College Savings Plans Options and Advice

The recipient of a bachelor's degree in business economics from the University of California at Santa Barbara, Darrach Bourke leverages over 17 years of experience to serve as a financial advisor with Emerson Equity. Prior to joining Emerson, Darrach Bourke was affiliated with Summit Brokerage Services, where she assisted family clients with education funding plans, among other services.

According to the College Board, the average United States postsecondary educational institution charges $45,370 annually in tuition, room, and board, which represents a 12 percent increase over the past five years. Consequently, it's never too early to begin putting aside money for your child's college fund. However, picking the right type of savings account is crucial as students with a large sum of savings in their name could be taxed heavily when applying for financial aid. 

One of the most efficient ways to invest in your child's future is to establish a 529 savings plan, which works in a similar fashion to an individual retirement account and 401(k) plan. Investment gains on those accounts are tax-deferred and completely tax-free once the funds are used to cover tuition expenses. However, if the money isn't used on qualified education expenses, it is subject to income tax as well as a 10 percent earnings penalty. Another option is a prepaid tuition plan, which allows parents to pay for tuition in advance at an already-established price without incurring future increases, as long as their child attends an in-state school. Other options include UGMA, UTMA, and Roth IRA accounts.