KANSAS CITY, Mo. — It's summer break for students, but that doesn't mean saving for college gets a pause.
A Kansas City-area financial advisor said savings should start early, but where exactly that money should be saved depends on the individual student.
"I think for the generations that are coming behind, there are so many other options," said Stacia Williams, founder and wealth advisor at Williams Financial Group.
She also said students should be sure they want to use those savings on college tuition.
"Before you start paying for college, start asking your children: What do you want to do when you get older?" Williams said. "And make sure that you hear them, and make sure that you cater or build a financial plan for what their goals are."
To keep it simple, she boiled it down to three types of savings plans, starting with the popular 529 savings plan.
Earnings in a 529 plan grow tax-deferred, meaning you don’t pay taxes on the investment gains as they accumulate.
Withdrawals for qualified education expenses are federally tax-free, and in many states, state tax-free as well. In Kansas and Missouri, you can also deduct thousands from your taxes for contributing to it.
Its major limitation is that the money is fairly inflexible, as it can only be used for education expenses. So, if your grad decides to skip college after years of saving, there may be penalties for non-education withdrawals.
An important note: 529 plans can often be used for trade school tuition as well.
"I would say start as early as possible and be consistent when it comes to contributing to those college funds," Williams said.
She also mentioned two other options for putting away college money.
Using a cash value life insurance policy to save money is more flexible than a 529 when it comes to what you want to use the money for, Williams said.
Policyholders can borrow against the cash value, withdraw funds or use it as collateral. However, any outstanding loans or withdrawals will reduce the death benefit.
Withdrawals may not incur taxes if the policy has been in force long enough and is structured properly, but loans are generally repaid with interest.
Upfront costs can be high, and it takes much longer to save using it, but the money can be used for more than tuition.
Finally, Williams mentioned using brokerage accounts.
Brokerage accounts invested in different stocks and bonds can grow significantly, depending on how much risk you're willing to accept.
The greater reward comes with greater risk. Market fluctuations can impact the value of the investment, and you may have to pay capital gains taxes.
Putting money into a brokerage account doesn't tie it to education at all — the money can be used for anything.
Williams said if all this feels like a challenge to understand, don't hesitate to reach out to a finance professional like her to have them break it down for you.
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KSHB 41 reporter Grant Stephens covers stories involving downtown Kansas City, Missouri, up to North Kansas City. Share your story idea with Grant.
