When planning for college expenses it's important to choose a method that's right for you. However, with so many ways to set money aside for college, how can you be sure you're choosing the right one? The following comparison can help you weigh some options.
No Stock Market Risk
Life Insurance Benefit
Use of Money not Limited
1If invested in stock
Traditional bank savings accounts are a safe and sure way to save for college or anything else – as long as you don't tap the account for other expenses. Interest rates on traditional savings accounts tend to be very low so, although these accounts are relatively safe, it can be hard to build wealth beyond what you're putting into the account. Assets grown through traditional bank savings accounts are taxable.
Coverdell ESA savings accounts allow you to save up to $2,000 a year per child, tax-free. The money can be used to help fund a college education, as well as other K‑12 education expenses. All contributions to ESA accounts must be made before the beneficiary reaches age 18. The funds must be used by the time the beneficiary is 30 years old. Funds saved through an ESA don't have to be used for college.
529 Plans are tax-free college savings plans. Although they’re tax-free, account holders can incur penalties upon withdrawing funds, or upon claiming education-related tax credits, such as the Hope, American Opportunity of Lifetime Learning credit. When considering a 529 plan, it's important to talk with a tax professional to ensure that you'll get the maximum tax benefit. If you choose to invest your 529 Plan in stock, you may have greater growth potential, but also greater risk, depending on the fluctuations of the stock market.
Stocks and mutual funds can be a more aggressive way to save for college, but offer no guaranteed returns. Stocks and mutual funds can increase in value at a higher rate, resulting in a higher payout, but, again, there's risk. Additionally, investing in stocks and mutual funds require a more in-depth knowledge of financial markets, as well as keeping up with market fluctuations.
Unlike other options, which can vary due to fluctuating economic climates, the Gerber Life College Plan, grows over time, without market risk. This makes it a smart way for families to put money aside for college, if they want the security of knowing how much money they will have when it’s time for college. The Gerber Life College Plan is an individual endowment policy that matures in 10 to 20 years and provides adult life insurance protection.
When your policy reaches maturity, you have the flexibility to use the money toward anything you want, not just college expenses. So if your child or grandchild decides not to go to college or a technical school, he or she could use the money to start a business, or as a down payment on a home, or for whatever his or her future may hold. Should you, as the insured adult, die before the policy matures, your child, as the beneficiary, would receive the payout.
To decide amongst the many ways to help pay for college, think about what's most important to you. Are you comfortable with risk or do you want an amount of money that is guaranteed? Do you want tax advantages or is that not a concern? Would you rather have flexibility to use the accumulated money for anything, or be limited to using it for college expenses only?
Whatever you decide, remember: The sooner you start to prepare, the better.