Just 50% of students that begin a college education actually graduate. To avoid wasted money, it is critical that parents and loved ones plan and execute the funding of the college education in a thorough and efficient way.
When Mrs. Fired Up and I started saving when our children were young, I feel we received some poor guidance from our financial advisor which resulted in about half of our college savings being placed into Education IRA’s. This would have been a prudent option, had our children needed the funds for college. Unfortunately, this was not the case with all the children. The Education IRA laws require the funds to come under the control of the child when they reach the age of 18. At that point the “child” could decide that a new Ferrari is a better use of the money you worked so hard to save. Additionally, funds not used for education purposes are subject to regular income taxes as well as a 10% penalty.
When I got wise to the drawbacks to the Education IRA, we switched to 529 savings. Again, my children did not use most of the funds we had saved for their college. In this case, however, the account owner retains control of the funds/accounts and can change the beneficiary of the accounts, at any time, ensuring the that the funds can continue to grow tax free and used for future generations: https://www.forbes.com/sites/janetberryjohnson/2016/07/22/three-options-for-excess-529-plan-funds/#5a2a9571474b
So now that we switched to 529 savings, we, our children, our grandchildren, or anyone that we designate can use the funds. College saving and cost control are critical to parents and child’s financial future and warrant significant planning and management.