If you want to contribute to or completely cover your child’s educational expenses, you should consider tax-advantaged investments that can maximize your contributions. By following a few tips, you can prepare for your child’s education through estate planning.
How Much Should You Set Aside for Your Child’s Education?
The average cost for one year of college in the U.S. is $35,551 per student. If your child were to begin attending a four-year college this year, they would need approximately $142,204 for tuition fees and room and board. If you start saving when your child is born, you’d need to set aside around $650 per month to fully fund their college education — not accounting for inflation or other college costs.
If you’re planning to send your child to private school during their childhood and teen years, you may want to begin saving for these expenses as well. Private elementary school costs $11,000 per year on average, while private high school is upwards of $16,000.
Methods of Funding Educational Expenses in Massachusetts
If you begin saving early — and use estate planning tools and investment accounts — you can reduce the amount of cash you must contribute to your child’s education. Below are a few options to help you save for your child’s education through estate planning.
529 Plan
Every parent saving for their child’s education in Massachusetts should take advantage of a 529 Plan. This plan allows you to save for your child’s college expenses tax-free and reap up to $2,000 per year in tax benefits. You can use the funds in the account to pay for any accredited college or for up to $10,000 per year in K–12 private education.
Educational Savings Account
An educational savings account (ESA), also known as an educational IRA, allows you to contribute up to $2,000 post-tax per year to your child’s future college education. The money will grow tax-free, and you will not owe any taxes on it once your child begins using the money.
The stipulations of an ESA are:
- Your child must use the funds before they turn 30.
- The funds can only go toward higher-education costs — not K–12 schooling.
Uniform Transfer to Minors Act (UTMA)
If you or a family member would like to make cash contributions to your child’s future educational expenses, you can do so without facing gift tax consequences until the child turns 18. Your child can hold this money without a guardian or trustee.
Roth IRA
You may decide to withdraw funds from a Roth IRA to pay for your child’s education. Just make sure the account is at least five years old to avoid a penalty. Also, keep in mind that any funds you withdraw that come from your earnings will incur taxes if you have not yet turned 59 and a half.
Work with an Experienced Massachusetts Estate Planning Attorney
A Massachusetts estate planning attorney can help prepare for your child’s educational expenses as part of your larger estate plan. Reach out to Jordan & White, LLC, today at 978-744-2811 for more information about funding your child’s education through estate planning.