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Investing for a Child's Education |
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The
Importance of Starting Early
Account
Options for Investing in a Child’s Future Education Expenses
Coverdell
Educations Savings Accounts
UGMA
and UTMA Accounts
Individual
Investment Account in Your Own Name
Start
Investing for a Child's Education Today!
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 We
understand that you want to help your child or grandchild take
advantage of the best educational opportunities available. To
a large extent, this means helping to prepare him or her for
the financial costs of higher education. By having a financial
plan in place, you can give a child more options as to where
and when they will go to college, a better chance to take advantage
of all a school has to offer while they attend and an opportunity
to minimize how much you or they owe when they graduate. Several
investment tools can help you plan for and reach your goals.
The following information is intended to help you decide which
tools are best for your particular situation.
The Importance of Starting Early
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Regardless of the type of account you choose, investing
early is a simple but powerful investment strategy.
The earlier you start, the longer your investment
has to grow. It may not seem like a pressing matter
to begin planning for higher education before your
child has even started preschool, however, investing
early may make a big difference over time. So don't
put it off! Consider the following example:
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The Smith Family began investing for Becky's
education right after she was born. They started
an account with $1,000 and invested an additional
$100 per month for 10 full years. After 10 years,
expenses for Becky to play soccer, volleyball
and softball became fairly substantial and in
order to keep Becky playing in the sports she
enjoyed, the Smith's stopped making additional
investments into the account for Becky. However,
they left the money invested until she started
college eight years later.
The Jones family waited to begin investing
for Taylor's education until he was eight years
old. They started an account with $1,000 and
invested an additional $100 per month until
Taylor was eighteen.
Both families invested a total of $13,000 and
earned 8% annually on their investments. When
Becky was ready to start college at 18, the
Smith's investment had grown to $36,172. Even
though the Jones Family invested the same amount
as the Smith's, because they started so much
later, their investment for Taylor had grown
to $19,543 - only about half as much as the
Smith's investment for Becky.
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This
example is hypothetical. Performance shown does not
represent the performance of any specific investment.
Westcore believes the assumed 8% annual return to be
a reasonable growth rate, but no assurance can be given
that this rate will be achieved. You may make more or
less than the accumulation shown, depending on the investment
you select and actual profits. This example does not
reflect the deduction of taxes that a shareholder would
pay on Fund distributions or the redemption of Fund
shares.
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Account Options for Investing in a Child’s Future
Education Expenses
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There are several different account types that you
can use to invest for future education expenses, including
Coverdell
Education Savings Accounts, UGMAs,
UTMAs and
individual
investment accounts. Which investment tool is best
for you? Since every family situation is different,
the following information is designed to help you better
understand the account options available so that you
can determine which is best for your family. In addition,
you may want to consult your investment advisor.
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| Coverdell
Educations Savings Accounts were created to help individuals
and families save for future education expenses. Unlike
a conventional investment account, earnings on contributions
up to the $2,000 per year limit in an Education Savings
Account grow free from federal income tax. Contributions
sheltered from taxes allow all of the money invested to
remain in the account and to compound year-after-year
leaving the student for whom the account is established
with a larger asset pool than could be saved through equal
investments in a regular taxable account.
Tax-sheltered investing can help you accumulate more
for a student's future education expenses over the long
term. For example, imagine that you open two accounts
to save for future education expenses. One account is
a tax-sheltered Education Savings Account and the other
is a regular taxable account. You make $2,000 yearly
contributions to each account. As the chart below illustrates,
tax-sheltered investing can have a significant impact
on the value of your account. Our example assumes you
are in a 25% tax-bracket and you earn an 8% annual return
on your investment.
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1
Year |
6
Years |
12
Years |
18
Years |
| Tax-Sheltered |
$2,160
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$14,906.95
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$38,327.32
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$75,492.49 |
| Taxable |
$2,120
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$14,111.22
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$33,967.68
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$62,134.44 |
This is a hypothetical example. Performance shown
in the chart does not represent the performance of any
specific investment. Westcore believes the assumed 8%
annual return to be a reasonable growth rate, but no
assurance can be given that this rate will be achieved.
You may make more or less than the accumulation shown,
depending upon the investment you select and actual
profits. Lower maximum tax rates on capital gains and
dividends would make the investment return for the taxable
account more favorable, thereby reducing the difference
in performance between the accounts shown.
While tax-sheltered growth is an important feature
of Education Savings Accounts, it isn't the only significant
tax benefit they offer. Withdrawals from an Education
Savings Account that are used for "qualified education
expenses" are tax-free. As long as the requirements
for withdrawals are met, the dividends on and growth
of the investments held in an Education Savings Account
are tax-free for federal income-tax purposes. That means
that 100% of the contributions to and earnings in an
Education Savings Account can go towards education expenses
- tax free!
Westcore Funds offers Coverdell Education Savings Accounts
with any of our Funds. Visit the How
to Invest page for more information on how to
get started.
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UGMA and UTMA Accounts
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Uniform Gift to Minors Act Accounts ("UGMA")
and Uniform Transfer to Minors Act Accounts ("UTMA")
allow you to contribute to a custodial account in a
minor's name without having to establish a trust or
name a legal guardian. Any adult can invest in a UGMA
or UTMA on behalf of a minor, so in addition to parents
being able to invest for their children, a grandparent,
godparent, aunt or uncle can also invest to help with
a child's college expenses. These accounts do require
that only one minor and one custodian be registered
to a single account.
There is no limit on the amount that can be invested
in a UGMA or UTMA account (although you should keep
in mind that gifts from an adult to a minor of greater
than $11,000 per year are subject to gift tax). This
account type allows you to invest as much as you choose,
which could make a significant difference in what you
are able to contribute to a child's education costs.
Additionally, UGMAs and UTMAs offer tax-savings benefits.
To start, the first $700 in earnings on these accounts
are tax-free. If the child is between the age of 14
and 18, the earnings thereafter are taxed at the child's
tax rate, typically 15%, which is usually significantly
less than the custodian's tax rate. The greater the
difference between the adult's and the child's tax rates,
the greater the tax benefit. Please consult your tax
adviser for more information about your specific situation.
Another benefit of, UGMAs and UTMAs is that they are
not limited to assisting with higher education expenses.
While the account is under the custodian's control,
withdrawals can be used to pay for special expenses
that will benefit the child. There is no penalty if
the account funds are used to pay for non-educational
expenses, giving you more flexibility with how and when
the investment is used.
Westcore Funds offers UGMA and UTMA accounts with any
of our Funds. Visit the How
to Invest page for more information on how to
get started.
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Individual Investment Account in Your Name
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An individual
investment account in your name is another alternative
to consider when investing for a child's future education
expenses. While UGMAs, UTMAs and Coverdell Education Savings
accounts are important investment options to consider,
they also have some drawbacks that you should keep in
mind. These investments may reduce a child's eligibility
for financial aid and may include some fairly complex
rules for using the investment. If you would prefer to
have complete control over and flexibility for your investments,
you may want to choose to invest for a child's education
in your own name. While you may miss out on some tax benefits
that other investment options offer, you have the freedom
to use the money as you wish without penalties.
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Start Investing for a Child's Education Today!
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| You can get started investing
for a child's education now with a Westcore Funds Coverdell
Education Savings Account, a UGMA / UTMA account or an
individual account in your name. With participation in
Westcore's Automatic Investment Plan, you can open an
account and start investing for just $100
a month. Visit the How
to Invest page for more information on how to get
started.
This information
should not be construed as investment or tax advice.
Investors must consider their own situation before making
an investment decision. Investors with complex tax issues
should consult with a tax adviser or professional.
An investor
should consider investment objectives, risks, charges
and expenses of the Fund(s) carefully before investing.
Click here for a prospectus,
which contains this and other important information.
Please read the prospectus carefully before investing.
Westcore
Funds are distributed by ALPS Distributors, Inc.
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