Financial Planning 101: Plan Early for College Expenses with Thrivent

Marshfield, WI (OnFocus) Financial Professional Nate Heeg of Thrivent Financial knows firsthand how daunting it can be for parents to figure out how to help their child pay for college.

With five boys at home from 1st to 12th grade, Heeg is entering the world of SAT scores, college tours, and FAFSA applications. With costs for a state university averaging $16-17 thousand annually, he thinks planning early should be on everyone’s checklist.

“I think so many people are scared to even start college savings because they think it’s already too late,” he said. “I think even if you had five years, you can still pull something off. And it’s better than nothing.”

Heeg can walk families through different savings and investing plans to choose one that’s right for them.

One way is to open a UTMA account, which anybody can contribute to without limit, with annual gift-tax exclusion applied. However, a drawback to this method is that this income will count against a student who’s applying for federal student aid through FAFSA since the account is in the child’s name.

Families can also contribute to a state-driven 529 plan for college, which is specific to each state and can be used tax-free, subject to limitations. Parents can own this account and name their child as a beneficiary. A 529 account is factored by the FAFSA as parental assets and will have minimal impact on financial aid.

A Coverdell ESA plan is similar to a 529 but can be used for private K-12 tuition, and its contributions are topped at $2,000 a year until the beneficiary turns 18. This type of plan is for parents with a gross income of less than $110,000 ($220,000 for joint filings).

Coverdell ESA funds must be used before the beneficiary turns 30, but a younger family member can become the beneficiary, making it an ideal option for families with multiple children.

Juvenile life insurance is also a great option to both save for college and create insurability for the child, Heeg said. The benefit of this fund is that it’s not restricted only to college expenses, but can be a tremendous asset toward that purpose if built correctly. Heeg can walk parents through choosing the right policy for their unique situation.

Ultimately any investment that starts early benefits from years of growth no matter how small the contribution. The biggest mistake is to wait too long.

“What you need is time for these things to have potential to grow,” said Heeg. “With multiple years to grow an account, you can really have some impact for your child’s future.”

When the time to head off to college gets closer (faster than you think), Heeg recommends staying on top of deadlines. High schoolers should start getting serious about their choice of college their junior year and begin applying once they start their senior year — the later they wait, the fewer choices they will have. Once October 1 rolls around, the FAFSA application should be filled out early to receive better results.

To learn more about any of these methods of saving for college, contact Nate Heeg at 715-898-2561 or [email protected].