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Reinventing yourself sometimes requires reeducating yourself. Consider these ways to pay for your encore education.
COLLEGE CAMPUSES ARE BECOMING more diverse—agewise. Nearly a million Americans age 45 and older were enrolled in college undergraduate and graduate courses in 2016, according to the U.S. Census Bureau. They're not necessarily going back to study Plato. Many have a more practical goal in mind: getting a degree and increasing their skills as they transition to their second or third career.
College degrees can come with a high price tag: For the 2017–2018 academic year, tuition and fees at private, nonprofit four-year schools rose 3.6% to $34,740, according to the College Board. And tuition costs are just the start. Going back to school may require you to take a leave of absence from your current job, and the cost of books and transportation can add up. But there are ways to manage these educational expenses without disrupting your financial planning.
"Returning to school inevitably involves some costs and trade-offs," says Richard J. Polimeni, director of Education Savings Programs for Bank of America Merrill Lynch. "You may have to adjust your priorities and find places to trim expenses so that you can afford to go back to school." If the program or specialty you want to pursue involves a large financial commitment, you may also want to explore the following funding options, Polimeni says.
A 529 education savings plan. A little-known fact: These savings plans are not just for college-bound teens. A 529 education savings plan can be started to support your own continuing education goals too. In fact, if there's money left over from the 529 you created for a child or grandchild who has now graduated, you can change the beneficiary to yourself.
Starting a 529 savings plan for yourself may not make sense if you're planning to enroll in school in the next year or so. But for those with, say, five years of lead time, it may be worth considering. "The main advantage is that any money you contribute can compound tax-free," Polimeni says. "And, assuming you use it to pay for tuition or other eligible expenses, your withdrawals are tax-free as well."
If there's money left over from the 529 you created for a child or grandchild who has now graduated, you can change the beneficiary to yourself.
Leverage your investments. You could liquidate some of your investments to cover your tuition. But doing so risks putting a dent in your investment strategy. There is an alternative offered by some financial institutions—a secured line of credit. Here's how it works: Your investments can be used as collateral to establish a flexible line of credit. Such an account provides access to money as you need it, often without application or maintenance fees. Lines of credit that leverage your investments as collateral do entail risks, Polimeni says. But this strategy can allow you to maintain your current investment strategy without disruptions.
Each of these choices has its advantages and disadvantages; it's best to review them with your financial advisor as you look for ways to free up cash to help you meet your new educational and career goals.
Whichever route you choose to pay for the courses you’ll need to upgrade your skills or prepare for a career change, consider it an investment in yourself.
1 To be eligible for favorable tax treatment afforded to any earnings portion of withdrawals from Section 529 accounts, such withdrawals must be used for "qualified higher education expenses," as defined in the Internal Revenue Code. Any earnings withdrawn that are not used for such expenses are subject to federal income tax and may be subject to a 10% additional federal tax as well as state and local income taxes.
The investments or strategies presented do not take into account the investment objectives or financial needs of particular investors. It is important that you consider this information in the context of your personal risk tolerance and investment goals.
Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.
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