A friend recently asked me for some advice regarding an account she had set up for her child ’ s college fund . It provided me a great opportunity to get some thoughts together to share regarding best practices for education planning .

1 ) First - start saving now . As with most financial plans , discipline in saving and spending is the most important factor in a successful outcome . I think it is even more so in education savings . You may have 40 years to save for a retirement that may last 30 years ; with education savings , you probably have 18 years to save for four to eight years of spending . Your timeframes for both saving and spending are compressed and , because of that , the benefit you get from compounding will be less . You can always start small and ramp it up later , but whatever your goal , save early and save often .

2 ) Plan contributions are subject to gift tax rules . This means that for 2024 , contributions to a beneficiary ’ s account are limited to $ 18,000 per donor ($ 36,000 total from two parents ). You can increase funding by leveraging

other family members such as grandparents to add additional contributions . Additionally , you can elect to pre-fund up to $ 180,000 to a beneficiary this year by making a tax election that will spread the contribution against the annual gift exclusion over five consecutive years .

3 ) Consider a 529 plan to hold education savings funds . The most important thing is that you start saving in any form - but if you want to be efficient with your savings - consider using your state ’ s 529 plan . Since I ’ m from Alabama , I usually recommend the Alabama College Counts Plan because contributions up to $ 10,000 qualify for a tax deduction on your Alabama tax return . Additionally , all state plans allow your money to grow in a tax-deferred manner and if you use the money for qualified college expenses , the investment gains you earn are tax-free .

4 ) Don ’ t try to get too exotic with your investment approach . No matter the state , most plans I ’ ve seen use a highly diversified , passive investment approach

using low-cost mutual funds and ETFs . You may be tempted to pick your own investments within the plan options , but I would recommend you use the plan ’ s model portfolios . These models are usually agebased , starting more aggressively for younger beneficiaries and cycling to almost no equity risk for college-aged children . You don ’ t want your child ’ s college savings jeopardized by a market correction just when it is time to use the money .

5 ) Watch out for plan expenses . Though most states use similar investment options with familiar names such as Vanguard and Blackrock , keep in mind that plan administrative expenses can vary by state so be sure to evaluate those expenses against any tax deductions or credits .

Hopefully , this helps to get you started on the right track towards education saving .

Shaw Pritchett is a Financial Advisor and President of Jackson Thornton Asset Management in Montgomery .