Whether you're just starting a family or well into your parenthood journey, it's crucial to begin saving for your child's education. It's never too early to get started, and it's just as important as saving for your first home, retirement or building an emergency fund. Opening an education savings account and contributing early and often are key ways to ensure you’re prepared for tuition costs. But the process isn't always straightforward. 

Before you start comparing your savings options, consider what type of education you want to pay for—whether it’s private or public university, community college, vocational school, or even postgraduate education. 

Tailoring College Savings to Your Family’s Needs 

There are different expenses associated with each education path. For example, you’ll likely need to save more for a private or out-of-state school compared to a public, in-state university. It’s also important to think about how much of your child’s education you plan to cover—will you pay for all their expenses, cover half, or just focus on tuition without room and board? 

While there’s no one-size-fits-all answer, deciding what works best for your family’s personal and financial situation is key. Your financial advisor can help you estimate the potential costs of college and how your savings plan might affect your other financial goals. 

What Are My Options? 

Once you have a clearer idea of what educational expenses you plan to cover, it’s time to explore the savings tools available for higher education. Here are some account types to consider: 

• 529 College Saving Plan:  A 529 Plan, and other education savings accounts (ESAs), offer tax benefits. Some families worry that saving for college could reduce financial aid eligibility, but 529 plans are considered parent-owned assets, meaning only a small portion of the savings is factored into financial aid calculations. The key is finding the right account and starting early, while keeping your other financial goals in mind. 
• Coverdell Education Savings Account (ESA): For families with more modest education savings goals or those looking to cover a wider range of school expenses, a Coverdell ESA account can be a useful option. A Coverdell offers families a way to save for elementary, secondary, and higher education expenses. Unlike a 529 plan, a Coverdell account can be used for a broader range of school-related costs, not just tuition. However, the annual contribution limit for a Coverdell is much lower, capped at $2,000 per beneficiary. Additionally, if the funds aren’t used by the time the child turns 30, the remaining balance will be distributed and taxed.
• Custodial Accounts: Uniform Gift to Minors Act (UTMA)/Uniform Transfer to Minors Act (UGMA) accounts are custodial accounts that can be beneficial because they allow families to gift assets to a child, which they can access once they are an adult. These accounts offer flexibility in how the funds are used, but they are not always the best option for college savings. Since the savings are considered the child’s property, they must be reported on their Free Application for Federal Student Aid (FAFSA) which can reduce eligibility for financial aid. In addition, any income generated by the account may be subject to taxes. 
• Savings Bonds: Savings bonds, like Series EE or I bonds, can be used as a low-risk option for education savings. They offer tax benefits if the bonds are redeemed to pay for qualified education expenses. However, the returns are typically lower than other investment options, and there are income limits to qualify for the tax exclusion. While not a primary savings tool for many, they can be a supplementary option for families looking for stability and guaranteed returns. 
• Taxable Investment Accounts: Taxable investment accounts offer flexibility in how the funds are used, as they aren’t limited to education expenses. While they don’t provide tax advantages like a 529 or Coverdell, they can be a good option for families who want more control over their investments. Since these accounts aren’t tied to educational purposes, they won’t affect financial aid calculations as significantly as accounts like UGMA or UTMA, but any capital gains or dividends will be taxed annually. 

Knowing your options and the specific expenses you plan to save for is an important first step. Once you’ve outlined these factors, your financial advisor can guide you in choosing the best education savings plan that aligns with your overall financial goals. 

Start Strategizing for Your Family’s Education Savings 

Planning for your family's financial future is essential, and a clear strategy is key. With rising education costs and various savings options available, identifying the best approach for your needs is crucial. Our experienced team can guide you in selecting the right savings plan, ensuring your children are well-prepared for their educational journey. 

Ready to take the next step for your family's future? Contact us today to discuss your education savings options and start planning for success. 

James Artale is a financial advisor located at EmVision Capital Advisors, 251 W. Garfield Rd. ​Suite 155 Aurora, OH 44202. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network^®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (330) 954-3770 or at info@emvisioncapital.com.