The dream of higher education is something that many people still aspire to, and aspire to have their children engage with. However, the reality of college debt has deterred many would-be college students from pursuing their dreams. With this in mind, let's look at the ways that you can help your children graduate from college without debt.
The Power Tool: The Supercharged 529 Plan
One of the most underutilised tools at your disposal is the supercharged 529 plan. This is a state-sponsored investment account that is specifically designed to help take care of educational expenses. You invest after-tax dollars from your income, and you then allow those investments to grow over the years as your child gets older. When they are ready to put those investment dollars to use, you get to withdraw funds from the plan tax-free. You have already paid taxes on the dollars invested, so you don't have to pay them again when you withdraw the funds.
This is an excellent way to help your child pay for their college expenses without taking on more college debt than absolutely necessary. Consider tapping into a supercharged 529 plan to begin saving for your child's education today.
Key Update: SECURE 2.0 Act Provision
You don't have to fret about oversaving into a 529 account. The SECURE 2.0 Act allows for the beneficiary of the plan to roll over any unused 529 funds into a Roth IRA up to a $35,000 lifetime limit. This key update means that you don't have to worry about oversaving into a 529 plan. Instead, you can rest assured that the beneficiary of this plan will still receive the funds that you worked so hard to put into this plan in the first place. They will just receive them in the form of a Roth IRA investment.
This should put you at ease with the knowledge that investing in a 529 plan is the right move, and that any unused funds will still end up in the right place. Make note of the Secure 2.0 Act provision and why it is so important.
Advanced Strategies (Beyond the Basics)
There are strategies that you might consider pursuing beyond the basics to help get yourself back on track when it comes to handling your child's educational expenses. Here are some examples of the strategies that you should consider:
UTMA/UGMA Accounts - These accounts allow for more flexibility because they can also be used for non-educational expenses when the time comes. That said, you give up the tax-free growth that you would enjoy with a 529 plan.
"Direct Tuition" Loophole - Paying the university directly for educational expenses helps you to bypass the annual gift tax limit that otherwise exists. This means that you can preserve your lifetime estate tax exemption.
Strategic Annual Gifting - There is an annual gift tax exclusion of approximately $18,000 per person that allows you to give money to the child to use as they see fit. This is an excellent way to help create a sense of financial responsibility for your child.
Beneficial Information/Unique Angle
Your goal should be to transfer as much of your wealth as possible to your children. This is why simply saving for college is not enough. You must also think about estate planning as a larger goal. You should tap into your resources to help make it possible to preserve capital across generations and create a pathway to fewer financial burdens than you might have faced yourself when trying to save for college.
Contact Us at HEFCU to Learn More About the Strategies You Need to Help Your Children Graduate College Without Debt
Reach out to us at HEFCU to learn more about how you can help your children graduate from college without taking on debt. If you can pull this off, then you will have helped your child reach a point in their financial life that is not reached by most. As you contemplate this, keep it at the top of your mind as you are moving forward day by day to help your child get through college.
Image credit: // Shutterstock // Arina P Habich
