Brian Wolff

Brian Wolff is a CERTIFIED FINANCIAL PLANNERTM  professional with Pure Financial Advisors specializing in comprehensive financial planning. In his role with Pure, Brian works directly with clients to not only help them realize their financial goals, but also to help determine the purpose for their money. Graduating from the University of California, Santa Cruz, Brian [...]

As a parent, are you prepared to pay for your children’s college expenses?  The numbers can be overwhelming when you look at the cost of sending your adult children to college. Pure’s Financial Planner, Brian Wolff, CFP®, AIF®, will review three investment savings plan options:

  • 529 Plan
  • Coverdell Account
  • Prepaid College Tuition Plan

Regardless of which investment tools you decide to use to reach your financial goals, getting a plan in place can dramatically increase the likelihood that you will build significant savings for college without jeopardizing your financial future.

FREE GUIDE | ABCs of College Funding

FREE GUIDE: The ABC's of College Funding


Getting accepted into college is a significant accomplishment in a child’s life. However, figuring out how to fund the costs of that college education can be intimidating for even the savviest parents.

Many parents end up tapping into their savings account or raiding their 401(k) to help pay for college expenses, only to find out too late that it’s one of the fastest ways to derail their retirement plans. Instead, establishing a college savings plan is crucial to properly invest in their child’s future without putting their own retirement in jeopardy.

The average cost of a 4-year private college, including room and board, is over $51,000 per year, while in-state tuition alone averages over $25,000 per year. At the end of the day, the overall expense of a college degree can exceed $200,000! Surprisingly, only 39% of families have a financial plan in place to address how they’ll pay these looming costs.

The benefits of a college savings plan are well documented, as the stats show a drastic difference in outcomes for those who had a plan versus those who didn’t. Of those that had a savings plan, 95% started saving for college, as opposed to only 56% of those who didn’t have a plan in place. Those with a plan saved almost 2.5 times more than the ones without a plan their counterparts over the course of the plan, and on average about twice as much per year. But most importantly, those who planned felt over twice as confident about meeting their goals than those who didn’t.

Whether you decide to consult a professional, or do it yourself, the first thing to do is to look at the various college funding investment options that are available. They all fill a similar need, and there are pros and cons with all of them.

529 Plan

Currently, the most popular option is the 529 Plan. This offers tax-deferred earnings and tax-free distributions, as long as those distributions are used for qualified college expenses. The funds can be used at all eligible schools across the country, and any person with earned income, whether they be a parent, relative, friend of the family, or even the student themself, can open a 529 Plan. Additionally, a provision inside the plan allows a lump sum contribution of up to five times the annual gift tax exclusion in a single year, which can dramatically jumpstart any college savings plan!

That said, there are a few drawbacks to consider with a 529 Plan. The first has already been mentioned, but the funds must be used for college expenses. Any distribution used for non-college related expenses will be deemed a taxable distribution and will incur an additional 10% penalty. There can also be high fees associated with the 529 Plan, as well as investment risk inside the account. On top of that, the choice of investments may be limited within the plan itself.

Coverdell Account

Another option is the Coverdell account. Like the 529 plan, contributions are subject to tax-free growth and the earnings to tax-free withdrawals. There is a wider range of investment options as well, plus depending on the owner of the account it may not be considered when determining financial aid availability.

However, the Coverdell account does have some drawbacks. One is that contributions are subject to income limitations. If your adjusted gross income is above a certain threshold, your ability to save to this type of account may be reduced or even phased out completely. Beyond that, the amount you can save is limited to $2,000 per year contributions, and is only allowed while the student is under 18. Considering these restrictions, the Coverdell account may not be able to provide enough to fund all your child’s college expenses.

Prepaid Tuition Plan

Lastly, there’s the prepaid tuition plan. This allows prepayment of future tuition costs at today’s rates in the form of credits, and may provide favorable treatment for financial aid at the time of enrollment. Additionally, if your child gets a scholarship, or decides to go to a different school, you can transfer the credits to another child in your family.

However, you should be aware that the prepaid tuition plan doesn’t cover many costs, and is restricted to specific states for in-state residents only. Finally, the enrollment period for this plan is limited and is determined by the individual college or university.

Once you’ve figured out which investment option is right for you, the next step is to put together a realistic savings plan based on your child’s age, their anticipated start date, and how much you expect to contribute to their education. There is no one-size-fits-all answer here. Figuring out how many years you’re trying to cover is ultimately a personal decision, but determining the goal before you start is crucial.

Over the last 20 years, the cost of college has been steadily rising by an average rate of about 7% per year, outpacing inflation over that period of time. That means that the price of going to college has tripled since the year 2000! Knowing that, it’s critical that you continually check in every couple of years to make sure the estimates in your savings plan are still realistic in terms of the expected expenses, as well as the amount being saved.

Working with a financial planner can not only help you incorporate a saving strategy for your child’s college education, but it can also help you stay on track for your own long-term retirement goals.

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• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC, a Registered Investment Advisor.

• Pure Financial Advisors LLC does not offer tax or legal advice. Consult with your tax advisor or attorney regarding specific situations.

• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.

CFP® – The CERTIFIED FINANCIAL PLANNER™ certification is by the Certified Financial Planner Board of Standards, Inc. To attain the right to use the CFP® designation, an individual must satisfactorily fulfill education, experience and ethics requirements as well as pass a comprehensive exam. Thirty hours of continuing education is required every two years to maintain the designation.

AIF® – Accredited Investment Fiduciary designation is administered by the Center for Fiduciary Studies fi360. To receive the AIF Designation, an individual must meet prerequisite criteria, complete a training program, and pass a comprehensive examination. Six hours of continuing education is required annually to maintain the designation.