College Saving 101: Jumpstart your graduate’s financial success
With the ever increasing costs for higher education, it's no wonder that student loan debt is stunting the financial growth of millennials. The average student loan debt for graduates in 2016 was just over $37,000 and the average monthly payment was $351.* Student debt could turn your empty nest into a full one. According to a survey done by the job site Indeed in 2016, 36% of graduating seniors planned to live at home for at least one year after graduation.* The increasing burden of student loans is limiting graduates ability to buy a home, contribute to retirement saving plans, and even marry. Helping to ease that burden can give your loved one a head start on their road to financial success.
What are my options? There are multiple investment vehicles that can help cover the costs of education. Here we will take a look at some of the most popular options:
529 Plan: A 529 plan is a state sponsored college savings plan. There are no income limitations that will prevent you from being able to contribute to a 529 plan and they typically allow for higher contributions than other investment vehicles. 529 plans offer tax deferred growth and tax free distributions if used for qualifying education expenses. Your investment options are limited within the plan and the beneficiary can only be changed to a relative of the original beneficiary.
Coverdell Education Savings Account: A Coverdell Education Savings Account also allows for tax deferred growth and tax free distributions for qualified education expenses. However, unlike the 529 plan there are income limitations as well as lower annual contribution limits. The Coverdell has some clear advantages over a 529 plan, one is that you can self-direct your investments and are not limited to those pre-selected for your state sponsored 529 plan. The other is that distributions can be used for K-12 schools not just college expenses.
Roth IRA: A Roth IRA can also be used as a college savings tool. Again, the investments grow tax free and distributions are not taxable if used for qualified education expenses. There are income and contribution limits, however they are higher than the Coverdell. These accounts also offer flexibility when it comes to investments. The main benefit is that if your loved one chooses not to attend college or does not need the full benefit you have saved, it simply stays in your name and can be used for tax free distributions in retirement after you reach age 59 ½.
Just like your future college graduate, make sure to do your homework and study up on the implications that each plan has in regards to taxes and financial aid. For more information on college planning and the options available to you contact us at (803) 649-6645 or visit our website at www.tsgwealth.com.
*(Data via studentloanhero.com)
Brandon is an Investment Advisor Representative (IAR) with Prosperity Capital Advisors, a Registered Investment Advisory Firm. He is a graduate of the University of South Carolina Aiken where he earned his Bachelor’s Degree in Business Administration and is also a licensed Life, Accident, and Health Insurance Producer. Brandon is licensed as a Series 65 advisor. Series 65 is a securities license required by most states for individuals who act as investment advisors. The Uniform Investment Advisor Law Examination covers laws, regulations, ethics and topics such as retirement planning, portfolio management strategies and fiduciary responsibilities.
Financial Planning and Investment Advisory services are offered through C2P Capital Advisory Groups LLC D/B/A Prosperity Capital Advisors (PCA) an SEC registered investment adviser with its principal place of business in the State of Ohio.
Brandon Williams is registered as an Investment Advisor Representative of PCA in the state of South Carolina. For more information regarding PCA, please visit www.adviserinfo.sec.gov. PCA does not provide tax or legal advice.