Broker Check
Funding Your Child's Education with Stock Options and Grants

Funding Your Child's Education with Stock Options and Grants

August 02, 2023

Knowledge is one of the best gifts you can give your child, so it’s important to start planning for your child's education as early as possible. You may not be aware this, but you’re able to use stock options and other stock grants to help fund those educational pursuits.

Let’s dive deeper into understanding the possibility of using stock options and other stock grants.

Understanding Stock Options and Other Stock Grants 

Stock options refer to compensation where an employee can purchase stock at a predetermined price within a specified period. Other stock grants options include:

  • Restricted stock
  • Performance shares
  • Restricted stock units
  • Employee stock purchase plan

Restricted stock is when an employee is given the right to purchase a certain number of shares at a discounted rate.

Performance shares are rewarded based on achieving predetermined goals and objectives, which means employees can benefit from them if they meet their expected performance criteria.

Restricted stock units (RSUs) are like stocks in that they give an employee the right to buy or sell the underlying asset (in this case, stock). The employee doesn’t pay for these shares at the time of grant. Instead, they’re given to employees as part of a compensation package and must be held until the vesting period passes.

An employee stock purchase plan (ESPP) allows workers to buy company stock at a discounted price through payroll deductions.

Utilizing Stock Options and Other Stock Grants for Education Funding

Unlike other forms of education funding, such as student loans and scholarships, stock options and other grants offer the potential for significant returns with little to no debt. This makes it a great option for those looking to fund their child's college education without taking on too much risk.

There are several ways to take advantage of stock options and grants when funding your child's education.

First, you can sell some or all the stock granted as part of an employee stock purchase plan. This will give you immediate cash to cover tuition, books, and other college expenses.

You can also exercise the stock options and take ownership of the underlying shares. Afterward, you can float the shares for cash or convert them into bonds or mutual funds.

Another alternative is to transfer ownership to the beneficiary. This allows them to benefit from any gains achieved in the stock market before they’re required to pay taxes on their gains.

Potential Risks and Drawbacks

Fluctuations in the stock market can cause the value of your grant to decrease, leading to a net loss for your investment.

There are also tax implications with using stock options and other grant options for education funding. Depending on the grant type, taxes may be due at different times. Something to also consider is that if the underlying company is bankrupted, the grant may be worthless.

You can diversify your investments to minimize potential risks and maximize benefits using stock options. As always, consult with a financial professional, to help you understand the potential risks and rewards of each investment, before making any decisions.

Other Options for Education Funding

If stock options are not viable for funding your child's education, there are other alternatives. 529 plans allow you to set aside money for future educational expenses at a tax-preferred rate.

Student loans are also available from the government and private lenders. Make sure you consider interest rates and repayment terms before taking on this type of debt.

Scholarships are another option for funding your child's education. These are awarded based on various criteria, such as academic achievement, athletic ability, and financial need.

Conclusion

No matter which option you choose to fund your child's education, you should keep in mind the potential risks and rewards associated with it. Stock options and other grants can offer an attractive return on investment, but they also come with some risk.

Additionally, 529 plans, student loans, and scholarships are viable alternatives you can consider as well. With careful research and thoughtful planning, you can help ensure your child's educational future is secure.

Disclaimer: Neither MML Investors Services nor any of its subsidiaries, employees or agents are authorized to give legal or tax advice. Consult your own personal attorney, legal or tax counsel for advice on specific legal and tax matters.

CRN202609-4808017