College Savings for Military Families
May 23, 2022
Let’s talk about the expense of a college education. A child born today can anticipate a college bill of at least $500,000 for attending a four-year program – and that’s for in-state tuition. The G.I. Bill affords some relief for Veterans. It can assist in tuition and living costs for their children at college, but what about those with more than one child? Or what if you, the Veteran, already used the post-9/11 G.I. Bill for your own higher education? Then what? Well it’s good to have a plan.
Here are a few things outside of your G.I. benefits to think about.
A 529 plan offers tax savings exclusively for qualified education expenses, not only for college and graduate school, but also for K-12 education programs.
There are two basic types of 529 plans: savings plans and prepaid tuition plans. They are run by the states, so their rules differ, but investment firms such as Vanguard and Fidelity also provide them.
The Uniform Gifts to Minors Act (UGMA) provides a way to transfer financial assets to a minor without the time-consuming and expensive establishment of a formal trust. You can manage it on behalf of a child as their adult custodian until the beneficiary child comes of age, at which point they will assume control of the account. UGMA account-generated earnings are not tax-sheltered, but they are taxed at the minor's lower "kiddie tax" rate, up to a certain amount.
The Uniform Transfers to Minors Act allows a minor to receive gifts without the aid of a guardian or trustee. The minor can avoid tax consequences until they attain legal age for the state. The donor can name a custodian, who has the fiduciary duty to manage and invest the property on behalf of the minor until they become of legal age. The UTMA is an extension of the Uniform Gift to Minors Act (UGMA). It is up to individual states to adopt or amend the UTMA for their residents.
Saving for college for your kids takes discipline and sometimes sacrifice but is achievable with the help of the programs above and some planning. One thing is certain: the cost of higher education will not get any less expensive in the future, so having a good plan in place early can alleviate a lot of stress later.