Planning for Your Child’s Education

Nick Famularo

As summer comes to close and kids go back to school, many families have begun to get ready for the new school year. Maybe your child is headed to college this year or maybe your little one is starting kindergarten. Regardless of what phase your child (or grandchild) is in, the beginning of a new school year is always an exciting time. There are many things to consider when preparing for the new year and one of the major questions clients ask us is just how they are going to fund their child’s education.

5 Questions to Consider

On a macro level, there are a variety of things to consider when thinking about your child’s education funding. Some of the main questions to ask yourself as a parent or grandparent are these:

1.) How much of your child or grandchild’s education do you want to fund?

Some families want to fund 100% of the student’s education, while some may expect the student to fund a portion. Discussing as a family what you want for your student will be the major foundation to your education plan.


2.) How old is the student currently?

Do you have time on your side to contribute to tax advantaged accounts and reap the full benefits or is the student currently in college and have an expense need this year? Tax-advantage accounts work best when there is time for the dollars to grow; whereas, a well thought out gifting strategy would be valuable for expenses coming up in the next year or two.


3.) What type of account or accounts do you want to use?

Do you want the funds to be used strictly for education or do you want the account to have flexibility on what the dollars can be spent on?


4.) Will the student receive financial aid?

Do you want to factor in financial aid or make any assumptions around scholarship eligibility?


5.) Will other family members be contributing?

If so, how much? Education accounts are great but depending on your family’s goal, overfunding them may not be the best plan.


4 Ways to Save

There are a variety of ways to save for and fund education costs:

1.) 529 Account

Dollars can be contributed by your family (or friends) and will grow tax deferred over time. Contributions and earnings can be withdrawn tax free if used for qualifying education expenses. Most 529 plans have a lifetime contribution limit of $350,000 and no annual limit, however it is important to understand the most tax efficient way to sequence your contributions.


2.) Coverdell ESA 

Similar to a 529 account but can only add $2,000k per student annually. Typically, Coverdell accounts are reserved for families earning less than $220,000 per year (2023 limits)


3.) 529 Pre-Paid Tuition Plan 

Less popular and currently only allowed by 11 states, pre-paid plans allow you to purchase tuition credits at a discount. There are a variety of elements to factor in when deciding if a pre-paid tuition plan is best for your student.


4.) Custodial Account 

Custodial accounts (such as an UTMA or UGMA account) can be a good way to save for your child’s future. There are no tax advantages for using the dollars for education, however there is flexibility in the account and dollars can be used for expenses other than education.


A well thought out education will weigh tax benefits and flexibility. Always contact your tax person and financial advisor in deciding what the best plan for your family is. Reach out to the Abbey Street team to learn more!



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About The Author

Nick Famularo

Nick Famularo has a bachelor’s degree from the University of Minnesota in economics and holds a Certified Financial Planner™ designation. For over 7 years Nick has been helping clients achieve their financial goals through his expertise and knowledge.

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