can begin by maxing out your Roth IRA by contributing the limit of $5,500 annually, and then switch over to the 529 plan which is far less restrictive. You are entitled to contribute up to $300,000 to the 529 plan.
4. Other Investments for Financing Your Child’s Education
Many of our clients put college funds for their children away in CDs, brokerage investments, and alternative savings accounts, either instead of the 529 plan and the Roth IRA or in addition to both of them. Some CDs (EE Bonds) qualify for tax exemptions if used for educational purposes. Coverdell Education Savings Accounts (ESAs) are another possibility. Although they limit contributions to $2,000 a year, they can be used not only for college but for K-12 costs as well.
Contact Surprenant & Beneski — We’re Always Looking Out for You and Your Family
Our estate planning attorneys are aware of how central your child’s education is to your plans for the future. Give us a call or send us an email so we can help you make it possible.
©Surprenant & Beneski, P.C. 35 Arnold Street, New Bedford, MA 02740, 336 South Street, Hyannis MA 02601 and 45 Bristol Drive, Easton MA 02375. This article is for illustration purposes only. This handout does not constitute legal advice. There is no attorney/client relationship created with Surprenant & Beneski, P.C. by this article. DO NOT make decisions based upon information in this handout. Every family is unique and legal advice can only be given after an individual consultation with an elder law attorney. Any decisions made without proper legal advice may cause significant legal and financial problems.