Saving for post-secondary education involves much more than simply putting money aside for a child's schooling or an adult's higher learning.
It means determining how much individuals can realistically afford to devote to this goal relative to other goals and financial obligations. And it means deciding on the right savings option to match their needs.
Evaluating the options
The way individuals save for their education can affect their tax situation, how much they'll be able to save, and even aspects of their estate planning. As the savings window is relatively short, it's critical to determine the most suitable option in the context of their overall financial plan.
When evaluating the options available for education savings, three broad areas of concern should be taken into account: flexibility, control, and taxation.
- Flexibility - Issues relating to the flexibility required in an education savings solution include the types of securities that may be held in the account, an affordable annual contribution amount, the number of beneficiaries and whether or not these beneficiaries are related.
- Control - The importance of maintaining authority over investment direction, purpose and when these funds may be used by beneficiaries must be considered.
- Taxation - Education savings options have different tax implications that will impact the value of savings within the plan. These tax issues need to be carefully evaluated before a decision is made.
There are many ways to save for education
In the accompanying table, we examine six alternatives within the framework of flexibility, control, and taxation, and outline the major features and benefits of each savings option. Any one of these options, or a combination, may be the right fit for an individual's entegrated financial plan.
