Then Comes the Baby in the Baby Carriage…

By: Allie (DeYoung) Schmidt, Financial Advisor, CFP®, CPA

The expense of college in “today’s dollars” can be a bit daunting, let alone the idea of what it could be 18 years from now. At the end of the day, there is only a certain amount of money left each month and parents have to determine the appropriate mix for savings among retirement, college, debt repayment, etc. Trying to save for college expenses, in addition to everything else, can be overwhelming. Parents, like any other investors, need a strategy.

Many parents are familiar with 529 state college savings plans; however, what a lot of parents don’t realize is that this is not their only option. Depending on your current tax situation, timeline, and money available to invest, a 529 plan may not be your best option.

For example, if you and your family have significant taxable income, you may want to consider a municipal bond zero coupon. This type of municipal bond is sold at a discount to par and matures at par value on a stated date. Instead of bi-annual interest payments, like a traditional municipal bond, the interest accrues each year until it matures at par value. This is not a college-specific investment, so there are no requirements around what the dollars are ultimately used for. This is beneficial in case your children decide not to go to college or other needs arise. An additional benefit for high income investors is that the interest earned on the municipal bond zero coupon is exempt from federal income tax. These bonds may provide returns that are more appealing on a net basis than comparable taxable securities.

Every family is different, and our approach is to look at your specific situation. We can determine the total amount needed and evaluate several different investment options, including 529 state college savings plans, municipal bond zero coupon, and also taxable accounts to determine which is most appropriate for you and your family. At the conclusion, we will put together your crafted MyStrategy.edu report outlining the strategy, assumptions, and expectations. Going forward, we will continually monitor this strategy to reassess if you’re still on track and if necessary change the strategy as your needs change.

Now you can focus on more important things, like helping your son or daughter pick a major–anything from Accounting to Adventure Education (which is an actual major…where was that when I was in college?!). Let us know if we can help you determine the financial path to pursue your goal of a college education in an efficient and tax effective way with your customized MyStrategy.edu report.