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College Savings


There are lots of different options when it comes to saving for your child’s college education. Deciding which option to choose requires you to make some assumptions about what you think your child will likely do for school in what can be 18 years away. An advisor familiar with education planning can help you plan for all of the expenses that come with higher education so your child can focus on their education and not worry about how they will pay for it or worse, be stuck with huge student loans. Depending on what investment tool you use to save for your child’s education, an advisor can also help to manage the investments to make sure you are on track to meet the education funding goal.


While there are lots of choices to consider in establishing a college fund for your child, they typically fall under two categories.

They include:


Some families decide they will pay for college out of their cash flow when the time comes. There is a risk that this may not be adequate when the time comes or that your investments may not be liquid. So you may want to set some funds aside in advance.

Child Contribution

You may expect your child to save money, earn some type of scholarship or grant, or work during college to provide some of his or her own funding. Just be mindful that this may not be enough, and you may want to subsidize with savings.

Family Member Contributes

You might anticipate that other family members, such as your parents, may offer to pay for your child's tuition directly to the college. This type of direct payment does not have to be reported as a gift by the donor.

Personal Investment Funds

You might set up a separate investment account in your own name and simply set funds aside periodically to build a fund for your child's education. All the funds remain in your control, and any funds left over when your child finishes school can be added to your other investments.

Uniform Gifts Or Transfers To Minors (Ugmas/Utmas)

These are simple investment accounts set up under your child's name. Periodic gifts are made to the account, funds accumulate, and, most likely, you'll pay income tax on earnings. While your child is a minor, you control the use of the account for any purpose benefiting that child, including college costs. Once the child reaches the age of majority as determined by your state, the funds belong to him or her.

Prepaid Tuition Programs

With these programs, available in many states, you purchase units or credits toward a particular level of education. When the child is ready to attend college, the program guarantees that the tuition related to the level of college you chose will be paid on your child's behalf. Essentially, you're buying tomorrow's education at today's price. Make sure that the plan you're considering has the financial backing of the state; otherwise the program may be at risk in a period of financial turmoil.

529 College Saving Plans

529 plans have the advantage of income tax deferral. You, or other family members, put money into the plan on behalf of a specific child. Funds are not subject to income tax within the account or when withdrawn if used for qualified higher education expenses. If one child does not need all of the funds, the balance may be transferred to fund another child's education, or even withdrawn by you. But, withdrawals of earnings will be subject to income tax and penalties.

Trust Accounts

Trusts are attractive for families that will be making consistent contributions to a fund that is expected to accumulate substantially. Trusts may receive gifts from any family member, or others, as part of a wealth transfer program. There are limited income tax benefits to these trusts, but they offer greater flexibility and control than other strategies.