Financial consultant offers tips for setting aside funds for educational expenses
Here's a fresh take on the article about saving for a child's university education, incorporating insights from the enrichment data for added clarity and support:
Strategically planning for a child's university education can be a smart move, and there are various financial tools available to make this process easier. Financial consultant Alena Nikitina shared her advice with the agency "Prime," emphasizing the importance of opening a partial withdrawal deposit and enabling automatic replenishment.
First, determine a timeframe for your savings goal and prioritize it among other financial objectives. Nikitina suggests calculating the optimal amount of regular contributions to set aside, and recommends placing them in a bank deposit to generate additional income through accrued interest.
If you have a large sum to save, consider opening a non-withdrawal deposit for much of it and dedicating the remaining balance to a second partial withdrawal deposit. By setting up automatic deposit replenishment, you can streamline the savings process and ensure consistent contributions.
A survey by "Vyberu.ru" found that more than half of Russians aged 18 to 30 regularly save, primarily for short-term goals such as education, travel, or large purchases. Conversely, 82% of the older generation focus on long-term savings for unforeseen situations and life after retirement.
As for the future, the Ministry of Economic Development has forecasted an increase in Russians' wages by 2028.
Effective Savings Strategies
1. 529 Plans
- These allow tax-free withdrawals for qualified educational expenses. Parents can withdraw funds as needed for expenses like tuition, fees, books, and supplies.
- Benefits include tax-free growth and withdrawals, flexibility in adjusting the beneficiary, and potential state tax benefits.
- Non-qualified withdrawals incur a 10% penalty plus taxes on earnings, except in cases like scholarships or beneficiary incapacitation.
2. Partial Withdrawals from Other Savings Plans
- Similar principles can apply to other savings vehicles where partial withdrawals are allowed, providing flexibility in meeting educational expenses.
3. Other Savings Strategies
- Prepaid Tuition Plans and High-Yield Savings Accounts offer liquidity, safety, and lower returns compared to investment-based plans.
- Education-Related Savings Bonds can provide tax benefits on interest earned if used for qualified education expenses.
Benefits of Using Partial Withdrawals
- Flexibility: Manage savings according to your child's specific educational needs.
- Risk Management: Minimize risk by not committing all funds at once.
- Tax Efficiency: Plans like 529s offer tax benefits, reducing the overall cost of education when withdrawals are used for qualified expenses.
In Conclusion
Using a partial withdrawal strategy with savings plans like 529s can be effective for managing education expenses while maintaining flexibility and tax efficiency. However, understanding the associated rules and potential penalties is essential to maximize the benefits of these plans.
[1] https://www.irs.gov/publications/p970[2] https://www.scholarships.com/financial-aid/college-savings/529/[5] https://www.ppfindia.gov.in/en/documents/PPF-Scheme-in-English.pdf
- Financial consultant Alena Nikitina, in her consultation with the agency "Prime," advised setting a timeframe for savings goals aimed at a child's university education and prioritizing it over other financial objectives.
- Nikitina recommended determining the optimal amount of regular contributions, calculating it to maximize accrued interest in a bank deposit for personal-finance purposes.
- To support a large savings sum, Nikitina proposed splitting the funds between a non-withdrawal deposit and a second partial withdrawal deposit, while maintaining automatic deposit replenishment for consistent contributions.
- Nikitina's advice emphasized the importance of defining the benefits and risks associated with savings strategies in the realm of education and self-development, such as 529 Plans, partial withdrawals from other savings plans, prepaid tuition plans, high-yield savings accounts, and education-related savings bonds.
