College Savings 101: The 529 Plan

 It doesn’t quite seem possible, but yet another summer is quickly coming to an end and before you blink, the leaves will have changed and Christmas products will be on the shelves.  Very soon, school will be back in session and those who are of college age will begin the seemingly daunting task of getting their ducks in a row before another semester begins.  Deep sigh……

One of the top priorities on that list for parents should be to consider using a 529 account for college savings.   529 plans are tax-deferred accounts (like an IRA) that are an excellent way to save and invest for various higher educational expenses. 

Features:

• Potential state tax deduction on contributions up to certain annual limits
• Tax deferred growth potential
• No taxation upon withdrawal if funds are used for qualified educational expenses (such as tuition, books, certain room and board, computers, etc.)
• The owner, generally the parents have control over the account and can transfer the account to another beneficiary
• Not subject to “kiddie tax rules,” unlike UGMA accounts (Uniform Gift of Minors Act) and UTMA accounts (Uniform Transfer to Minors Act)

Items to be aware of:

• No guaranteed rate of return – subject to market risk
• Certain taxes and penalties may apply if funds are withdrawn for non-qualified expenses
• Keep records of how money was spent that was withdrawn from the 529 account in case of an audit
• Review the asset allocation/risk profile of the account periodically.  Typically, the closer the child is to entering college, the more conservative the account should become

In one of our staff meetings this week, one of The Center planners reminded us all, “there are certain aspects in life that are humanly impossible to control.  It is, however, the factors that we do have control over that we must focus on, to better ourselves and the service we provide to our clients.”  Although college expenses have risen by almost twice the rate of inflation, this is something we truly cannot control.  What we do have control over, however, are the tools we can use which can assist us in creating a solid educational financial plan – something a 529 account can help provide.

---

Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 college savings plans before investing.  More information about 529 college savings plans is available in the issuer’s official statement, and should be read carefully before investing.

The information contained in this report does not purport to be a complete description of the subjects referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Prior to making an investment decision, please consult with your financial advisor about your individual situation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Favorable state tax treatment for investing in Section 529 college savings plans may be limited to investments made in plans offered by your home state.  Investors should consult a tax advisor about any state tax consequences of an investment in a 529 plan.

How to Get Started with Your Savings Goals

 Whether you are young and starting your own life as an adult or in mid-life and realizing that you are behind in getting started towards your financial planning savings goals, it may be hard to know how to begin.  No matter where you are now, it’s time to take steps towards setting and achieving your financial goals. 

Ready.

Determine your top financial goals.  Maybe you need to start saving, period.  Then there is college for the kids and retirement someday (?)

Set.

Prioritize your main goals.  Top priority is building emergency reserves – at least 3 – 6 months of monthly expense needs is recommended.  Next, balance retirement and education savings, keeping in mind that loans are available for education costs, but there are no loans for retirement.

Go.

• Begin your saving by paying yourself first.  Budget an amount to set aside in savings, as if your savings account is someone you owe, until your savings reserve is built up to your goal.
• Next, begin contributing at least a minimal amount to your employer retirement plan.  Start by contributing enough to receive any employer match that might be available, and then slowly increase your contribution percentage over time.  
• Education saving can begin by investing monetary gifts received for birthdays and other holidays into 529 college education accounts for your children.  As cash flow allows, budget in a set amount monthly to add to the 529 accounts.

No matter what your current place in life, it’s the right time to start saving to meet your financial planning goals.  Contact a Certified Financial Planner™ to help you come up with a plan to get you to the starting line and off to the races!

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

---

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

What Better than the Gift of Financial Education and Support?

 I don’t know about you, but I can hardly believe that it is already time for the holidays.  It seems like just yesterday that I was racking my brain to come up with creative gift giving ideas for all of those people on my list.  I find that it is just as hard to find gifts for adults as it is for children.  But there is one gift I’ve found that transcends generations – the gift of financial education. 

I know, financial education does not sound as attractive or exciting as say, an iPad or a Wine of the Month Club membership, but it is a gift that can keep on giving for a lifetime.  What am I talking about when I suggest a gift of financial education?  Here are just a few ideas:

For Younger  Kids (elementary – high school):

• If you’re trying to stay away from more electronics, there are hundreds of books, workbooks and other resources available from Jump$tart Coalition (JumpStart.org)
• Games like Monopoly, The Game of Life, and PayDay are great (Most are available as both traditional board games or for the computer, Wii, etc.)
• Make a contribution to a 529 College Education fund to support the child’s future education.

For Older Kids (college - young adults):

• If your gift recipient has had earned income during the year, consider contributing to a ROTH IRA in their name. 
• Gift shares of a mutual fund or stock introduce them to investing and help them start an investment portfolio.
• Make a payment towards their outstanding student loan debt.

For Young Adults and Beyond:

• Fund a year of a credit monitoring service to protect their credit and financial identity from fraud.
• Purchase financial software to help them with budgeting and financial tracking (i.e. Quicken)
• Pay for a consultation with a Certified Financial Planner ™ (my personal favorite!).  This can help provide basic financial education and guidance for getting them set on the right financial path.

Giving a gift tied to financial education and support may not make you the hero of the holidays, but you can be certain that the gift will long be remembered as one that lasted long after the holiday decorations are put away for another year.

---

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Investments mentioned may not be suitable for all investors.

A GIFT FOR A LIFETIME: Grandparent Giving for Education

 We all know grandparents and grandchildren have a special bond. If you are a grandparent of college age children, or those attending private schools in some cases, you have to be alarmed about the amount of debt students are racking up. Economists are estimating students will be paying loans for as long as 20 years, affecting their ability to get homes and cars.*

Grandparents have a special tax saving measure that will be a wonderful gift to their favorite student.  They can make direct payments of tuition to a school free of gift tax.  So what does that mean to the grandparent?  It means that even if you have contributed to 529 plans or given to your student directly, you can exceed the $13,000 annual gift tax exclusion by writing the check directly to the educational institution for tuition payments.  The grandparent is giving now and also reducing their future taxable estate.

What does it mean to your grandchild?  It could mean less debt and the ability to start their professional career on a more solid financial basis.   With the giving season right around the corner, this may be a strategy you want to consider. To learn more, contact your financial planner at the Center.

---

Source: Huffington Report, 7/20/2012

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  You should discuss any tax or legal matters with the appropriate professional.

April is Financial Literacy Month

 It is a sad statement about our society that we need to have an entire month dedicated to financial literacy.  Today, a large percentage of individuals and families are experiencing some kind of financial difficulty that is negatively impacting their everyday lives.  Money Management International recently reported that Americans carry more than $2 trillion in consumer debt and 30 percent report having no extra cash.  This is just Americans – you can only imagine what the figures might be worldwide! 

Much of our problem, in my opinion, is lack of education.  We need to start teaching basic financial education to children, so that good financial habits are built over a lifetime.  The problem is, there are very few schools teaching financial education, and many parents don’t have the resources (or sometimes the knowledge) to teach their children these important lessons. 

The good news is that we have a great resource locally.  Detroit is home to Junior Achievement Finance Park, a hands-on financial learning center.  I recently spent the day volunteering with the FPA of Michigan at JA Park with a classroom of 8^th graders from Detroit. I saw first-hand how this high-tech facility can help students learn the basics of money management by spending the day in the life of an adult.  Students were assigned a life scenario and were responsible for:

• Calculating their Net Income (salary after taxes)
• Managing monthly expenses by making lifestyle choices
• Setting aside a portion of the budget for savings and charitable giving
• AND, ultimately, creating a balanced budget 

As we all know, this is not always an easy task.  The day provided students with some real-life perspective on how difficult it can be to manage money, and on why Mom and Dad sometimes have to say “No” to their daily wants. 

In honor of Financial Literacy month, you have the opportunity to visit JA Park with your children FREE of charge this Saturday, April 28^th, from 9 a.m. to a 1 p.m. for JA Family Day.  I encourage you to attend with the children in your life…let’s work together to help the next generation become financially literate!

Please feel free to e-mail me for additional financial literacy resources for children and adults.

---

Raymond James is not affiliated with Junior Achievement.

The Gift of Education

Convincing a child to go to college might seem about as easy as giving a goldfish a good, close shave. But in reality, you have some leverage you might not know about. It's called an Education Policy Statement and it gives your student some guidelines to follow. In an Education Policy Statement you can:

• Make the most of your educational gift
• Let the student know what you, the donor, expects
• Lay out donor & student responsibilities 

Giving the gift of education can be a productive, beneficial, life-changing experience. A good education can help your student achieve their life dreams and goals. That's why, over the years, many parents and grandparents have asked for help in making sure they clearly spell out their vision of college.  An Education Policy Statement document might not be the silver bullet, but with the right incentives in place to motivate the student along --- well, it's a good start.

In a future blog … How much can you expect to pay for college? We'll give you the tools you need to add it up.

What Does MOM Stand For?

The other day, my teenage daughter related to me a quip she received by way of Twitter.  It goes something like this… a child was pestering his mother about his urgent need for a new cell phone.  The mother continued to answer “NO,” without an end to the requests.  She finally asked in frustration, “Do you think I’m made of money?”   The child replied, “Isn’t that what MOM stands for… Made Of Money?”

My first response to this story was to chuckle; it is a very clever play on words.  However, after my own children continued to use the Made Of Money reference over the next several days, I realized that this is a clear indication of a real problem.  Most school age children and younger adults are receiving little to no financial education at school or at home.  They see the kids on TV and their friends at school ask and receive anything they ask for, without understanding what it takes to earn the dollars that are being spent.

As a parent, what can you do to begin to teach your children about the value of money?

• Help them learn the difference between wants and needs. 
• Pay them an allowance, but make them earn it with specific weekly responsibilities.
• Put them in charge of something (financially) at home; put them in charge of something at home (like food for their pet).  They are in charge of buying it when it runs out…using part of their allowance.
• Encourage saving (i.e. if they can save ½ of something they want, you can match it to make up the difference).

For list of Financial Education Resources for Parents and Children, visit the Certified Financial Planner Board of Standards, Inc. website at http://www.cfp.net/learn/resources_children.asp