Childhood, as we all know, is a time to be cherished. Care-free afternoons at the park and the pool. Playing with friends. Celebrating birthdays.
It's also a time of learning, as in learning to walk, learning the alphabet and learning to ride a bike. And before long, those early and simpler lessons give way to the more complex, as in solving mathematical equations, conducting science experiments and writing compositions.
As much as we may not want to admit it, the innocence of our children's youth passes much too quickly, and as parents it's never too soon for us to help them prepare for their future - especially when it comes to saving for their education. A few of your savings options are introduced here:
? UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act)
A custodial account that allows you to transfer or gift assets to a minor without setting up a trust. The custodian can make withdrawals from the account for any purpose, and isn't limited in using the funds. Friends and family may contribute (up to $13,000 a person each year free of gift tax) to the child's account.
? Coverdell Education Savings Account
Coverdell ESAs allow you to invest $2,000 per year, per child up to age 18, to save for educational expenses. Other family members can set up Coverdell ESAs in your child's name. The funds may be used to cover costs associated with attending elementary or secondary school, be it public, private or religious. Covered costs include uniforms, computers and transportation.
? Section 529 College Savings Plan
There are no income restrictions on the account owner, and you - and anyone else - may contribute regularly in any amount you choose until a maximum balance per beneficiary is reached. With the annual $13,000 gift tax exclusion (or $26,000 in case of a married couple) relatives or friends can donate substantial amounts to your 529 account without incurring and gift tax. Earnings and qualified withdrawals on your accounts are federal income tax-deferred, enabling your money to potentially increase faster than a comparable taxable account. State and local taxes may apply.
Please remember that the investments inside of these savings options involve risk, including the possible loss of principal.
Investors should consider the investment objectives, risks, charges and expenses associated with 529 plans carefully before investing. More information about 529 plans is available in the official statement, which should be read carefully before investing.
The availability of tax or other benefits may be conditioned on meeting certain requirements.
Sam Aldrich of Bellingham is a financial advisor at Waddell & Reed and the father of a 21/2-year-old son, Evan. He can be reached at 360-734-4728, ext. 131.