College Savings Planning

Finding the right investment vehicle for your college savings isn’t easy. For every article touting a method for protecting and growing your savings, you’ll find another warning of the drawbacks. The reality is that no college savings method works well for every family. The right way for you, personally, to save for college depends on several factors:

• Your tax bracket
• Your child’s age
• How much control you want over your investments
• How much financial aid you expect to get

Financial aid is based largely on income, primarily that of the parent, but also that of the student (the typical college will want the student to spend 35% of his savings for college costs, while the parent is expected to provide up to 5% of certain assets each year).

• Prepaid tuition plans promise to lock in tomorrow’s college cost at today’s prices. Prepaid plans are cousins to the state run college savings plans. Prepaid tuition programs allow you to save for school in a tax-deferred investment. Withdrawals are tax-free when used for qualified higher education expenses.
• Coverdell Education Savings Accounts – for use if you plan to use the money for private education or tutoring before college age. The ability to contribute ends for singles with Adjusted Gross Incomes over $110,000.00 and married with Adjusted Gross Incomes over $220,000.00. You can customize your investment strategy.
• 529 Plans – there are no income limitations to contribute and you’ll reap significant tax advantages. Besides the tax breaks, these college savings plans offer an estate-planning advantage. Money contributed to a 529 plan is considered a completed gift, which means you don’t have to worry about paying estate taxes on your account should you die. You retain control over who gets the money and can change beneficiaries at any time.
• UTMA’s and UGMA’s – old-fashioned custodial accounts that give you more choice over your investments. You can invest in individual stocks and bonds, making the buy-and-sell decisions yourself. Gains are taxed at your child’s presumably lower rate. You lose control over the money when you child reaches a certain age, typically 18 or 21 depending on the state.

NOTE: Investment products offered through Enterprise Bank & Trust are:

• NOT FDIC insured
• NOT guaranteed by Enterprise Bank & Trust or any of its affiliates
• Subject to investment risk and may lose value