Certain events in life make you realize that your personal and financial lives are inseparable. The simplest strategy to balance your personal life and finances is to start planning early in life. No matter what stage of life you are in, you need to save and invest regularly. Financial decisions must reflect not only our financial goals, but also our values.

At Alvini & Associates, P.A., we factor in our clients life cycle phase, also called time horizon, as well as their goals, when making financial plans. It is our role to make sure you are aware of the different services needed at each stage in your lifecycle.

Whether you are fresh out of school, newly married, starting a family, recently divorced or widowed, or retiring, your financial needs keep changing. These are called “life events,” and each new life event brings upon new challenges and opportunities. Major life events should be examined from a financial perspective.

As people go through different phases of their lives, their goals change in importance and priority. Sometimes these changes are the cause of unexpected events, but most of these changes follow a general financial life cycle pattern.

Where you are in the life cycle may affect how you construct your portfolio. Someone in the early years stage or young adulthood may be willing to take on more risk than someone in the Golden Years stage or Retirement Years. As stated previously, time horizon and risk tolerance are some of the main factors when determining suitability.

Boy? Girl? Or Tuition Payment?

You just received the wonderful news that you and your spouse are going to become parents. Thoughts of the many adventures parenting will bring are swirling through your head. The last thing on your mind may be paying for college, but thinking about it now may save you later. The cost of a four-year degree at a private college can easily exceed $140,000 (Source: Trends in College Pricing-2009, The College Board).

However, even if you are aware of the importance of saving for an education, you may be unsure of available options. The following is an exploration of the most common college savings vehicles:

• Coverdell Education Savings Accounts (ESAs, formerly known as Education IRAs). You can contribute $2,000 annually to an ESA, and funds may be used to pay for elementary and secondary education, in addition to college expenses. One major advantage of Coverdell ESAs is that if the funds are used to pay for qualified education expenses (e.g., room and board), earnings will not be taxed. Certain income limits may apply.
• Series EE Savings Bonds. These types of savings bonds usually can be purchased and/or redeemed at your local bank. They are issued in denominations that are half of the bond’s face value ranging from $50 to $10,000. For example, a $50 bond would cost $25. Depending on your income tax bracket, EE savings bonds may offer state and local tax-deductible interest. When used for qualified education expenses, interest may be free of state and federal taxes, as well. However, they are generally subject to federal income tax and early redemption penalties may apply if the bond is redeemed in the first five years. Another possible advantage to savings bonds is that they may be purchased by anyone for your child, for any occasion.
• Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA). UGMA and UTMA accounts are custodial accounts. You may make unlimited contributions to such accounts, and the funds may be used for whatever purchases you deem appropriate. The UGMA account is particularly useful if you are considering purchasing stocks or mutual funds for your child to help save for education. More specifically, UGMA typically authorizes the transfers of cash, bank accounts, stocks, and mutual funds to minors without the need for an attorney; an UTMA account authorizes expanded transfers, including real estate, and royalties. For both UGMA and UTMA accounts, a portion of the earnings may be tax free or taxed at the child’s rate, generally a lower figure. You may make unlimited contributions to such accounts, and the funds may be used for whatever purchases you deem appropriate.

The last option you might consider when saving for your child’s future education may be a simple bank savings account. Although bank savings accounts may offer immediate liquidity and versatility, there are no tax advantages, and given their low risk, the earning potential is very low. Therefore, when it comes to saving for education, it may not be the most beneficial choice.

Start Now

So, if you are wondering whether you should begin saving for your child’s education now, the answer is, yes. Regardless of which option you choose, beginning today to save for a child’s education will help ensure your child a more secure tomorrow.

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