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How to Save For College With Your Investments

 

Investing strategies to save for college

College savings is a huge topic for most parents -- so much so that some want to start savings before their children are even born.

Parents have lots of options for building college savings. While many parents may start with the common 529 plan, that is just one of many available options, and it may be beneficial to consider splitting your savings across a few different accounts. Keep reading for more college savings strategies.

 

Should all the money you save for college go to a 529 plan?

The reason 529 plans are so popular for college savings is because they offer tax advantages to savers. The money in a 529 plan can grow tax-free and can be withdrawn tax-free, as long as the funds then go toward qualifying education expenses.1 Such expenses can include tuition and fees, books, room and board, and computer technology and equipment. Not all costs associated with college count as "qualifying" expenses to the IRS, and that's if your child even goes to college in the first place. They may choose another path, or they may start a university program but not finish.

That could leave a significant amount of money not used for college locked into a 529 plan that you can't touch unless you pay a penalty or taxes for doing so.2

In an ideal world, you would save just enough to cover what you want to help your college student pay for. But the future is unknowable, and while tax advantages are nice, you might also value having more control and flexibility over how you eventually get to use the savings you worked hard to build.

Using a brokerage account to (partially) save for college

Want to plan for the possibility that you child won't need all the money you've saved for college for actual college expenses? Here's one possible solution: Split your college savings between two accounts.

You can use a 529 plan and a regular, taxable brokerage account. While the brokerage account doesn't provide you with the same tax advantages of the 529 plan, it does give you total freedom in how, when, and where you spend the money in it when the funds are withdrawn. It also provides you with more investment options than a 529 plan might, and you get to choose what brokerage company to use when opening the account as well as what funds you want to include in the portfolio.

If you are using a brokerage account, you may have the opportunity to set up a tax efficient portfolio using exchange traded funds (ETFs),3 which can help make up for some of the tax-deferred growth you're missing by not saving through a 529 plan.

If your kids need more than what's in their 529 plans, then you have the assets in the brokerage fund to pull from. And if they don't go to college or don't end up needing all the money you saved for them, then you're free to use that money for other things.

 

You can start with a simple 50/50 split: 50% of the money you save for college can go to a 529 plan, and the other 50% can be contributed to the brokerage account. You can always adjust from there, depending on the specifics of your family's situation and your eligibility for state tax credits or deductions for 529 contributions.4
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Consider a simple 50/50 split: 50% of the money you save for college can go to a 529 plan, and the other 50% can go into a brokerage account.

Other details to consider when using 529 plans to save for college

Before you contribute to a 529 plan, you need to choose a specific plan to use. Not all 529 plans are the same, and you're not limited to the plan sponsored by your state.

Your state's plan is a good starting point if they offer specific tax incentives for 529 contributions. The savings are limited, however, so you need to consider the investment options within a plan too. You'll want to choose something with a range of options and one that offers funds with lower expense ratios to avoid your savings being eaten away by investment fees.

When it comes to choosing specific funds within the plan, you'll want to select one based on your child's age. Much like a target date retirement fund that you might find in your own 401(k), funds within a 529 plan usually slowly shift to a more conservative allocation as your child gets closer to needing to use the money for school.

If you're having trouble deciding how to invest for college, Synovus can help. Give us a call at 1-888-SYNOVUS (1-888-796-6887) to start the college savings conversation.5

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. Farran Powell and Emma Kerr, U.S. News and World Report, "Qualified Expenses You Can Pay for With a 529 Plan," published November 11, 2019, accessed August 3rd, 2020. Back
  2. SEC, "Investor Bulletin: 10 Questions to Consider Before Opening a 529 Account," , published May 18, 2018, accessed August 3rd, 2020. Back
  3. Jean Folger, Investopedia, "Minimize taxes and maximize your bottom line," , updated January 27, 2020, accessed August 14th, 2020 Back
  4. SavingforCollege.com, "State tax deduction or credit for contributions," accessed August 4th, 2020. Back
  5. 529 plans are provided by Synovus Securities, Inc. ("SSI") and Creative Financial Group, a division of SSI. Synovus Securities, Inc., is a member of FINRA/SIPC. Investment products and services are not FDIC insured, are not deposits of or other obligations of Synovus Bank, are not guaranteed by Synovus Bank and involve investment risk, including possible loss of principal amount invested. Synovus Securities, Inc. is a subsidiary of Synovus Financial Corp and an affiliate of Synovus Bank. You can obtain more information about Synovus Securities, Inc. and its Registered Representatives by accessing BrokerCheck. 529 College Savings Plan information, including fees, expenses and sales charges, on the particular plan you select is available in the offering circular or official statement provided by the plan sponsor. Please read the information carefully prior to investing. Back