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Be Wise With Money

College Prep: How to Plan Ahead for Higher Education

College Prep

Ever dreamed you’re in a class you’ve never attended, about to take a test? That’s how some parents feel about saving for college. Unprepared. Slightly terrified.

Whether your child (or grandchild) is still in diapers, starting high school or somewhere in between, you’re probably wondering whether it’s possible to help kids pay for college and still set aside enough for your own retirement.

After all, four years of tuition and fees cost on average nearly $40,000 at a public university today and about $130,000 at a private college, according to the College Board. In 18 years, those totals could exceed $92,000 for a public university and $312,000 for a private college education. Add in costs for housing, food, books, transportation and other expenses, and the total climbs even higher.

Study-up on different college savings methods

Sure, parents don’t have to foot the entire bill; it’s a personal choice. But if you want to help, how you save matters. And, the assortment of college savings options can confound anyone. “Unfortunately, there’s not a one-size-fits-all approach,” says Cathleen Wenger, a Thrivent Financial representative and Certified College Planning Specialist® in Austin, Texas.

The best way to save for your family may depend on:

• How much time you have before your child starts.

• What you can afford to put away each month.

• Other financial goals you have.

Since incorporating Thrivent’s uPLAN College Planning Program into her practice in 2012, Wenger has helped many families balance competing needs during the high school and college years. Many parents end up redirecting retirement savings toward their kids’ college tuition, a potentially costly mistake.

“We aren’t discouraging parents from helping their kids. Just be aware of the impact this gift can have on retirement,” she says. 

Our handy college savings comparison chart can help you understand more about some common savings choices. Wenger encourages a flexible approach, creating savings solutions with multiple uses if the child opts out of college or your needs change over time.

The Savings ToolWhat Is It?How Does It Work?Can It Impact Financial Aid?


529 Plans1


A tax-advantaged investment plan specifically for college savers.

Families can enroll in any state’s 529 plan, no matter where they live.

Money may be withdrawn tax-free for qualified education expenses (tuition, books, etc.).

Yes, when the combined value of parent assets – including education savings account balances owned by the parent, student and dependent siblings – exceeds the allowed amount of protected family assets on the FAFSA form.

No, if the 529 plan is owned by a nonhousehold member (grandparent, aunt, etc.). However, withdrawals from these third-party plans must be reported on the following year’s financial aid application and may impact future aid.

Coverdell Education Savings Accounts (ESAs)

Investment accounts that may be used for either qualified K-12 education or college expenses. 

Similar to a 529 plan. If one child doesn’t use the money in his or her Coverdell ESA, it can be transferred to another child. Coverdell ESAs can also be rolled into 529 Plans.

The financial aid considerations from 529 plans apply to Coverdell ESAs, as well.

Permanent Life Insurance

Provides a death benefit to the insured. 

Generally accumulates cash value over time, which can be borrowed against (called a loan) or withdrawn and used for college expenses.2

Cash value accumulates tax-deferred inside the insurance contract.

If you take out a loan and pay it back, the money is tax-free and won’t affect financial aid. However, a loan will decrease the death benefit payout available until the loan is repaid.

You can use the cash value for other things besides education.

Under current guidelines, life insurance cash value is not an asset when determining federal financial aid, unless the life insurance contract is surrendered or canceled.

If fully or partially surrendered, the distribution of the cash value will be treated as income on the following year’s financial aid application and may impact future aid.

Individual Retirement Accounts (IRA) – Traditional or Roth

While the primary purpose of an Individual Retirement Account (IRA) is to save for retirement, funds may be taken out early without penalty for qualified higher education expenses.

Contributions to traditional IRAs also may provide a tax deduction.

Offers tax-deferred growth potential in both traditional and Roth IRAs.

Roth contributions may be withdrawn tax-free at any time for any purpose, including college.

While not subject to a 10% early distribution penalty, withdrawals from traditional IRAs or Roth IRA gains that are used for education expenses are taxable as ordinary income.

No. Money inside an IRA does not affect financial aid eligibility.

However, withdrawals must be reported as either income or untaxed income on the following year’s financial aid application.

Uniform Gift to Minors or Transfer to Minors Account (UGMA or UTMA)

A trust account, controlled by a custodian (usually a parent), that is to be used for the benefit of the minor child.

You can contribute as much as you want each year without limit.

Money can be used for anything that benefits the named beneficiary, including education costs, buying a car, etc.

Yes, money in the account is considered an asset of the child, which reduces eligibility for federal need-based aid by 20% of the value of the account.



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