Retirement Guys: Get educated about college planningWritten by Nolan Baker Mark Clair | | firstname.lastname@example.org
The start of another school year is right around the corner. No matter how young or old your child or grandchild is, paying for college can take some creative planning and saving. For me, Nolan, I decided to join the United States Marine Corps Reserves and became eligible for the Montgomery GI Bill, which paid a large portion of my college expenses. Joining the military may or may not be right for your child, but either way, it’s time to go to basic training for college planning.
Matt Hisey, a Retirement Guy from Cleveland with a long-term focus on college planning, points out that the most difficult hurdle is putting together a comprehensive college plan from start to finish. It can be an easy issue to avoid until it stares you straight in the face. Getting prepared can be confusing and the financial aid forms can be complicated. All the hurdles make it easy to want to give up, but with the rising cost of today’s colleges it can be worth taking the extra effort now, rather than later.
For the younger group, several steps can improve the odds of getting into the right college and for scholarships and grants. One program we have personally supported over the years has been Junior Achievement. This is a great program that teaches young children the importance of being financially smart. Not only in our opinion does your child being involved in these programs teach values and leadership skills, college scholarships are also awarded to local youth every year. During the five-year period we volunteered for the local Junior Achievement program local youths were awarded more than $85,000 in scholarships. This along with many others may be an extracurricular activity to get involved with. It’s important for our children to stay involved in extracurricular activities they are passionate about. It might open a door that will provide your child with a wealth of opportunities.
Parents and grandparents who want to help their children out financially should start saving right away in a college savings account. Several options are available such as a state-sponsored 529 plan, a UTMA, UGMA or just a separate account the parent can use to pay expenses out of. My wife and I opened up a 529 plan for both of our two boys when they were only a few weeks old. By putting $100 a month into each of their accounts over the years we have been able to save up thousands of dollars to help them and they still have years to go until college.
A 529 savings plan is named after the Internal Revenue Code it was created from in 1996. For donors, they can receive state tax benefits when investing into their state’s approved plan, which makes the plans even more attractive. For the child, as long as the money is used for qualified higher educational expenses, the money can come out federally tax free. The donor also gets to maintain control of the account. The contribution amounts are very flexible and allow a person to save a little a month or make a large one time deposit.
The Uniformed Gift to Minors Act of 1956 was originally created to allow someone to gift money to a minor. In 1986, more flexibility was created under the Uniformed Transfers to Minors Act. Part of the original intent was to make it easier for individuals to gift money to minors without the added expense of setting up a trust. It is important to understand that, ultimately, money goes to the child even though he or she may not have control over the funds until later in life. The account will automatically terminate once the child reaches a certain age. These types of accounts can be used for high net worth families who want to reduce their overall estate by gifting money away.
A third option is to set up an individual or joint account with your spouse and keep it as a separate account. Most investment companies today will allow investors to set up an account for a low minimum and make regular monthly contributions. The advantage to setting up this account is the investor maintains control of the funds and unlike the 529 plans the money can be used for more than just college expenses, such as a first car or a wedding. The disadvantages are that there are no real tax benefits to a joint account and the IRS places limits on the amount of money individuals can gift each year.
Enjoy the next month or so before school starts back up. Just remember as the kids go out shopping for new school clothes and supplies for another year, you should take some time to look at what the longterm plans are for college planning and get started. In today’s tough economic times, raising the future generation with the right values and leaderships skills is going to be crucial to not only your family’s success but our nation’s as well.
For more about The Retirement Guys, tune in every Saturday at 1 p.m. on 1370 WSPD or visit www.retirementguysnetwork.com. Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc nor its representatives provide tax advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. (419) 842-0550.