Where should you start with college planning? As the cost of higher education continues to rise, the strategies to maximize your money for you children's futures become more critical. We are parents ourselves, so as financial experts we work with your needs in mind so that you can help your loved ones.
We won’t sugarcoat it: College planning can be daunting. Not only are you working to save money for your nest egg and retirement, you also have to figure out ways to put some funds away for your child’s (or children’s) future. All of this is on top of regular household costs and “now” expenses like vacations.
But here’s something to consider. College tuition is much like buying a car. Most people do not mind paying a fair price for the car, but they do not want to pay the inflated sticker price. The same goes with college tuition, and unless you know how to negotiate the maze, most people end up paying the sticker price for college tuition. Sometimes, and even worse, they have to borrow money to pay sticker prices.
Once you get into the world of Financial Aid, the questions add up exponentially. As parents ourselves who have either lived through or are preparing to live through the college planning level of the ROI Group Financial Pyramid, we are financial advisory experts that can help answer your questions and point you in the right direction. Peace of mind at this juncture is critical, and we can provide this peace through knowledge and understanding that we can pass to you.
Below is an overview of different types of college planning-related savings vehicles. Some of these you’ve heard of, some of these you haven’t heard of – but know that we have extensive experience working with all of them.
All of the vehicles have tax and financial aid implications. We can help you build a college savings plan and execute it when the time comes so that you can maximize your tax dollars and chance at financial aid – and give your children a start towards the future you want for them.
Additionally, there are processes and procedures that can help an applicant receive Grant money, regardless of their families income or their grade point average. The key is implementing these strategies as early as 9th grade. Every year that follows reduces the chances of being awarded these grants.
Important: Please contact us to schedule a free, no obligation meeting with one of our College Planning experts to get your questions answered.
If you do not have kids, or have passed this phase in life, see how The ROI Group might be able to help you with other financial situations, including Savings and Wealth Building, Brokerage Accounts, Insurance, Retirement Planning, and Older Adult services (including Medicare planning).
This plan, which you’ve probably heard of, is a qualified tuition plan with tax advantages that is designed to encourage savings for future costs of higher education. These plans typically work through individual states or state agencies.
Earnings in 529 plans are not subject to federal income tax, and in most cases state income tax, as long as the funds are used towards college-related expenses such as room/board and tuition.
There are some fees with 529 plans that are important to understand. Also, if you use the money in a 529 plan on something other than college-related expenses, you could incur hefty penalties.
Having a well-funded 529 plan also has implications in securing financial aid. Whether a 529 plan is right for you and your family or not is based on your personal financial situation. Learn more about 529 plans through the U.S. Securities and Exchange Commission (SEC).
Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer’s official statement, which should be read carefully before investing and is available from your financial professional. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.
Coverdell Education Savings Account (ESA)
A Coverdell ESA is a savings account/trust or custodial account set up for a beneficiary under the age of 18 to pay the qualified education expense of that beneficiary.
Typically, people can contribute to a Coverdell ESA if their adjusted gross income for the year is less than $110,000 (or $220,000 in the case of a joint return). Total contributions for one beneficiary in any year can’t be more than $2,000. There are also varying tax implications.
Our financial and college planners can help you understand if a Coverdell ESA is right for you. Learn more about these types of college savings plans plans through the Internal Revenue Service.
Uniform Transfers to Minors Act (UTMA)
UTMA allows for a minor beneficiary to receive a gift – like money – without the aid of a parent/guardian. Instead, the giver of an UTMA-related gift, or a custodian who is selected, manages the beneficiary’s account until the beneficiary is of the proper age.
The IRS only applies the gift tax to an UTMA account on monies over $14,000. While this might be a good way for a minor to use money for college, keep in mind that financial aid might be negatively impacted by having these funds.
Uniform Gifts to Minors Act (UGMA)
UGMA is similar to UTMA, though UGMA is more strict when it comes to the types of assets that can be transferred to the minor.
UGMA accounts typically see less maturity with them than with UTMA accounts.
Contact us to learn more about how UTMA and UGMA can impact your college planning strategies.
Unconventional College Savings & Funding Plans
The college planning vehicles listed above are only some of the options individuals and families can use to achieve the goal of funding college education. There are also various unconventional college savings and funding plans that you probably haven’t heard of from friends and colleagues.
As financial advisors, it’s our job to put together a full college saving and funding plan so that you – and the government, where warranted – can support your child’s/children’s educational needs. Some plans require creative financial ideas, and we pride ourselves on devising exceptional plans that our clients rely on.
Please contact us to speak with a college planning expert about your individual needs.