Can a financial advisor help you save for your child’s college fund?

If you’re like many parents, planning for the cost of your child’s college education is a top priority. The cost of higher education is on the rise, so the sooner you start saving, the better.

But figuring out the best way to achieve such a big goal can feel complicated and confusing. Thankfully, you don’t have to go through the process alone — a financial advisor can help.

A financial advisor can create a customized strategy that considers specific factors — such as your financial situation, time horizon and risk tolerance — to help you maximize the growth of your child’s college fund.

Why saving for your child’s college is important

There’s no way around it — college is expensive. While paying for college is a major financial concern for many parents, getting an early start can help alleviate the burden of high debt later on for both you and your child.

Despite worries that savings might affect eligibility for student aid, most assets are treated generously in aid calculations, and merit-based aid, like scholarships, remains unaffected.

However, scholarships rarely cover the entire cost of college. Even with a full-ride scholarship, additional expenses like room and board, books and transportation remain. In most cases, families will need to contribute some money to the cost of their child’s college education, so it’s smart to start preparing now.

How a financial advisor can help you save for your child’s college fund

A financial advisor can play a pivotal role in developing a tailored college savings strategy for your family. Their expert guidance considers the rising costs of higher education, as well as your financial goals. They can advise on when to start saving (spoiler alert: the sooner, the better), the ideal savings amount and the most suitable college funds to consider.

Here are four ways a financial advisor can help you save for your child’s future.

1. Understanding different savings options

There’s more than one way to save for college. A financial advisor can review a range of saving and investment accounts with you, including 529 plans, Coverdell Education Savings Accounts (ESAs), UTMA/UGMA custodial accounts and even Roth IRAs.

Each account comes with unique benefits, limitations and tax implications. For example, a 529 plan is a tax-advantaged investment account that allows money to grow tax-deferred, and distributions for qualified education expenses are tax-free. Contributions to a 529 plan are not deductible from your federal income tax return, but many states offer state income tax deductions or credits for contributions to a 529 plan.

2. Understanding financial aid and scholarships

Financial advisors also bring clarity to the complexities of financial aid, scholarships and grants by helping you understand how your personal savings and assets might affect your child’s eligibility.

UGMA/UTMA custodial accounts, for example, can negatively impact financial aid more than 529 plans. UGMA/UTMA custodial accounts can lower a child’s financial aid amount by 20-25 percent, because these accounts are considered assets of the student, not the parent. Meanwhile, only 5.64 percent of assets held within a 529 plan count toward determining federal financial aid.

So if you have $10,000 in a 529 plan, it could reduce the aid package by $564, while $10,000 held in a UGMA/UTMA custodial account could decrease your child’s aid by $2,000 or more.

While having a college savings fund may reduce your child’s eligibility for federal aid, the benefits of having a college fund almost always outweigh potential reductions in financial aid.

3. Balancing college savings with other financial goals

Saving for your child’s college is important, but don’t neglect other financial priorities, such as saving for retirement and debt repayment, in the process.

A financial advisor can help you balance your various financial goals by analyzing your income, expenses and time horizon before creating a detailed financial plan for your future. This way, you can feel confident that you’re making progress on all fronts without compromising one goal for another.

4. Regularly reviewing and adjusting your plan

Finally, a financial advisor can help you regularly review and adjust your college savings plan as needed. As your child grows older or your financial situation changes, regular check-ins with an advisor help ensure that your plan stays on track and is adjusted over time to stay aligned with your evolving goals.

College savings tips for parents

Working with a financial advisor can streamline your college savings strategy, but there are steps you can take today to help reach your goal faster.

Here are a few additional tips for parents.

• Start saving early and consistently: Even if you’re only contributing small amounts, getting a head start helps your savings compound and grow over time.
• Save any windfalls: Making a plan to contribute a portion of any “extra money” you receive, such as a tax refund or work bonus, can help accelerate your savings rate.
• Create a realistic savings goal: Accumulating enough cash to fund your child’s entire college experience can feel daunting. A better approach is setting a realistic savings goal, even if it’s not enough to fund a full ride to an Ivy League school. Experts recommend setting aside about 50 percent of college costs. The rest can come from loans and scholarships.
• Utilize tax-advantaged savings accounts like 529 plans: These savings vehicles come with a lot of perks, including tax-free growth within the account. They also have no income limits or contribution limits.

While getting an early start is ideal, remember that it’s never too late to save for your child’s education. Putting away whatever you can afford on a consistent basis will add up over time and ultimately make a difference in your child’s future.

Bottom line

Saving for college is an ambitious — but not impossible — financial goal. Working with a financial advisor can transform that goal into a reality. An advisor can help you navigate all your options, including different account types, tax implications and how to balance college savings with other financial priorities. With the right strategy in place, you can grow your child’s college fund over time and set them up for a successful future.