Saving for college can be accomplished through various college savings plans with tax advantages, where the money is usually invested into mutual funds. There's no single college savings plan perfect for every family. Deciding where to invest will largely depend on your income, the age of your child, and your chances of qualifying for financial aid.
It is important to keep your child's future financial aid in mind from the beginning because where you invest can have an impact on their aid eligibility. But be careful to avoid the trap of not saving at all, thinking it will help your child to qualify for more aid. Financial aid is determined more by income than by accumulated assets, and investments held in a student's name typically reduce financial aid more than assets held in a parent's name.
Qualified Tuition Plans
Qualified Tuition Plans, also known as 529 college savings plans, allow you to save for higher education for a named beneficiary or prepay future tuition in today's dollars, and can offer significant tax advantages. Parents, grandparents, siblings, uncles, aunts or friends can establish them. You can even set up a plan for yourself as long as the plan is designated for education funding needs.
Coverdell Education Savings Accounts
A Coverdell Education Savings Account (CESA), formerly known as an Education IRA, is designed to help you set aside money for the qualified education expenses of your children, grandchildren or any other eligible beneficiaries. You cannot deduct contributions on your tax return, but the earnings are not taxed while they are held in the account. When your child is ready to head to college, distributions from this account will be tax-free if they're used to pay qualified education expenses. These funds may also be used to save for elementary and secondary education.
A custodial account under the Uniform Gifts to Minor Act (UGMA) and Uniform Transfers to Minor Act (UTMA) is another way to save for your child's future higher education needs. Although not tax advantaged - earnings and withdrawals may be subject to your child's tax rate - custodial accounts allow you to contribute as much as you like and give you maximum control over investment choices and decisions.
Call PNC Investments at 800-PNC-6111 to schedule an appointment to discuss your investment needs.