Northwestern Mutual

Ways to Save

It’s never too soon to make an investment in your child’s future.

Whether your future scholar is just learning to walk or fast approaching a high school diploma, a strong financial strategy can put you—and your child—on the right path to success.

Education Funding Whitepaper

Some of the most common college savings strategies include:

529 Plans

529 plans are college savings plans where a grandparent, parent or other person contributes to the plan on behalf of the future student. Contributions grow tax deferred and are exempt from federal income taxes when used to pay qualified educational expenses.

You can save for anyone—a child, grandchild or even yourself—and enjoy investment flexibility, control, and a host of other benefits.

There are two types of 529 plans:

  • College savings plan, in which you contribute to an investment account and control assets saved on behalf of the future student.
  • Pre-payment plan, in which you pay tuition in advance and lock into the institution’s current tuition rates.

529 investment plans are typically state sponsored, and each state has its own requirements and benefits, including tax advantages.

Coverdell Educational Savings Accounts

Like a 529 plan, contributions made to Coverdell accounts grow tax deferred. Unlike a 529 plan, money saved in a Coverdell account can be used to pay not only for college expenses but for elementary and secondary school costs (K-12) as well. The annual contribution limit per designated beneficiary in a Coverdell account is $2,000.

Other Funding Tools

  • Custodial Accounts-Custodial accounts are a popular way for grandparents, parents, and other adults to help fund a student’s education. Through Uniform Gift to Minors Act (UGMA) and Uniform Transfer to Minors (UTMA) options, you can make a gift of cash or securities to minors. These accounts may offer tax advantages, investment options and provide you with flexibility—since the money can be used for more than just education.
  • Life Insurance
    -As you pay premiums, your permanent life insurance policy builds cash value1. This cash value, including any potential dividends2, grows tax-deferred, and that can become a source of money you can access to help pay for a child’s education. And if something should happen to you, any death benefit proceeds can be used to help provide the financial resources needed for college. Life insurance is also one of the few assets that is not considered in federal college financial aid calculations.
  • Roth IRAs-If you have a Roth IRA, any money contributed can be used to pay for college expenses tax free—provided the funds are used to pay for qualified educational expenses, such as tuition, fees, books and room and board.
  • Investments-Stocks, bonds and other investments can be a long-term strategy to fund education. Your financial professional can help you find the best blend of investments for your saving goals and address your changing needs as college nears.

Make the Most of Your Investment

When you’re saving for college, there’s a lot to consider, such as in-state benefits, investment options, age limits for beneficiaries and maximum contribution limits. Your financial professional can help you understand your options so you can build a saving strategy that gets you to your goals.

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