There are several important components you want covered in your broad financial plans and funding your child’s college education is a common focus for many people. Tuition costs have skyrocketed in the US in the last two decades, and those looking to save for future college expenses have had to change their approach in a few major ways.

At Jacobsen Capital Advisors, we’re here to help with numerous areas of financial planning, from investment management through tax planning, social security, retirement planning and numerous other areas. We’ve assisted many clients with robust savings programs for future college expenses for their children. If funding an upcoming college education is in your future, we can help you build a savings plan that will put you on track to reach this goal. Here are some basic concepts to consider when saving for college tuition.

Saving is Better than Borrowing

Increases in the price of college tuition have also led to major rises in student loan debt. This highlights why it’s important for parents to begin the savings process early in their financial planning stages. Rather than leaving your kids to fend for themselves along the way, you can help eliminate a major portion of this debt by saving and investing in tax-advantaged accounts.

Use Tax-Advantaged Accounts to Your Benefit

One important consideration when it comes to college tuition savings is that if these plans are invested well, it is often possible for your kids to avoid paying taxes on their investment returns. This is because of the tax benefits associated with 529 plans (plans that offer tax-free growth and several other benefits in this area) as well as other investment vehicles that can help to minimize taxes for future college costs.

One little known benefit of contributing to a 529 plan is that if you are a Utah resident, you can receive a tax credit for your contributions. Tax credits are more preferrable to tax deductions as a tax credit directly off-sets, dollar-for-dollar, any taxes you owe. For the tax year 2020, a married couple could receive a tax credit on 5% on their contribution up to a maximum contribution of $4,080 per account. Parents can still contribute more that $4,080 to a 529 account each year, however, any contribution over that amount will not be eligible for a tax credit. Thus, the maximum tax credit parents can receive for a 529 contribution is $204 ($4,080 X 0.05).

Balancing College Tuition and Your Retirement

For many parents, funding a child’s college tuition and your own personal retirement are two very common areas covered during financial planning — and it’s important to balance both of these goals when they are competing for attention. Many parents have a natural inclination to place funding their child’s education over ensuring that their own retirement is first secured. If both goals are unable to be fully funded, we can work together to come up with a plan that both allows the parent to help their child through college and ensure that their retirement savings is on track.  

If you plan to assist your children with tuition, however, keep in mind that if you don’t start investing early enough in tax-advantaged accounts like 529 plans, you might not be able to afford to do so. It may be necessary for your kids to save for college tuition themselves while you make sure everything is in place in terms of your own retirement. For more guidance on planning for future college tuition for your children as part of your financial planning, or to learn about any of our investment management or retirement planning services, speak to the staff at Jacobsen Capital Advisors today.