The news reports that college tuition is increasing yet again this year. Your friends talk about how they started saving for college the day they found out they were having a baby. But, you’re still wondering… How exactly, do I start planning for my child’s college education?
Don’t worry, there’s still time to fund a college education, but it’s important to start now. Depending on when your child will graduate high school, there are different options available to help you meet your goals.
Once you’ve got an idea how much you might need to put away, here are some college funding plans you may consider.
529 College Savings Plan
Earnings grow tax-deferred, and if withdrawn for qualified higher education expenses, are free from federal income tax.1
Coverdell Education Savings Account
Earnings grow tax-deferred, can be used for qualified elementary, secondary and post-secondary school expenses, and distributions may be exempt from federal income tax.
Investing in mutual funds provides an opportunity for greater growth potential than fixed-interest products, and withdrawals are taxed as ordinary income to the extent of the gain. Along with greater growth potential, mutual funds have a higher degree of risk.
While contributions are not tax-deductible, earnings grow tax-deferred and qualified distributions are tax-free3; earnings used for education are not subject to the 10 percent IRS penalty for withdrawals prior to age 59½.
Permanent Life Insurance4,5
Cash values grow tax-deferred, and can be withdrawn for education without impacting eligibility for financial aid. In case you die, proceeds from the policy are paid directly to your beneficiaries, who may use them toward education costs.
A Farm Bureau agent is your best resource to jump start or supplement your current college funding strategy. Talk to a local agent today.
1 Neither the company nor its agents give tax, accounting or legal advice. Please consult your professional adviser in these areas.