Client Centered
  • There are many different ways to prepare for educational expenses, but we help to figure out how much to save and how to save it.  We ensure the approach we recommend integrates with your tax, cash flow, investment, estate, and other financial planning goals.

  • Whether you are attending school yourself, are seeking to assist a loved one, or have graduated with student loans, how to pay for higher education can be a major hurdle to overcome. Furthermore, we feel many students obligate themselves to paying off substantial student loans without ever having had any introduction to financial literacy.

  • If you are currently liable for student loan debt, then we can help assist you in navigating how to integrate that into a financial plan. This can include helping you to evaluate the consequences of pursuing a various repayment options including consolidation, refinancing, prepayment, and even loan forgiveness opportunities that may require accepting a lower salary for a number of years.
  • Planning for future education costs can be particularly difficult, as these costs have often increased faster than general inflation. The more you save now, the less you will need to borrow later. Tuition alone also may not reflect the true total cost of college, which may include other necessities such as fees, textbooks, school supplies, a computer, room and board, and other incidentals.

  • We help you consider all your options in deciding how to plan for these education costs. We evaluate your individual goals and financial situation when creating your plan. We help you address the complexities of investment options including:
529 Savings Plans

529 Savings Plans

  • There are two types of 529 plans: prepaid tuition plans and college savings plans. These plans are state based, with every state offering at least one plan.

    • A Pre-Paid Tuition plan allows you to avoid future tuition increases by locking in the current tuition rate for a future student beneficiary at an eligible public college or university. There are usually residency requirements and no investment options.

    • A College Savings plan allows you to invest on a tax-deferred basis and to pay qualified education expenses with tax-free withdrawals. Many states now offer at least one college savings plan that has no residency restrictions. The tax advantages, investment options, restrictions, and fees vary significantly with each plan regardless of the type.
  • 529 plan earnings grow tax-deferred and withdrawals are tax-free when used for qualified education expenses. Qualified expenses include: tuition, books and supplies, fees, equipment, and room and board. If the money withdrawn is not used for qualified expenses, you are usually required to both pay income tax and an additional 10-percent penalty on earnings. There are exceptions to this penalty, such as if your child gets a scholarship or is disabled.

  • While the IRS typically limits the amount you can annually gift to another person without filing a federal gift tax return (Form 709), tax law permits you to exclude the aggregate five years of annual gifts made as a lump sum into a 529 plan. This will mean that you cannot gift more to that individual for five years, but it allows the original contribution to compound faster than investing over five years. Unlike other funding options, anyone can contribute to a 529 plan, and there are no income limitations. This makes 529 plans one of the few tax-advantaged college savings options available for wealthy families.

  • The account owner of the 529 plan maintains control over the assets for the life of the account. This means the owner can transfer the assets tax-free to another 529 plan of another beneficiary, as long as the new beneficiary is a family member (including the beneficiary's spouse, son, daughter, grandchild, niece, nephew, and first cousin) of the prior beneficiary.

  • For more information see the following SEC publication on 529 Plans
  • 529 Able Accounts or 529A Savings Plans

    • Achieving a Better Life Experience (ABLE) accounts re specialized accounts providing individuals with disabilities a tax-advantaged way to save and pay disability-related expenses, including education.
    • 529 ABLE accounts permit rollovers in limited amounts from a 529 qualified tuition program account to the ABLE account of that designated beneficiary or to his or her family member.

    • For more information see the following IRS publication 
Student Loans

Student Loans

  • The rising costs of education may make student loans a necessity for many students. Unfortunately, we believe many students have never been exposed to the basics of financial science to understand the commitment they are agreeing to undertake. We have provided some basics about student loans below. 

  • A loan is when you borrow funds that you must pay back with interest over a period of time. For example, for a $20,000.00 loan paid back over a ten year period with an interest rate of 5%, you repay $212.13 every month for the ten years after you graduate. If you need to take that same $20,000 loan out to pay for all four years of college, then your monthly payment will quadruple to $848.52 per month or $10,182.24 per year. These substantial payments can prevent or substantially delay you from obtaining future financial independence if not properly planned for in advance. 

Types of Student Loans

  • Federal student loans are administered by the U.S. Department of Education. Federal student loans have eligibility requirements and borrowing limits but can be advantageous over private student loans. Federal student loans charge a fixed interest rate and payment of the principal can be deferred until six months after the student’s graduation. Students demonstrating financial need may be eligible for a subsidized federal student loan, where the government covers the interest until the deferral period ends and you start repaying the loan. Unsubsidized federal student loans can allow borrowers to either pay the interest as it accrues or allow it to capitalize.

  • Private student loans are issued by private lenders, such as banks, credit unions, and other companies. Private student loans often have higher, variable interest rates than federal loans.  Private loans can also have high origination and disbursement fees. 

  • For more information see:
Tax Credits

Tax Credits

  • There are two primary tax credits available: the American Opportunity Credit and the Lifetime Learning Credit.

  • You must qualify to claim either credit, and if you qualify for both, you may only claim one credit per student each year.

  • These credits may be able to be used in combination with a 529 Plan or Coverdell Education Savings Account so long as you do not apply the credits to qualified expenses paid from the 529 plan or the Coverdell Education Savings Account.

  • For more information see the following resources from FINRA:

American Opportunity Tax Credit

  • The American Opportunity Tax Credit (AOTC) is a tax credit of up to $2,500 of the cost of tuition. This is an expanded version of the Hope Credit, and it is available for four years of college and can be used for tuition, fees, and course materials.
  • Forty percent of this credit may be refundable, which means that if the refundable portion of your credit is more than your tax burden for the year, the excess will be refunded to you.

  • To qualify, your child must be pursuing a degree from an accredited institution, they must at least be attending school at least half time, and they cannot have a felony drug conviction. There are also income limits that apply.

  • See Ithe following from the IRS for more information:

Lifetime Learning Tax Credit

  • The Lifetime Learning Tax Credit (LLTC) is a tax credit designed to reduce the costs of college education. It can only be claimed once per tax return regardless of the number of children you have enrolled in college at the same time.

  • Up to 20% of the first $10,000 paid for college tuition and fees, for a maximum credit of $2,000 per tax return, can be claimed with this credit.

  • You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. Use the expenses to figure the lifetime learning credit for the year in which the expenses are paid, not the year in which the loan is repaid. 

  • Unlike the AOTC, there is no limit on the number of years you can claim the LLTC. The LLTC can be used for under-graduate and graduate courses, and the LLTC can also be claimed when your child is attending school less than half time. The LLTC does have income limits.

  • See the following IRS publication for more information:

Education Focused Accounts

<strong>Coverdell Education Savings Accounts (ESAs)</strong>

Coverdell Education Savings Accounts (ESAs)

  • The contributions to a Coverdell Education Savings Account grow on a tax-deferred basis, and the distributions from them are tax-free if used for qualified expenses. The investment options in these accounts and the qualified expenses allowable from these accounts, which can even include private high school tuition, can be broader than 529 plans. However, unlike 529 plans, these accounts have annual contribution limits and income restrictions.

  • For more information see the following IRS resources:

Coverdell Education Savings Accounts
Custodial Accounts

Custodial Accounts

Uniform Transfer to Minors Act Accounts

  • This custodial account provides a tax-advantaged college savings, where an adult custodian is responsible for investment decisions until the beneficiary reaches the age of majority. When the minor reaches the age of majority, they control the assets in the account. These accounts can hold money, securities, real estate, fine art, patents, and royalties.

Uniform Gift to Minors Act Accounts

  • This custodial account provides a tax-advantaged college savings where an adult custodian is responsible for investment decisions until the beneficiary reaches the age of majority. When the minor reaches the age of majority, they control the assets in the account. These accounts are limited to holding money and securities.
Introduction to UTMA and UGMA

Other Options

College Savings Bonds: Series EE and I Savings Bonds

  • Series EE savings bonds issued after 1989 or Series I saving bonds are another tax-advantaged way to save for college. These bonds are backed by the full faith and credit of the U.S. government. The interest from these bonds is usually exempt from state and local taxes and is tax free if used for qualified higher education expenses.

  • For more information see the following US Treasury resources:

Other Options

Financial Aid and Scholarships

  • Qualifying for financial aid and scholarships can be a very complicated process. Many aid programs have strict eligibility requirements. In fact, your assets and savings may decrease the amount of financial aid for which you can qualify. Despite the quirks of these financial aid programs, we find that you likely will be in a better financial position on graduation day if you start saving for your educational goals now.  

  • Numerous scholarships are available from a variety of sources. Schools themselves offer scholarships and merit awards. Private companies, special interest groups, and charities also provide assistance with education funding.

  • We help you navigate this complex area to identify opportunities to defray the cost of your education goals.

Contact us to schedule a complimentary consultation to learn more about how our Education Planning strategies can benefit you or your family.

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