Financial Advice I Would Give My Younger Self – Planning for Education Funding – Kiplinger’s Personal Finance

At the end of most lectures I give, the moderator usually asks, “What else should our audience know?”  I always look at the younger members in the room or on the screen and think — if only I knew this when I was your age. 

While my business is in providing financial and wealth planning advice to clients who have already built a significant amount of wealth, there are many fundamental planning strategies that apply to those just starting out in their careers, things, which frankly, I wish I knew when I was growing up.  Therefore, I am penning this four-part series on planning advice I would give to my younger self.  The topics will range from planning for college savings, young families, retirement, to caring for aging parents.  This first article focuses on planning for college savings.

Saving for college is often thought of from the perspective of the parent saving for the child, and if you are one of the lucky ones whose parents can afford to have done that for you, good for you.  However, college savings, or more appropriately education savings, is not a dominion strictly reserved from parent to child.  As a young adult, you can start thinking about saving for higher education and how to do that in a tax-efficient manner.   Specifically, I am referring to a 529 college savings plan and Roth individual retirement account (IRA).  

529 College Savings Plans Aren’t Just for Kids

The 529 college savings plan is a tax-advantaged vehicle designed for education savings. Money held inside these accounts can grow income-tax-deferred, and when money is ultimately distributed for the use of qualified education expenses, it will also be income-tax-free.  In other words, earnings and appreciation from investments held in a 529 account can be completely income-tax-free if used for education needs.  

For many, the first experience with a 529 account is when a young parent opens one for a newborn child — that was certainly my case as my first 529 account was opened for my son a few months after his birth.  Here’s the advice that I wish I had known years before — you can open an account for yourself.   Instead of putting your extra savings early on in your career into a savings or investment account where interest and growth would be taxable, consider instead putting those savings into a 529 account for your own benefit.  If you go to graduate school, you can then use that money to pay for tuition, books and room and board.   As with any tax-advantaged account, the value of compounded income-tax-free growth can be a good boost to the bottom line.  In addition, certain states also offer a tax deduction or credit on contributions to a 529 account. 

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