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Arizona Federal’s investment representatives can help you determine which type of account will best suit your needs.
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Start Saving Smart for College Plans
by John Sneddon, CFP
Do you intend to help your child pay for a college education? If so, the sooner you start investing, the better the college account will be when your child is ready for college.
Income taxes can take a big bite out of your investment earnings, so it pays to investigate options that may help you limit, or even sidestep, some taxes. There are many ways to do this as you start saving for your child’s education:
- A 529 college savings plan allows tax-free growth. Contributions aren’t deductible up front but, if qualified, may be distributed free of federal taxes.
- Another way to save on taxes is to place assets in your child’s name through an UGMA (Uniform Gifts to Minors Act) account. Children under the age of 14 can receive $800 per year of unearned income, such as interest or dividends, on a tax-free basis.
- A third plan, the Coverdell Education Savings Account, allows contributions of up to $2,000 per year, per child. Your contributions are not tax-deductible, but the income earned is tax-free upon withdrawal.
When choosing a savings option, determine which investments could put your savings objective within reach.
Obviously, your child’s age affects the amount of time you have to invest, and is an important factor in deciding the type of investment you use.
You may want to choose investments with the greatest growth potential when your child is young, then move to more conservative investments as your child nears college age. Mutual funds offer a wide selection of investment strategies and offer diversification, professional management, convenience and easy access to your money.
Also, decide how much control you want to maintain over your child’s education savings. Assets in a 529 college savings plan remain under your control, so you decide how the money will be spent. Money invested in a Coverdell Education Savings account or UGMA account becomes your child’s when he or she reaches the age of majority.
Arizona Federal’s investment representatives* can help you determine which type of account will best suit your needs. To contact a representative, call (602) 683-1000 or 1-800-523-4603.
Click for more on Arizona Federal's investment services »
* Not NCUA insured- not insured by the credit union- may lose value.
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