What are Your Options When Saving for College?

With the total cost of college nearing the price of a mortgage, saving now for your child’s education is an important financial consideration. Thankfully, there are many options available to parents and guardians for saving for education. These various options have different implications and restrictions based on your contribution and withdrawal activities. Below is a quick summary of the typical saving options for a college education:

Classic Savings Options

Regular Savings Accounts

First, you have the option of a classic savings account (SAV). These accounts typically have a low-interest rate but are great for their flexibility. You’re not limited in the amount you can contribute or how you can use the funds.

U.S. Savings Bonds

A bond is typically the safest investment type as it is assured by the U.S. government. Ideally, investors will get a return, but often it is small compared to other options. A significant perk of bonds is that they are tax-deferred if used for tuition. Keep in mind that the maximum investment allowed per year, per owner, per type of bond is $10,000 (or $20,000 for a married couple).

Mutual Funds & Stocks

Mutual Funds

Mutual funds are a combination of investment assets like stocks and bonds that are managed by a third party. The funds from this savings option can be used for expenses other than education, such as your child’s rent, gas, food, etc. There’s also no limit on how much you can contribute. The downside of this investment type is that you will pay taxes, and income from this account can affect your student’s eligibility for financial aid.

Individual Stocks

A dedicated stock account can be an option for funding your child’s college endeavors, but make sure you start when your child is young. Starting too late could prevent you from making significant earnings due to variations in the stock market.

Dedicated Education Savings Accounts

529 Plan

A 529 Plan is a popular option for saving for a child’s education. 529 Plans are savings accounts dedicated to college expenses and have benefits when used for education. The list of qualified expenses covered under these plans is often extensive and can include books, computers, lodging, and many other required expenses associated with college education. Another bonus is that having a 529 Plan does not affect your child’s eligibility for financial aid like mutual funds do.

Coverdell Education Savings Account (ESA)

An ESA is another dedicated college savings account that offers tax advantages and earns interest. The primary difference with an ESA is that there are many restrictions when it comes to contributions and eligibility. These restrictions usually mean that the entirety of your child’s education will not be covered solely by withdrawing from this account.

There isn’t a one-plan-fits-all solution when it comes to saving for your child’s future education. Southside Bank does not necessarily offer these products and does not recommend or endorse one solution over another. Talk to your financial advisor to receive guidance that fits your unique life situation.

We want you to know that investment products provided by Southside Bank:

Are Not Insured by the FDIC or Any Federal Government Agency | May Lose Value | Are Subject to Risk | Are Not Bank Guaranteed | Are Not Deposits