Which education funding vehicle is right for me?

As parents and grandparents, we want to provide our children with the best possible future we can. And, we all know that one of the best ways to have a successful future is through higher education. But, did you know that, according to The College Board, the total average cost of a public, in-state university could be as much as $74,752 in five years and could rise to $155,404 in 20 years? With these rising costs, it's never too early to begin saving. But, with all of the education funding options available, how do you decide which vehicle is right for you?

To make your comparisons easier, you may want to begin by focusing on these primary areas:

• the tax benefits of each vehicle
• contribution limits of each vehicle
• investment flexibility, accessibility of funds, and control of assets within each vehicle
• who makes the investment decisions
• how financial aid availability is affected by each vehicle.

Tax benefits -- Each education funding vehicle provides its own distinct tax advantages. And, to further complicate matters, state and local laws vary within each vehicle. No one product suits every person. Therefore, it is important to visit with your tax advisor prior to making an education funding choice as proper planning for education funding may also provide you with income and estate tax planning advantages.

Contribution limits -- Just as tax laws vary, so to do the contribution limits allowed within each product. The current annual limit for Coverdell Education Savings Accounts (ESAs) is $2,000. However, if you're considering a 529 plan, you may be able to contribute considerably more. Contribution limits are an important consideration as some vehicles' contribution limits may limit your ability to pay for the rising costs of higher education.

Investment flexibility, accessibility, and control -- Since many parents begin saving for their children's educations many years before they are expected to enter an institution of higher education, a plan that allows flexibility and accessibility to funds may be important to you in the event of unexpected future events: what if you have a financial emergency or your child decides not to attend college? In addition, different plans afford different levels of control to the donor and the beneficiary. Some plans allow the donor to control the account forever, whereas others shift control of the account to the beneficiary upon reaching the age of majority.

Who makes the investment decisions -- Deciding who will make the investment decisions is a personal choice. Someone who doesn't mind doing a little research and periodically rebalancing their own portfolio may prefer a vehicle that allows them to direct their own investments. However, for those who prefer to leave the investing decisions to a professional, other vehicles provide portfolios in which your assets are invested according to the expected enrollment date of the beneficiary; the portfolio manager periodically re-evaluates the portfolio and rebalances the investments as necessary to become more conservative as the enrollment date draws near.

Financial Aid -- Despite your best efforts in saving for higher education costs, it may still be necessary for your student to receive financial aid. The account value within some vehicles carries little weight when determining the amount of financial aid a student qualifies for, whereas the account value of other funding vehicles may have a greater impact on your ability to receive financial aid.

As you can see, no one funding vehicle suits every person. Focusing on the key areas above will help guide your decisions. When you are interested in exploring your education funding options, your Registered State Farm Agent is ready to help.

State Farm VP Management Corp Risk/Important Disclosures. State Farm Mutual Funds Prospectus. The State Farm College Savings Plan Enrollment Handbook (PDF 260 KB) .

Need Assistance? 1-800-447-4930

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