College and Future Funding Strategies
Strategic Tax-Free College Funding
Where is the best place to save for your child's college education? College tuition and student loan payback can be a major financial burden that can become overwhelming and has been shown to significantly impact one's mental health down the line. This is especially of concern if you don't end up achieving the employment or success you anticipated would allow you to pay those loans back within a reasonable amount of time.
There are a few status quo options for college savings including:
- High Yield Savings Account
- Education Savings Account (ESA)
- Mutual Funds
- 529 College Savings Plan
- Regular Savings Account
The disadvantages to these strategies are tax liability, strict rules for access, exposure to market risk and lower rates of return.
Another option for saving for college is a tax-free funding account. This particular type of account typically yields an above average return on a longer-term investment and is not exposed to market risk. In addition, this type of account has flexible access and contribution limits, there are no penalties for early withdrawals and the funds do not have to be used specifically for college funding.
It is a strategy that has been around for centuries and has been utilized to create wealth by people like John D. Rockefeller, Walt Disney, Ray Kroc and many other successful individuals. This best kept secret that diversifies one's assets is a tax-free savings bucket of cash these individuals and others have relied on in order to create savings for their own children, keep their businesses afloat and continue to experience growth and success during tough times. When properly structured and max funded, it can provide a significant, tax-free income stream that can't be outlived.
Other Future Funding Needs
Life is expensive! There are so many unavoidable situations we find ourselves throughout our lives that require us to find a way to pay for them. If you're a plan-ahead kind of person, you put any extra money left over, no matter how small it may be, after paying the bills into your rainy-day fund in order to be prepared any unexpected expenses.
A standard savings accounts is convenient for immediate emergency funding, but isn't the wisest place to save for the long haul. With a next to 0% interest rate and factoring in inflation, you are actually losing money keeping excess funds here long term. A tax-free savings account has the potential to earn an above average rate of return when used to invest your excess funds.
Here are just a few unexpected financial burdens that arise that can be paid for with flexible access and tax-free withdrawals from this type of savings account:
- Down Payment for a New Home
- Starting or Maintaining a Business
- Buying a New (or Used) Car
- Home Improvements
- Medical Bills
- Tax Liabilities
- Supplemental Retirement Income
Many tax-free savings accounts have historically experienced a higher than average rate of return. Although it is optimal to start these plans early on, they can still be a wise investment strategy in the later years with larger investment contributions. It is important to consult with a financial professional as to whether or not it will make sense for you.
Although there is no specific age requirement for this type of tax-free savings plan, not everyone will qualify for this type of account. There a several factors that are taken into consideration. Allow us to work with you to see if you qualify.