529 Savings Plan Dilemma
While it is oftentimes said that everyone should be saving for their children’s education, it is not always the best thing for a person to do. This may sound contrary to the advice that is given by so many professional financial advisors, but the reality is that not every parent has enough available cash flow to save for college. This is in addition to the fact that if you do not have enough available cash to save for college, then your child will likely get enough financial aid to pay for their own college.
This is an important thing to note. You do not want to work hard at saving every extra dime to save for your child’s college education at the expense of their life leading up to college. If I had limited funds I would rather use it to help the child have a better primary and secondary school education than save for college. What I mean by this is that it is better to live in an area that has better schools, even if it is more expensive, than it is to live in an area with lessor schools in order to save money for college. Your child will be much better off having been raised and taught in these better schools than in the lower quality schools. If your child chooses to go to college, having been raised in better primary and secondary schools, they can always use financial aid, student loans, or even community college to reduce their overall college costs. But if your child chooses not to go to college, at least you have given the best possible pre-college education.
If you already are in an area with good primary and secondary schools and your overall financial picture allows you the luxury of considering a college savings plan then you should include the 529 plan as one of your considerations. This is something that you should discuss with your tax advisor, your tax advisor can help you understand the specific advantages to the 529 plan and the other college savings programs like Uniform Gifts to Minors accounts and other tax exempt investment vehicles in the specific light of your personal financial situation. It all depends on your overall financial strength and asset picture. You do not want to be savings rich and life poor, but at the same time you do want to maximize tax exempt investment gains. Most of all you do not want to spend taxable investment gains on your child’s college education when you could have invested in a 529 and used tax free gains.
The 529 plan is a modern day plan that is designed to acknowledge and balance the complexities of planning for the future while maintaining flexibility when the future does not come out as planned. The fact that it allows lifetime donor control and changes in beneficiary’s, quite possibly makes it the college savings plan that is best designed to fit the needs of most people. This means that the 529 plan should be the one college savings plan that you absolutely need to discuss with your financial and tax advisors.
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