The right choice depends on your situation.
There are other savings options besides the better-known 529 College Savings Plan and Coverdell Education Savings Account. Several considerations will determine which is the best for you, including your risk tolerance, your goals, and how soon you’ll need the money.
Some additional options available through COUNTRY® Financial are:
Mutual funds are one of the most popular investments in recent years, and using mutual funds to help fund a college education might be a consideration for you. Your fund choice will generally depend on factors like a child’s age, your risk tolerance, and ultimate financial goal. No matter what your situation, you’ll likely find a fund or funds that meet your needs. Visit our mutual fund section to learn more about what COUNTRY has to offer.
Establishing an account under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA) is a common way to provide assets and/or securities for the benefit of a minor. Some of the more common assets used to fund these accounts include cash, real estate, artwork, mutual funds, stocks, bonds, and precious metals.
The accounts can be beneficial in estate planning since the assets become the property of the beneficiary. Currently, an individual can give $13,000 per year per beneficiary without having to paying a gift tax. The assets are held by a custodian until the minor gains control of the account, generally age 18 or 21, depending on the state of residence.
The funds are not limited to use for education funding.
Normally, when you think of an IRA, you think of retirement, and that’s what its purpose usually is. However, there are a few times when that’s not the case, and education funding is one of them. There are two ways to use a Roth IRA for educational purposes.
- First, the child can open a Roth IRA if they have earned income. Since Roth IRAs are funded with after-tax assets, the child’s contributions won’t be taxed at the time of withdrawal. However, earnings distributed for educational purposes will be taxed unless they are held until age 59 ½. However, the usual 10 percent distribution penalty on earnings withdrawn before age 59 ½ is waived when the distribution is used for qualified higher education expenses.
- Second, you can open a Roth IRA and use the assets to pay for qualified educational expenses. You can pay those expenses for your child, grandchild, your spouse, or yourself. Again, you won’t pay the 10 percent penalty, but you will have to pay taxes on earnings withdrawn before age 59 ½. Contributions can be withdrawn at any time without tax or penalty.
If you’d like to learn more about how we can help in your education funding needs, find a COUNTRY Financial representative near you.
For more information about mutual funds, including charges and expenses, obtain a prospectus from your registered representative. Read it carefully before you invest or forward funds. There are investment risks associated with investing in mutual funds which should be considered carefully before making an investment.
The information contained herein is general and should not be considered legal or tax advice. Laws of a particular state and your particular situation may significantly affect the general information presented herein. The availability of the tax or other benefits mentioned above may be conditioned on meeting certain requirements. You should consult your attorney or tax advisor regarding your specific legal or tax situation.