So far in our monthly College Savings series, we’ve talked about the pros and cons of a 529 plan and reviewed Coverdell, UTMA and UGMA Accounts, and Traditional Savings, CDs and Bonds. This month Cory covers the pros and cons of investments and brokerage, which is using a third party (like ECCU Wealth Management) to manage your funds in a specific plan, respectively.
- Investments can be easy to access. It depends on the type of brokered account, so if easy accessibility is important to you, you’ll want to ask about your options.
- Many investment choices. You like options? You’ve got lots of them! Working with a broker can help you navigate the best choice(s) for your needs.
- Historically higher returns. Choosing a high risk investment like stocks and mutual funds can yield high returns.
- Can be used for any purpose, not just school. Depending on the type of college savings account you choose, funds are not limited to college education expenses. Withdrawals can be made when the child is still a minor to help pay for expenses that benefit them, which certainly includes primary and secondary education.
Things to Consider:
- No tax deferral. Thus, less compounding.
- Less predictable in the short-run, can lose value. Your return is not guaranteed. The younger your child is, the longer you can ride it out for maximum earning potential. The older your child gets, some might argue that it might be more beneficial to switch to a lower-risk investment to reduce potential loss.On the other hand, as your child nears school age, staying aggressive could still be more beneficial and likely have a higher rate of return in more years than not. Bottom line: it depends on your risk tolerance.
- Balances may reduce the amount of federal student aid your child qualifies for. Any investment balances – whether held in your name or your child’s name – can result in qualifying for less financial aid. There are tradeoffs to each scenario, so an analysis can help determine which would be more beneficial to your situation.
Whether you have a lump sum to invest or want to add to a college savings plan monthly, ECCU Wealth Management can help weigh your options and explore a variety of savings options. Meetings with me are always free for ECCU members…schedule one today or shoot me an email with your questions.
Our last post will cover the pros and cons of UPromise (by SallieMae). Be sure to sign up for our weekly blog updates so you don’t miss it!