Podcast: Planning and Saving for Higher Education

Podcast: Planning and Saving for Higher Education

By Mueller Financial Services, October 4, 2022

Education Planning / Podcast


Join Wealth Advisor, Alex Helms, for an in-depth discussion on saving for higher education such as College or Trade School. In this podcast episode, we will discuss the importance of savings for your child or grandchild’s education, the planning tools Mueller Financial Services can provide, and the various investment vehicles to help achieve those funds.

Listen Now:

For more information, please contact:

Alex Helms
Wealth Advisor

Episode Transcript:

Emily: [00:00:00] Hi, everyone. You’re listening to “Managing Your Wealth: Your Vision, Our Guidance,” the Mueller Financial Services, Inc. podcast. I’m Emily. And today I’m with Wealth Advisor, Alex Helms, who’s going to be sharing insight into education saving strategies. We’re going to discuss the benefits of saving for your child’s future, whether that’s college, the trades, or anything in between. We’re also going to discuss various types of accounts and the benefits of each account. But before we get into the topic, let’s introduce our guest.

Alex joined Mueller Financial Services as a Wealth Advisor in early 2021. With over six years of experience in the mortgage, banking, financial services and Wealth Management industries, Alex is able to help clients navigate all stages of their financial journey.

Alex, thank you so much for joining today’s podcast.

Alex: Yeah. Thank you so much for having me.

Emily: [00:01:00] Now, there’s no question that the cost of sending your child or grandchild to college is an expensive one, but some good news is that there’s more options available than ever before to save for those future education expenses. So, Alex is here to do a deep dive into all of that. Take it away, Alex.

Alex: First, just wanted to start off on a high level in regards to just discussing college and secondary education for children. First, college offers teens a supportive place to flourish in, gives them opportunities to build relationships, create friend groups, and really find what their interests are. As we all know, it’s very hard to determine what we want to do when we’re 17 years old.

Because adults are likely to change jobs many times, a broad knowledge base can serve workers well in the future, providing different expertise and different experiences can only provide us more tools in the tool belt as we navigate through life.

The price may be high for college, but the salary high can be payoff too in the long-run.

College pricing [00:02:00] projection tools that we have access to allow us to show various payoffs in various situations for both students and parents. Some small examples are showing maybe half tuition for the students and half from the parents.

A lot of the times, parents like to have their students or child have some skin in the game. What we’re able to do is project out those various prices and what that would show from a cost perspective. If we were to split that down the middle potentially 50/50. We could also show 75/25, or anywhere in between.

Another comparison that we’re able to run, is in-state versus out-of-state comparison. What we’re able to do is then show the different comparison pricing versus in-state tuition and out-of-state tuition and project out those future costs for your child, depending on what year they’re going to graduate high school. This is very beneficial when deciding, and kind of having that discussion with your child in regards to what their options may be in regards to where they want to go. This also helps the parents have an idea [00:03:00] in regards to how much each of those places they’re going to cost.

In addition to in-state and out-of-state comparison, another benefit of the college projection tool is we’re able to compare public versus private schools. This allows parents to have an idea of the various costs that would come when associated with private versus public schools.

All that we’re really trying to do is provide you a guideline and a basis of, you know, what’s going to be realistic for you and your family moving forward. We don’t wanna overpromise and underdeliver for our child that may wanna go to Notre Dame, where we don’t have access to that in terms of funding.

Not only that, but we’re able to include the inflation within those projections. Obviously, inflation has been very volatile in recent months and we’re able to use customized inflation numbers that allow you to project what the future cost of college may be for your child.

All of these points are variables when it comes to choosing what school is going to be best for your child. However, we do wanna reiterate that college isn’t for everyone, [00:04:00] and there are multiple various options when it comes to saving for the future for your child, if college isn’t exactly the right choice for them.

Emily: What are those saving options?

Alex: The first type of account that I’m going to discuss, and typically the most used and most beneficial for a parent, is called a 529. A 529 Plan is a tax advantage savings account designed to be used for the beneficiaries education expenses. The account does provide flexibility in regards to the fact that a 529 is able to use for a wide range of educational expenses, including college expenses, K through 12 tuition, certain apprenticeship costs, and even student loan repayments.

A lot of our clients have found that they enjoy the flexibility of the 529 Plan, being able that it can provide for all of these different expenses. It also gives you control. Unlike a custodial account, which I’ll talk about in a moment, but with the 529 Plan, the account owner maintains ownership of the account until the money is withdrawn.

From a tax perspective, there may be [00:05:00] tax advantages to saving in a 529 Plan. As long as the money stays in the account, no income taxes will be due on earnings. So, what that means is when you take the money out to pay for qualified education expenses, those withdrawals may also be federally income tax free and in many cases, depending on where you live, state free tax too.

Emily: Who can open a 529 Plan?

Alex: Well, there are no income restrictions on 529 Plan accounts, which is extremely beneficial to all. To open an account, you must be a U.S. resident, age 18 years of over, with a U.S. mailing address, and a social security number or tax ID.

Emily: Who can be the beneficiary or beneficiaries?

Alex: Anyone. Anyone of age with a social security or tax ID number can be a beneficiary. The beneficiary can even be the same person who sets up the account.

Emily: What are the benefits?

Alex: One of the main benefits that I think a lot of our clients find in a 529 as well, is that many different people can get involved. [00:06:00] Grandparents, relatives, friends can all help contribute to this account. Anyone who wants to save for a child’s education can open a 529 Plan account and begin contributing.

The account owner keeps control of the money, can make investment decisions, and can even change the beneficiary if the plans change. A lot of the times, we see circumstances where one child, maybe the oldest, decides not to go to college or they may have money left over after their four years are completed. This then, allows the parents to transfer the money to another beneficiary within that family.

There also may be a state tax benefits in some cases as well. You can also gift money to an existing 529 account. In fact, account owner’s can enroll in free college gifting program that lets family and friends contribute gifts electronically and make for easy account owner’s to send invitation and tracks gifts from their dashboard. This has become very common. I see this a lot of the times in birthdays and things like that for little kids where instead of buying toys and things like that, grandparents, family, friends can [00:07:00] contribute checks, which are then actually contributed to the 529 account.

When it comes to contributions, you can contribute up to $80,000 or $160,000 per married couple, which is a huge benefit of the 529 account in a single year without eating into your lifetime gift tax exclusion. Once assets are in the account, they’re generally considered to be out of the owner’s account state.

Emily: Alex, you mentioned previously that money not used by say the oldest child can go to another beneficiary. But, can that money be used for expenses other than education?

Alex: So, as I explained earlier, you are able to transfer leftover money from a 529 account to a secondary beneficiary. However, that money does still need to be used for secondary education expenses as we have listed previously. If you do want to make a withdrawal from the account that is not for qualified education expenses, a 10% federal penalty is included and possibly state or local tax as well. However, [00:08:00] there are exceptions to the 10% penalty.

For instance, if the beneficiary receives scholarship or attends a U.S. military academy, any earnings would still be subject to federal income tax, but there would not be a 10% penalty for that withdrawal.

Secondly, I’m going to talk about a uniform transfer to minors account, also known as a UTMA or UTMA, or UGMA account as some have heard that term in the past.

The difference between a UTMA account or a transfer to minor’s account and a 529, is that once the child reaches legal age of 18 or 21, depending upon your state, the assets do then transfer legally to that child.

Some parents or guardians do not necessarily enjoy this aspect of the account due to the fact that no matter what the age a child is, they’re legally entitled to those assets.

As we’ve all had different experiences, sometimes children age 17, 18, or even 21, sometimes are not ready or [00:09:00] capable for such large accounts.

The third type of account that we’ll discuss is a joint with rights of survivorship. This is just a taxable joint account that many of you may have currently. This is an account that you can either go joint with your child, or typically just joint within both of those parents.

However, these funds would not be tied to college or secondary education by any means. A lot of the times we suggest this route for those that are just getting started and cashflow may be minimal in regards to their ability to contribute. While we don’t want all those assets necessarily tied up in something like a 529 account, this gives parents the flexibility to start contributing with the intent of college, however, they’re able to tap into this account if anything were to happen to them or they needed emergency funds.

All in all, there are multiple ways that you’re able to contribute and begin to save for your child or your dependent’s secondary education, or any [00:10:00] of their future endeavors, as all of these different accounts have various implications on your personal tax situation.

Emily: Any final advice to parents saving for their child’s education?

Alex: As parents, it’s your role to talk to your child about secondary education and a lot of things that come with that. Not only that, but their interests, both academic and extracurricular, the alternatives based on their interests, maybe that’s junior college, a two year university or potentially, their role that they’ll play in attending the college of their choice.

What is going to be their responsibility? What will they be on the hook for? Will they have any skin in the game? When tuition bills arrive, it can be a crash course in Finance 101, and also an opportunity to pick up valuable lessons about saving, spending, and taking on responsible debt.

If you start the conversation early enough, you can include the student in the decision making process, encouraging them to research scholarships and financial aid.

Overall, your savings and contributions to your future education [00:11:00] or the lifestyle for your child, should be dependent upon your overall cash flow. We, again, highly recommend having a conversation with a professional, to go through a budgeting and cash flow exercise to find the amount that is comfortable for you and your family.

Feel free to reach out to myself or any of our Mueller Financial Services colleagues as we’d be more than happy to have a complimentary, introduction meeting to discuss your financial situation.

Emily: Well, thank you so much for your time today, Alex, and thank you for joining the podcast.

Alex: Yeah, and thank you for having me, and have a great day.

Emily: And thank you for listening. If you’re interested to learn more about education savings, or more about Mueller Financial Services in general, visit www.muellerfinancialsolutions.com. You can also follow the firm on LinkedIn at Mueller Financial Services, Inc. for more firm updates, insights, and upcoming events.

Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through IHT Wealth Management, a registered investment advisor. [00:12:00] IHT Wealth Management and Mueller Financial Services, Inc. are separate entities from LPL Financial.

The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

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