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Education Planning Basics

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Education Planning is an area of financial planning that deserves real attention if you or your family member(s) anticipate improving your (formal) education in the future. 

Due to the rising costs and increases above the level of inflation, it is important that you start early and you have a real plan for success in place prior to establishing your educational funding strategy!

Do you know the steps that you need to take to reach the educational goals for you and your family?

Have you even considered the need for educational planning?  Do you know the proper way to implement a plan that will work for you or your family?

In the paragraphs that follow we will address how you can best utilize “education planning” in a manner that serves your and your family’s long-term interests!

When Should You Start?

If your goal is to reach your educational goals you must have a funding plan in place.

The earlier that you start in your life stage—the more effective you will normally be in reaching your targeted amount that is needed for your or your kids educational costs.

Types of Funding Vehicles

There are a number of ways that you can save for your and your family's educational goals.

Coverdell Education Account

Custodial Accounts

Home Equity/Refinance


529 College savings Plans

Prepaid Tuition Plans

Other ways to pay for higher education expenses include the following:

Employer Provided Assistance

Home Equity/Refinance

Military Assistance

Private Loan


Non-Profit Loan

Your Current income

Also consider scholarships and other means of paying for your or your kids education! 

Be sure to inspire and motivate your kids to achieve at their highest level—both academically and athletically—as scholarships are available in many forms!

The key to funding your and your family's educational goals is to start as early as possible, invest consistently and consider increasing the amount if you receive a future raise or other financial windfall.

You must use the "time value of money" to your and your family's best advantage, and by starting early you can do just that!

What Funding Method Should I Choose?

The funding method that is appropriate for you and your family depends on your current financial situation and your expected educational expenses.

If you have discretionary income at the right level
—you can utilize a Coverdell Account—which gives you more control (you direct your investment choices) than a 529 plan or the others mentioned above—with the possible exception of an IRA.

If you have all areas of your finances addressed appropriately, you can possibly maximize your utilization of an IRA (ROTH) to save for your or your kids educational costs (assumes your retirement funding has been properly addressed by other funding means).

If you expect your funding level to be very high, you may need to use a combination of approaches. 

A great site for calculating your funding needs and/or forecasting your educational expenses is  FinAid.orgThe Smart Student Guide to Financial Aid.

In short, your unique and individual family situation and what you desire in the future education wise, for you and/or your family—along with life's uncertainties that you will face—will determine the approach that is best for you and your family.

If you did not put an effective savings plan in place or you had a major life emergency you might have to use a Home Equity/Refinance, Military Assistance, Private Loan, PLUS Loan, Non-Profit Loan, Your Current Income—or other creative means to attain the educational goals that you desire. 

Also, depending on your income there are a number of Federal and possibly State  Financial Aid and Scholarships that may be available that you or your kids may be eligible for.

With many college graduates now entering the workforce with astronomical student loan debt that prevents them from achieving the success that they desire and deserve now commonplace, you want to do all that you can to avoid that unfortunate scenario.

College Savings & Eligibility for Financial Aid—Tips


1)      Assess your risk level and know your investment philosophy.  Many consumers consider low risk investments as they are easier and less stressful to manage, however they may not give you the 8% or so return that you will need to fund rising tuition costs.

A common investment mix that many consumers use consists of:

70% High Risk—30% Low Risk from age 1 to age 6

60% High Risk—40% Low Risk from age 7 to age 10

30% High Risk—70% Low Risk from age 11 to age 16

It is also wise to transfer "high risk investments" to "low risk investments" by December 31st of your child's junior year so you won't have to count the "capital gains" as income in the year that you apply for financial aid.

529 and other tax advantaged plans usually do not have a capital gains issue and the fund manager normally shifts funds to more conservative investments—as the child ages. 

With a Coverdell Account and a ROTH IRA you would have more control over your investment choices—and they have tax advantages as well.

Always realize that you can reduce you credit and financial risk by "choosing an advisor the right way" and "investing in the right manner."  

Although risk will always remain a part of the human equationthere are things that you can do to reduce your risk—thereby increasing—your and your family's opportunity for future success!

Also, consider continuing investing while your child attends college to reduce or eliminate the amount of borrowing that may be needed as by doing so you will put yourself and your family in position for a more prosperous future.


2)      Always realize that “Timing” is crucial when planning for educational costs.  The sooner you start and the more time that you have to save, the more effective your investment results will be.


3)      Start aggressive in your early years of investing and move to more conservative investments as time goes by.  If you save $100 per month for 20 years at 8% return—you could have over $50,000 dollars.  If you save $200 per month for 20 years at 8% return—you could have well over $100,000 dollars.


4)      Evaluate the best “investment vehicle” for your education funding—529—Coverdell—ROTH IRA—Pre-paid Tuition—or other investment vehicles.


5)      Review Your Investment selections on a consistent basis (at least annually).  By doing so you can adjust your holdings—if need be.


6)      Be sure you have a “diversified portfolio” such as stocks, bonds, money market, savings and other appropriate accounts.  By doing so you reduce your risk exposure and you give yourself the opportunity to have above market returns. 

Be sure to stay away from investments that you are not comfortable with and you don't understand!


7)      Be sure to save consistently such as monthly, quarterly, yearly etcetera—and be sure to consider “dollar cost averaging” where you invest a consistent amount on a monthly basis (or other time frame) over a number of years.


8)      Realize that it is normally better to save in “your name” and not your child’s name—if you are funding your child’s education.  By doing so you normally increase your odds of obtaining federal aid. 


9)      Be sure to save in a tax-advantaged way—529 plans are exempt from federal tax—and in many States they are exempt from State tax—as well.  Some States also offer a tax deduction on their State tax returns.


If you use a Traditional IRA you would be taxed on the withdrawal—but you would not be hit with an “early withdrawal penalty”—however, if you saved utilizing a ROTH IRA you could withdraw your “contributions”  and "earnings" tax free—if you were to use the funds for higher educational purposes. 

If you are over age 59 ½ you would not have an early withdrawal penalty with either IRA, however with a Traditional IRA you would owe taxes on the withdrawal amount—based on your tax bracket.


10)   You may want to start transferring from your account several years before your child will begin school to avoid capital gains taxes and your gains being classified as income.  By doing so you would normally increase your odds of obtaining federal aid.


By starting early with your savings plan and addressing your finances in a comprehensive manner—you put yourself and your family in a position to attain the success that you and your family deserve!

By "really" applying what you have just learned—you can put yourself and your family in "real" position to attain the educational goals that you have always dreamed of for your kids, and you will start on a journey of success that can in many cases go from generation to generation!

In addition, be sure to frequent the links below to gain the knowledge that you need to further improve your educational and financial understanding!

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About This Article:


The above article was written by Thomas (TJ) UnderwoodThomas (TJ) Underwood is a former fee-only financial planner, a former top producing loan processor and is currently a licensed real estate broker in the state of Georgia. 

He is the writer behind The Real Estate & Finance 360 Degrees Series of Books that include The Wealth Increaser, Home Buyer 411 The Smart Guide to Buying Your Home, Home Seller 411 The Smart Guide to Selling Your Home, and  Managing & Improving Your Credit & Finances for this MILLENNIUM.

In addition he is also the writer who created The 3 Step Structured Approach to Managing Your Finances, and CREDIT & FINANCE IMPROVEMENT MADE EASY—NEW GUIDE that you can download right now "(at MIMIMAL cost $3.95)" to learn more about his writing style and how you can achieve "more" success in the current economy.

He is the creator of where he regularly blogs about helping consumers improve their credit, finance and real estate pursuits in an intelligent, consistent and proactive manner. 

He’s always looking for ways to make intelligent finance improvement happen for those who “sincerely desire” success in their future. He was the first financial planner to coin the phrase "financially alert mind"  and he consistently writes in a style that is designed to provide consumers the ability to take control of their lives and achieve great results.

You can contact him from a number of sources but the most direct way is to contact him through the contact us block that can be found at the bottom of this page.  You can also get highly relevant tips on "living your life more abundantly" and link to and possibly earn revenue by logging on to

He is also an IRS registered tax planning professional with over 30 years of tax experience and can be reached at:



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