Funding a College Education

Rather than looking at the cost of college as a big-ticket expense, think of it as an investment. According to the Social Security Administration, men with bachelor’s degrees earn approximately $900,000 more in median lifetime earnings than high school graduates. What’s more, women with bachelor’s degrees earn $630,000 more, men with graduate degrees earn $1.5 million more, and women with graduate degrees earn $1.1 million more.

At Barnum, we recognize that a good education provides more than just a diploma or degree; it is the foundation of a solid future. Let us help you.

Flexible, tax-advantaged accounts designed specifically to pay for qualified education expenses.

529 plans are state tuition savings programs that enable you to save money on a tax-deferred basis to fund future college and graduate school expenses on behalf of a beneficiary, like a child or grandchild. They’re administered by mutual fund companies and give you the choice to select an age-based option which automatically adjusts the asset allocation mix as your child nears college age or a fixed portfolio that follows a set investment strategy based on your goals and risk tolerance. There are no annual limits on how much you can contribute to a 529 plan. However, contributions count as gifts for gift-tax purposes. For 2021, individuals can contribute up to $15,000 per beneficiary ($30,000 for gifts from a married couple) without using up part of their lifetime gift tax exemption or having to pay gift taxes. Withdrawals must be used toward qualified education expenses, such as tuition, room, and books, or they incur federal income tax and an additional 10% penalty. Unlike a custodial account which eventually transfers ownership to the child, the account owner of a 529 plan keeps control of how the money is spent. They can also transfer unused money to another named beneficiary. Like most things in life, the sooner you start the longer you have to take advantage of the tax-deferred growth a 529 savings plan offers. You can fund the account with a lump sum contribution and/or make regular systematic contributions to take advantage of dollar cost averaging. Disclosure: 529 Plans allow contributions to a state-sponsored plan for higher education expenses. Owner may change the beneficiary of the account to another eligible family member of the original beneficiary. Section 529 plans are authorized under IRC § 529 and are sponsored by the individual states. Some states may offer preferential state tax treatment if certain conditions are met. Contributions grow tax-deferred and qualified withdrawals are federal income tax-free. Gifts to a 529 plan qualify for the annual gift tax exclusion ($15,000 in 2021). Annual exclusion gifts to a 529 plan can also be non-loaded for a period up to 5 years. Taxable withdrawals may avoid the additional 10% penalty tax if they occur on account of death, disability, or receipt of scholarship.

Flexible, tax-advantaged accounts designed specifically to pay for qualified education expenses.

529 plans are state tuition savings programs that enable you to save money on a tax-deferred basis to fund future college and graduate school expenses on behalf of a beneficiary, like a child or grandchild. They’re administered by mutual fund companies and give you the choice to select an age-based option which automatically adjusts the asset allocation mix as your child nears college age or a fixed portfolio that follows a set investment strategy based on your goals and risk tolerance.

There are no annual limits on how much you can contribute to a 529 plan. However, contributions count as gifts for gift-tax purposes. For 2021, individuals can contribute up to $15,000 per beneficiary ($30,000 for gifts from a married couple) without using up part of their lifetime gift tax exemption or having to pay gift taxes.

Withdrawals must be used toward qualified education expenses, such as tuition, room, and books, or they incur federal income tax and an additional 10% penalty.

Unlike a custodial account which eventually transfers ownership to the child, the account owner of a 529 plan keeps control of how the money is spent. They can also transfer unused money to another named beneficiary.

Like most things in life, the sooner you start the longer you have to take advantage of the tax-deferred growth a 529 savings plan offers. You can fund the account with a lump sum contribution and/or make regular systematic contributions to take advantage of dollar cost averaging.

Disclosure: 529 Plans allow contributions to a state-sponsored plan for higher education expenses. Owner may change the beneficiary of the account to another eligible family member of the original beneficiary. Section 529 plans are authorized under IRC § 529 and are sponsored by the individual states. Some states may offer preferential state tax treatment if certain conditions are met. Contributions grow tax-deferred and qualified withdrawals are federal income tax-free. Gifts to a 529 plan qualify for the annual gift tax exclusion ($15,000 in 2021). Annual exclusion gifts to a 529 plan can also be non-loaded for a period up to 5 years. Taxable withdrawals may avoid the additional 10% penalty tax if they occur on account of death, disability, or receipt of scholarship.

Offer tax-deferred growth and withdrawals before age 30 for qualified education expenses and are income tax free.

A Coverdell Education Savings Account (ESA) is a trust or custodial account and can be used for education expenses, such as tuition, books, room and board, computers, and internet access for kindergarten through high school, college, and graduate school. When the account is set up, the beneficiary must be either under the age of 18 or special needs and designated a Coverdell ESA.

In general, the beneficiary can receive tax-free distributions to pay for qualified education expenses. If the distribution exceeds the amount of qualified expenses, that portion is taxable to the beneficiary. Any amounts remaining in the account must be distributed when the designated beneficiary reaches age 30 unless the beneficiary is a special needs beneficiary.

Highly flexible way to gift money to a minor, but don’t necessarily have to spend it on college.

The Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) are custodial accounts that provide a way to help adults save and invest money on behalf of a minor. They are easy and inexpensive to set up. Money put into the account becomes the property of the minor, can only be used for their benefit, and does not need to be used solely for educational purposes.

Because the accounts are considered asset owned by the child, they can impact financial aid awards. Additionally, when the child comes of age, generally between 18 and 25 depending on the state, the assets must be transferred to the beneficiary who can use the money for any purpose.

Policies with a cash value that can be accessed to pay for college expenses.

Life insurance isn’t the first thing that comes to mind when thinking about saving for college, but it’s worth considering.

When you buy a whole life policy, a portion of your premiums go toward a death benefit and another portion is diverted to a separate cash-value account. When it’s time for your child to start college, you can take a loan out against this cash balance. This will reduce your death benefit until you pay back the money.

Whereas a 529 savings plan is considered a parental asset, a portion of which is counted in the applicant’s Expected Family Contribution for each college year, life insurance isn’t included in financial aid calculations.

Representatives do not provide tax and/or legal advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate.

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