“I’ve never been around a more giving and genuine group of people...Texas A&M is the best-kept secret in America.” -Coach Jimbo Fisher addressing a crowd of over 750 at the @BCAMC Coaches’ Night at Kyle Field.
Traditions Wealth Advisors helped sponsor the event, Coaches' Night, to kick off the 2019 Aggie football season and raise money for student scholarships to TAMU. Gig'em!
We all want what is best for our children and grandchildren. At an early age, we teach them to eat the right foods, we place them in the best preschools, we encourage them in grade school and high school, and we cheer them on when they excel in extracurricular activities.
Put another way, we want our children and grandchildren to succeed in all aspects of life.
As our kids wind their way through high school, most of us want them to attend college. For some, it’s not just about going to a university but being accepted by and graduating from the “right one." Unlike when we were growing up, the pressure today is enormous.
The cost of college has soared. In 1985, the annual tuition, fees, room and board rates charged for full-time undergraduate students at a four-year public university ran $3,859. Thirty years later, the cost had ballooned to $19,189, according to the [[https://nces.ed.gov/fastfacts/display.asp?id=76 National Center for Education Statistics]]. For private schools over the same period: $9,228 to $39,529. That’s a painful hit to the wallet.
Fortunately, there are vehicles that can help ease the burden.
The 529 college savings plan:
One such vehicle is the 529 college savings plan. What is a 529 plan? A 529 plan is sponsored by the state or a state agency. It allows someone to save for college (or kindergarten–12th grade).
Before we jump in, let me say that this is a high-level overview. If you have any questions about college savings or a 529 plan for your son, daughter, or grandchildren, please feel free to reach out to me or my team. We can help get you started and maximize the long-term benefits.
1. Pay for qualified educational expenses. One can use the savings for tuition, books, and education-related expenses at accredited universities, vocational-technical schools, and eligible foreign institutions. Funds accumulated in the plan may go to public, private, and religious schools.
2. Tax advantages abound. While there is no deduction when cash is deposited into a 529 plan, any earnings are not subject to federal taxes, and qualified withdrawals are exempt from taxes.Some states also offer full or partial deductions or credits for 529 contributions.
3. Maintain control of the money. Unlike a UGMA account, in which the child will eventually take control of the accumulated funds, you remain in control of the plan. You make sure it goes toward its intended use.
4. Set it and forget it. Most 529 plans have a “set it and forget it” feature. You make the automated investment, and an outside company manages your investment.
5. Just about anyone can open a 529 plan. Contributions are not limited by the donor’s income. Earn $50,000 per year and you can set up a 529. Earn $50 million per year and you also qualify.
6. There is no maximum annual contribution. Unlike with retirement accounts, the IRS doesn’t specify an annual maximum contribution. There are no age limits on contributions. Total contributions range from $235,000-$520,000 depending on the state. While most account owners won’t run afoul of the rules, there are some specifics we can discuss if you are considering a large, one-time contribution.
7. 529 plans complement FAFSA. A 529 plan helps maximize your ability to pay for college without jeopardizing financial aid. The 529 account is the parent’s asset, much as if you had saved the money under your own name. However, with the 529, you’ll receive tax benefits that wouldn’t accrue if it were in a taxable account under the parent’s name.
While 529s are an excellent vehicle, no plan is perfect. So, let’s look at some potential pitfalls.
1. The plan does not guarantee it will cover the full cost of a four-year college education. However, the earlier you get started, the better. We can provide you with various scenarios, i.e. contribution levels, compounding, inflation, etc.
2. Investment options may be limited. You are not in complete control of the plan. Therefore, it is important to invest in a plan that offers flexibility and low-cost funds.
Do you want an age-based portfolio–one that begins with a more aggressive mixture of stocks versus bonds and gradually shifts to a more conservative mix as your child approaches 18? Or will you choose a static asset allocation? If so, you’ll want to rebalance on a regular basis.
3. You don’t need the savings in your 529 after all. What if Johnny received a full ride to college? It’s a high-class problem, but still, alternatives must be considered.
4. You must time your contributions and withdrawals carefully. Contributions must be made by December 31, though states that offer tax advantages may extend the deadline to April 15. And, make sure that any withdrawals coincide with qualified expenses in that year.
As always, let me emphasize that it’s my job to assist you. We do not subscribe to a one size fits all approach. If you have questions about college savings or 529 plans, we’re just a phone call away at 979-694-9100 or e-mail us at Brien@traditionswealthadvisors.com
Raoul Bascon serves the clients of Traditions Wealth Advisors as the Financial Computing Intern—beginning in May of 2018. In that role, he has verified financial data and produced reports that Brien uses to help illustrate each client’s financial status. He has also helped the firm transition to a new financial software system that will automate much of his role’s functions and provide additional value for our clients.
Raoul received a Bachelor of Science in Mathematics from Texas A&M University in 2017 and is currently enrolled in a Master of Financial Management program, expecting to graduate this May. He completed the Trade, Risk and Investment Program (TRIP) in August 2018, which gave him exposure to the energy industry with two internships (one at an oil company and the other at a financial derivatives firm) and countless hours of interactions with industry professionals. After graduation, he will begin work as an Analyst for Munich RE Trading (the location of his second internship through TRIP), focusing on valuing weather derivatives.
Beyond work, Raoul volunteers with St. Thomas Aquinas and has been involved in a number of student organizations at St. Mary’s Catholic Community and Texas A&M University. He also is engaged to be married on June 29th of this year. After the wedding, Raoul and his bride-to-be, Carolyn, will live in Brenham: the halfway point between his work in The Woodlands and her Master Program for Professional Counseling in Round Rock.
When he’s not driving, studying or working, you can find him playing volleyball, training for a marathon, praying, or enjoying the company of friends.