How to Make the Most of the New Child Tax Credits

Those monthly checks for the child tax credit can build a solid foundation for college.

What is the best way for parents to make the most of the extra $250 to $300 a month?

Across the state, Florida families have started receiving monthly Child Tax Credit payments that took effect last month as part of the federal government’s pandemic relief.

According to the IRS, 90% of American families with children qualify to receive the payments, which can reach up to $300 per month for children under age 6 and $250 per month for children ages 6 to 17.

Many parents are asking about the best way to use the extra money. The advice I am giving clients with school-age or younger children is to consider first paying down any expensive credit card or other debt. They can also look at shoring up their household emergency fund or adding to an IRA, 401(k) or other retirement nest egg. If those boxes have already been checked, the child tax credits can be a great way to start saving for college.

Parents getting ready for the new back-to-school season might feel like college seems a long way off, but having raised two kids who are now in their twenties, I can tell you the years absolutely fly by. I was so glad, as a parent, to have started saving early for their college years and expenses!

There are many options for parents who want to start saving for college, and I encourage my financial planning clients to look at all of them to find the best fit based on goals, budget, timeline, risk tolerance, and more.

But with the potential for higher tax rates and inflation in the not-so-distant future, finding a way to grow your savings without losing out to taxes or rising prices is a truly smart idea. That’s why I advise families to select a college savings vehicle designed to help protect or grow their money and also offer tax benefits.

Some options are available to all families. But Florida families have two great options that are exclusive to them, as Florida residents: the Florida Prepaid Plan and the Florida 529 Savings Plan. Both are, by tax code standards, technically a 529 Plan. The Prepaid Plan locks in future college tuition costs for families through an affordable monthly payment schedule or lump-sum purchase price, and can be used to cover tuition, fees, and even dorm for both in-state or out of state institutions. The 2021 plan prices started at $45 a month for a newborn.

The Florida 529 Savings Plan has more growth potential and flexibility in terms of price tag and use. Families are free to contribute whatever they can, whenever they can – though I encourage families to save on a consistent basis if possible. Even saving a little each month can have a big impact over a span of 18 or 20 years. And thanks to a change in the rules, 529 Savings Plans can now be used for K-12 expenses.

The Florida 529 Savings Plan has undergone a number of improvements in recent years including a 70 percent reduction in fees, eight new investment fund options and an easier to navigate website. If you haven’t taken a look at the Florida 529 Savings Plan in a while, make sure to do so. You’ll be impressed by the upgrades. We are seeing more and more families gravitate to the Florida plans as outstanding options for making college affordable, even when budgets are tight. And research shows that families who plan for college expenses end up saving twice as much as families who do not.

According to the latest data available from the College Savings Plans Network, American families have entrusted over $425 billion of assets to 529 Savings Plan accounts nationally. There are over 14 million 529 accounts now open, each representing the hopes and dreams of an American student. Closer to home, there are now more than 105,000 active Florida 529 Savings Plans holding a combined $1 billion in family savings. And enrollments for the Florida 529 Savings Plan are up 60 percent year over year.

As a financial advisor, these savings trends are encouraging, showing that families recognize the enduring value of higher education and are taking positive steps – even in these uncertain times – to plan and help secure their children’s academic future.

 

Mari Adam, CFP®, MBA, CRPC®, is a Senior Wealth Advisor with Mercer Advisors, based in South Florida. She has over thirty years of experience helping Florida families plan for college.

All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the articles and research discussed come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate, but is not guaranteed or warranted by Mercer Advisors.

About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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