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The Cost of Higher Education - Secondary Education

| August 26, 2015
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08/26/2015: Written By: Jim Eutsler - Financial Planning and P&G Retirement Planning Specialist 

Saving for private high school, what savings vehicle should you use?

The quest for knowledge – a noble attribute that helps shape an individual and prepare them for the future regardless of their age.  Unfortunately, that quest usually comes at a price, specifically a monetary one.  And that price can be steep if the word ‘private’ is somehow attached to your learning institution.  In a perfect world, your child will be a star athlete or academic scholar that is awarded scholarships which help to offset some of the cost.  For the rest of us, be prepared for a yearly bill that could rival college tuition.  Costs can vary dramatically by region of the US you live in, however, the average cost of an independent private high school in the US last year was  $25,738 (Data: National Association of Independent Schools).  “Fortunately”, private high school tuition in the Midwest typically costs below that average.  Tuition for the 2015-16 school year at St Xavier High School in Cincinnati, for example, is $13,320.

If you are set on sending your child to a private high school, the question often becomes how to pay for it.  While the obvious answer is to start saving early (e.g. as soon as you have a valid Social Security number for your child), a better question to ask is what savings vehicle should you use.  The likely answer to that is something known as a Coverdell account.

Some specifics of a Coverdell Education Savings Account (ESA) are:
  • $2,000/year of after-tax money is able to be invested
  • Adjusted Gross Income limits ($110K single; $220K joint)
  • Unlimited investment choices
  • No federal taxes due on any investment gains provided the funds are used for qualified education expenses
  • Can be used for K-12 grade, as well as college
  • Qualified expense includes: tuition and fees, books, supplies, equipment, academic tutoring and computer technology/equipment
  • Must be used by age 30 (unless special needs)
One major benefit of a Coverdell is illustrated by the bullet point, “Can be used for K-12 grade, as well as college”.  If you begin saving early in your child’s life and are lucky enough to have the funds in your Coverdell account exceed the cost of high school, you can use the extra money to put toward college or trade school which helps to reduce your high school overfunding risk.

While there are other vehicles that can be used to pay for expenses related to private high school, such as custodial accounts (UTMA/UGMA), loans or paying with cash/savings, the Coverdell offers the soundest financial approach if you know you will be incurring that expense.

If you want to walk through this together, feel free to reach out to me at jim@hengeholdcapital.com.
Next up will be ‘The Cost of Higher Education – Part 2 (Post-Secondary)’.

Content in this article is not intended to be financial advice. Instead, we think of it as educational and financial education is important to us.

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