College Planning

There are many different ways to save for your children’s or grandchildren’s college educations, but no matter how you plan to do it, we, at Lions Bridge Financial, advise you to start as soon as possible.

Three of the most popular ways to save: 529 plans; Coverdell Education Savings Accounts (ESA); and State Pre-Paid Tuition Plans.

Contact Lions Bridge Financial to discuss the options (757) 599-9111 or email: Team@LionsBridgeFinancial.com.

529 College Savings Plans

A valuable tool for saving, removing taxable assets from your estate and controlling your child’s education funds beyond age of majority, the 529 established over 10 years ago has been a welcome savings vehicle.

Named for Section 529 of the Internal Revenue Service Code, but they are created by states to let parents pre-pay college costs at an in-state university. These plans use a variety of investments and are regulated like municipal securities.
You can withdraw money from these plans to pay for qualified education expenses, which include tuition, dormitory fees, books and supplies. If you pay into one of these plans, you can choose the beneficiary, and benefits can be transferred between one family member and another.
In most states, you can withdraw the money if they aren’t used for educational expenses, but that money is subject to tax and penalty.
Depending on the state you live in, we will evaluate the plan best-suited for your situation. Virginia, where we are based, offers three plans: 1) Virginia Education Savings Trust (VEST); 2) an advisor-sold plan and 3) Virginia Prepaid Education Program (VPEP).

Virginia Education Savings Trust (VEST)

VEST can be purchased directly through the state and uses various funds.

The Coverdell Education Savings Account (ESA)

Named after the late Georgia Sen. Paul Coverdell, it was known as an education IRA, and, in fact, it is much like an IRA that grows tax-deferred. But, like the 529, the withdrawals are tax-free if you use the money for education. A Coverdell is similar to a 529 in other ways, but there are a few differences:

A Coverdell allows you to choose your own investments while 529s have more-limited choices.

You can make tax-free withdrawals from a Coverdell to pay for elementary and high school expenses while 529s are designed to be used only for higher education
expenses.

You can't contribute nearly as much to a Coverdell as you can to a 529 account. The maximum annual contribution to a Coverdell is $2,000. Also, there is an income ceiling on the Coverdell. If you're married and filing jointly, you can't make more than $220,000. For singles, the limit is $95,000.

Because the 529 plans have fewer restrictions, they are much more popular, with over $50 billion currently invested in them.

State Sponsored Prepaid Tuition Plans

These prepaid plans are meant to rise in value at approximately the same rate as state university tuition. Here's how they work: You make payments based on your child's age, and the state invests the money. The money and earnings grow tax-deferred at the federal level, although once again, state laws vary as to whether the earnings are taxed. When it comes time to go to college, the state covers your tuition bill up to the average tuition price at a state public college.
There are some important limitations:

While you are not locked into going to a state school, if your son or daughter goes to a private college, you'll have to foot the bill for the difference.

You can invest only until your child reaches the ninth grade, but some plans allow you to switch to a 529 Plan.

How to Invest Your College Dollars

Once you've decided which plan (or plans) you want to use, you'll need to decide how to invest the money you're setting aside to pay for college. Here are some general guidelines (please consult with your financial advisor before investing):
Up to age 13: You have time to ride out market downturns, so you should go for aggressive growth. But watch the market and don't stake your child's future to a "hot" sector that could fall through the floor in a few years. If putting 100 percent in stocks makes you nervous, put half of the money in bonds.
Ages 14 - 17: Fourteen is a good age to reassess what you're doing with your college funds. If you've been extremely aggressive, it's time to switch to some safer investments. Buy more bonds and fewer stocks.
Age 18: Play it safe from here on, with most of the money in fixed-income investments: money-market accounts, certificates of deposit, short-term bonds, or a combination of the three.

Contact Lions Bridge Financial to discuss the options (757) 599-9111 or email: Team@LionsBridgeFinancial.com.

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