Paying For College

When my daughter was born, I couldn't wait to get her Social Security number for her college savings account, a Uniform Transfers to Minors Account (UTMA). I bought stock whenever possible and increased my purchases substantially when they dropped, as they did during the Tech Wreck and Great Financial Crisis.

The UTMA was my best option because I could purchase stocks, bonds, and funds, and I didn't want to combine her funds with our investment accounts, and, at the time, the 529 plan was not available.

If born this year, it can cost more than $350,000 for a child to attend a four-year public university. If you start investing today, the annual savings needed to meet this goal is $7,810. If you wait ten years, the savings amount jumps to $30,000 - an increase of 284%! Expect to pay twice that of a public institution, approximately $720,000, if a child attends a private university.

Here are four ways to pay for college.

• 529 Plan. The money inside a 529 plan grows tax-free if you use the funds to pay for educational expenses. In addition to paying for college, you can use the account to pay for schooling from kindergarten to twelfth grade up to $10,000. The 529 plan is excellent for grandparents who want to help you pay for college and reduce their estate. The 529 plan is also available for graduate students and vocational schools. The parent owns the account, unlike the UTMA.
• Taxable Brokerage Account. A brokerage account is an excellent choice for college savings because there are no restrictions or contribution limits. You can invest in stocks, bonds, funds, etc., allowing you to use the money for other purposes like retirement if your child does not need the funds for college.
• UTMA. The Uniform Trust To Minors Account is an irrevocable gift to your child, so when they turn 18, it's their money. A UTMA is popular for parents who want to buy individual securities. However, we prefer brokerage accounts over UTMAs because they offer more flexibility with fewer restrictions.
• US Savings Bonds. You can use Series EE and I savings bonds to fund college expenses, and the interest is tax-free if used for qualified college expenses.

College tuition is expensive and rising, so another option for students is to attend a community college and then transfer to a four-year institution. Community colleges are affordable and offer a clear path for students wanting to continue their education. The cost savings are immense, mainly if your child transfers to an in-state public university. Another advantage of a community college is your child could graduate with an associate's degree.

Eighteen years seems like a long time from now, but it's not. Today, you're holding your child in your arms, and tomorrow, you're dropping them off at college. If you're in your 20s, 30s, or 40s, don't wait to start saving for college because the years will fly by in the blink of an eye!

Let us think of education as the means of developing our greatest abilities because in each of us, there is a private hope and dream which, fulfilled, can be translated into benefit for everyone and greater strength of the nation. ~ JFK

November 13, 2023

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level.

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