College is an important topic of conversation for many families. While there are lots of exciting things to talk about related to college, there are also some very stressful ones. Money is probably the most stressful. Given how common significant student loan debt has become, paying for an education can seem like a very big obstacle.
For many years, getting a college degree seemed like a reliable way to land a great job and get ahead in life. But because plenty of parents are still trying to pay off their own student loan debt, the path no longer seems as clear. Due to this disillusionment, plenty of families get overwhelmed and have no idea where to start as far as saving goes. That’s why only about one-third of low-income and middle-income families are saving at all for college.
If you agree that this topic is stressful but want to figure out how to save for your child’s college education, we want to cover the three best options to make that happen this year:
The state of Ohio offers a 529 college savings plan. This plan can also be referred to as a Qualified Tuition Program (QTP). The way a 529 plan works is you invest after-tax money into it. Then when your child reaches college, money can be withdrawn tax-free for qualified expenses like books or tuition. The tax-free status includes gains made by the plan. One of the great things about this plan is you can contribute quite a bit to it each year.
When most people think of a Roth IRA, they think of it as a retirement account with a favorable tax status. What isn’t as well known is that this account can be used for college as well. As long as funds have been in the account for at least five years, they can be withdrawn for qualified college expenses without triggering any tax penalties. The biggest appeal of this account is the flexibility to pay for both college and retirement expenses.
This option has a lot of similarities to a 529 plan. That includes being viewed as your asset, so it won’t hurt your child’s odds of receiving financial aid. But as you probably guessed, there are some important differences as well.
The biggest difference this option provides is it’s not limited to college expenses. Instead, it can be used for any educational expenses ranging from kindergarten through 12th grade and beyond. A common example is private school tuition. The main limitation is how much you can contribute each year.
If you’re interested in speaking with a tax planning professional about the best ways to start saving for your child’s college education, get a free consultation by calling Donohoo Accounting at 513-528-3982.
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