For years, college costs have risen at rates higher than inflation. The average annual cost of a four-year private college is more than $30,000 for tuition, fees, room and board. At the most selective educational institutions, annual costs may even be considerably higher. Your family's education funding needs are unique. So you'll want to talk with a UBS Financial Advisor to discuss the options that are most appropriate for you. Some general points to consider: Tax Advantages1
Many people choose 529 College Savings Plans and Coverdell Education Savings Accounts because they offer opportunities for tax-deferred growth and the potential for federal tax-free distributions. You may also contribute tax-free gifts to each of these plans in the same year for the same beneficiary gift tax free, provided you don't exceed the annual gift tax exclusion.
Time Horizon
If your child is only a few years from college, you may want to concentrate your savings in an account that allows the largest contributions in the shortest time. These include:
529 College Savings Plans. Custodial Accounts under the Uniform Gift to Minors Act (UGMA). Custodial Accounts under the Uniform Transfer to Minors Act (UTMA).
If your child is more than a few years from attending college, your options are wider. Besides the options above, you may also consider: Financial Aid
Generally speaking, any investments or assets owned by you or your child are likely to reduce your child's chances of receiving financial aid, or may decrease the amount he or she receives. However it is difficult to estimate the reduction. Public and private institutions offering aid typically revise their treatment of assets over the years.
Under the current federal aid formula, parents are expected to contribute a much smaller percentage of their assets to college costs each year than the percentage expected from the student's income. For this reason, you may want to keep most of your education savings in your name, not your child's.
Ownership
When considering the impact of savings plans on financial aid, it's important to understand how the plans differ in terms of ownership. You are considered the owner of assets in 529 College Savings Plans, Coverdell Education Savings Accounts, and Prepaid Tuition Plans. Your child is considered the owner of assets for financial aid purposes with UGMA/UTMAs, and trust accounts. Benefits paid from a Prepaid Tuition Plan have a dollar-for-dollar offset to financial aid. For instance, $1,000 distributed from a Prepaid Tuition Plan will offset $1,000 in financial aid.
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