Saving for college education

Years past, people would save for their child's education in an UGMA account. However, there are many drawbacks to this strategy. First there are reduced tax benefits due to the “kiddie tax” Then there is the loss of control of the asset since the money technically belongs to the child who can simply cash it in when they are old enough. Thus 529 plans have emerged as the single best tax favored method to save for your children’s education, but if your financial planning software doesn't do an actual tax calculation you might not even realize it. Further, if your software doesn’t allow for you to liquidate various amount each year you may also miss out on evaluating the most tax efficient way to distribute other assets needed to fund your child’s education expense. For Example let’s say your child's college expense is 40k a year for 4 years and you have only 80k in the 529 plan. Basic software may liquidate it equally over 4 years or all of it in the first two years then using the sale of stock to make up the difference. However the parent might actually plan to sell a business in the 3rd year the child goes to school, thus it might make sense to avoid selling any stocks in the 3rd of fourth year and use 529 plan money in those years. Simple retirement planning software you only provide simple answers.

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