MASTERCLASS: 529 Plans - May 2023

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  • 50 mins 00 secs
Three experts discuss the rising costs of higher education and the role that 529 Plans can play in helping families save for college. The panel explores the underlying factors driving the high costs, emphasizes the importance of long-term planning, identifies obstacles that impede families from saving, evaluates the potential for financial aid, dispels common misconceptions about expenses and aid, and highlights the advantages of 529 plans over alternative savings options.
  • Tony Bamonte, 529 Specialist, Invesco CollegeBound 529 Plan - Invesco
  • Tricia Scarlata, Executive Director, Head of Education JPMorgan Asset Management - JPMorgan Chase
  • Erika Safran, CFP®, Principal at Safran Wealth Advisors - Safran Wealth Advisors

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Speaker 0: Higher education has been synonymous with higher inflation for the past few decades. Now, according to a report from the Georgetown University Center on Education and the workforce between 19 82,020 the average price of tuition fees, room and board for an undergraduate degree increased by 169%. Joining me to discuss saving for higher education and how 5 to 9 plans can help are Erica Safran Principal at Saffron Wealth Advisors,

Speaker 0: 529 specialist at Inco College Bound, 529 plan

Speaker 0: and Trisha Scarlata, Executive Director and Head of Education Savings at JP Morgan Asset Management.

Speaker 0: Thank you all for joining today. Thank you,

Speaker 1: Jonathan. Thank you for having

Speaker 0: us

Speaker 0: uh Trisha. So with the cost of higher education, as as just mentioned, has been rising astronomically for the past four decades now, uh I guess do you expect them to expect tuition to kind of level off increase decrease hopefully and, and why is it so expensive?

Speaker 1: Oh, well, I wish I could tell you today that I expect costs to go down, but unfortunately, I don't think any of us expect them to go down any time soon. I mean, I would say even during the pandemic, um there was a bit of a fallacy out there that cost came down a bit and they really didn't, tuition actually stayed the same, but we can

Speaker 1: continued to see an increase in room and board. So even during those difficult years, the prices still went up. So I do not expect them to come down. I wish I could tell you. I did. I will, I will personally say I just got an email from my son's institution letting me know that it's going up 6% for next year. So, so no, they are not coming down any time soon.

Speaker 0: I remember sending those emails to my parents is, here's how much we owe and,

Speaker 1: and as far as why is it so expensive? I, I think,

Speaker 1: you know, I think number one, the demand, there's, you know, 65 66 67% of high school seniors go to college. So there's a tremendous demand for people to be going to college today. I mean, the reality is, is that a, you know, a college degree, you know, someone with a college degree earns 88% more over a lifetime than someone with just a high school degree. Um And so there are kids know that they need to go to college today. So there's a huge demand, right? So that's number one,

Speaker 1: number two is, you know, institutions are getting a lot less aid from the government. Um So, so where do they got to make up that money in tuition prices? And then, and thirdly is that, you know, they're really trying to remain very competitive and attractive

Speaker 1: to those folks that are applying. So they're constantly trying to add programs and add new things to the institutions which of course, in turn becomes a more expensive tuition rate for the person going. So, and it's not only does tuition go up but because, you know, the costs of maintaining these institutions go up, um, they obviously need to keep up with administrative costs as well.

Speaker 0: And price competition isn't an issue

Speaker 1: here. I mean, I think it, it's, it's certainly an issue but at the end of the day, most of the institutions know who their student is. The highly competitive ones. They don't yearn for anyone they get, you know, they're getting thousands and thousands of students applying. So, uh, I wish I could tell you better news,

Speaker 0: Erica should, should parents be saving for four years? When should parents start thinking about saving for college?

Speaker 0: I should start thinking about college. The second your child is born actually can think about it way before. But there's not much you can do until your child is born and has a social security number. Um, but whether you should be saving for four years or six years and I think the important part is just save, most kids are not gonna get through college in four years. This is a time of growing learning, making mistakes, another semester, another year. And then if you add to that,

Speaker 0: by the time they're through college and perhaps more mature and have established some goals, law school might be game in the medical school. So planning for four years is insufficient. But the fact of it is is that most parents do not save enough for college. And the result of that is leaving students with college loans and debt that will take them years to pay off

Speaker 0: Tony. What are some of the main reasons that parents might not save or, or uh save an insufficient amount? And it's really comes down to procrastination and forward planning. Um People just don't think, you know, I think they have time and, and they the best thing to do is get started as early as possible, right? You want the market to work for you um with a 529 plan.

Speaker 0: So, um yeah, that's really what we're seeing is that people don't plan ahead of time if they would get started earlier, it wouldn't be such an issue.

Speaker 0: And uh Trisha, what can the typical family expect uh on average in terms of financial aid?

Speaker 1: Oh, so average is a tough thing, right? Um If we do look at averages, we say that the typical family at least for last year got about $11,000 combined. And now that is a combination of scholarships and grants and, and just always remember that grants are need based. Right? So not everybody is eligible for grants. Um, so that was the average last,

Speaker 1: last year and, you know, a lot of families will see they, they focus on sports and they're hoping their kids get a sports scholarship. I went through that with my child. You know, and the reality is, is those dollars aren't a lot either unless your child is really going to a division one school and gonna get the full ride. You're looking at somewhere around, you know, 7 $8000

Speaker 1: per year for that kid who's going to ad two school, um, and D three schools don't provide any, any money. So the reality is, is only 0.3% of students get a full ride. So, um, so it's certainly something that parents and families should be looking at and considering, but there's not as much dollars out there as we'd hope.

Speaker 0: Do you expect to see financial aid expanding over the next few years? I

Speaker 1: don't necessarily think that it's going to expand. I mean, college costs over the past eight years have gone up about 23% and aid has gone down 6%. So we haven't seen it yet.

Speaker 1: What we'll talk about in a little while probably hopefully is just around some of the fast the changes which is trying to make more aid available to more people. It doesn't mean it's going to necessarily mean more dollars. It's just expanding the availability of the aid

Speaker 0: and Tony. Are there any ways that um families can reduce their overall cost of higher education?

Speaker 0: So, of course, I'm gonna say you wanna save on a 529 plan, you wanna get started early and you wanna get people to help you out like grandparents, family, you can all contribute. All the plants have programs where you, that will help you like, um, kind of like a funding program. Maybe codes that they, you can, you know, contribute, you know, think birthdays, holidays. So that's really where we try to talk to people about, you know, getting a good head start. But other things, um, I mean, there's financial aid you could look into,

Speaker 0: um, even little things like, uh, thinking about, uh, instead of on campus, uh, your dormitories, you, there's off campus and that money can, you can pull money from a 529, that's a qualified education expense, you know, uh, room and board. Um, and then there's, um, the big thing that, that we've seen, uh, that the big change is how parents are getting more involved in the selection of the, of the colleges.

Speaker 0: And so, you know, I remember when my, my sister has a bunch of kids when they went through that and of course, kids, they want, they, maybe it's the football team they want or it's, it's the big school. And so they want that school and they got approved or got accepted to that school. But sometimes the, the cost is, is just ridiculous.

Speaker 0: And so parents and I think that the number is like more than 95% of parents are now having a conversation saying, look, you know, if you got into this other school and it's really a better deal. So, and otherwise we're gonna have to take loans and that's really it, you wanna avoid taking student loans out as, as much as possible. At least they're reducing the amount.

Speaker 0: It's a hard conversation to have with the 19 year old

Speaker 0: Erica. Are there some are, are there any misconceptions about the higher cost of, of education and financial aid that, that we should discuss and know about?

Speaker 0: Uh, there's probably quite a few. Let's start with what I believe is the biggest misconception. Financial aid is not free

Speaker 0: when a family, when a student forget the family, when a student receives that financial aid package, it will identify the scholarships that the student receives because they're brighter. They have high scores. It'll have the needs based grant, which doesn't have to be paid back and then also identifies how much the family can borrow.

Speaker 0: Herman goes. Great. We have all this money. Let's go here, but they're not paying attention that the loan is something that needs to be paid back.

Speaker 0: And many, many years ago, uh, when college loans were much easier to get,

Speaker 0: had many adult clients who had 100 and $50,000 in college loans and they're making 100,000 year and with families and you can't get out from under this. So when it comes to looking at that package and they give you a loan just because you can doesn't mean you should take it. So financial aid is not free. That's one misnomer,

Speaker 0: another one

Speaker 0: as we can't afford private school. So we're only sending our kids to state school. Now, Trish has mentioned that a very small percentage get a free ride. I appreciate that. But the fact is that a family who has an average income around the national medium, which is not a lot 65 to $70,000. Um those families who have very qualified academic students can get a tremendous amount

Speaker 0: of free grants and scholarships from private universities. So that shouldn't be discounted. What is important to note though is that now many state, many states offer free college tuition for the residents who go to school and state. Uh for example, in New York, if a family earns less than 100 and $25,000 then the student can attend any of the state schools free. So that's a gift.

Speaker 0: And I think the last super important one,

Speaker 0: we're not going to get financial aid, so we're not going to fill out the FAFSA and that is a huge mistake

Speaker 0: because the FA F S A is the vehicle by which many stu many schools give their grants and their scholarships to their students. So if an individual would be entitled to a grant, but there's no F F S A filed, they say we'd love to give it to you, but you're not getting it.

Speaker 0: So we advise our clients regardless of their financial conditions. Please go ahead and fill out that F F and just get it through

Speaker 0: Tony. Why should somebody consider the 529 plan and why 529 plans over uh U T MA s and U G MA s or, or the cover?

Speaker 0: Yeah, so the 529 plan was designed for saving for college. So it has all the bells and whistles that you want for saving for college. Um And some of the big things are a 529 is considered a parental asset on the financial aid application.

Speaker 0: Uh The waiting for parental assets is 5.64%. So that, that's a big thing. Um uniform gift to minors in, in the U T MA s. Those are considered um that the uh students assets or the child's assets on the S A form, the waiting there is 20%. So just to give you an example, if you had $100,000 and a 529 and 100,000 uniform gift to minor,

Speaker 0: the 529, the waiting would only be $5640 whereas the, or the U T MA would be $20,000 for that year. So it's better to save in the 529. It's not a good idea to save money in the kid's name.

Speaker 0: Anything else? Oh, and then the Coverdale. Yeah, so you mentioned the Coverdale. Coverdale is a great product. Uh, it just has never been upgraded. So, I mean, you can, it's the same as, as a 529 pretty much with the tax benefits. Um, you know, you have the, the, the money that goes in is, um, after tax, but once it's in the account it's tax free. The distributions as long as they're qualified education distributions, those are tax free.

Speaker 0: Um, but on the Coverdale you can only put $2000 away a year. So a lot of people aren't, aren't using it. I mean, we're talking about how expensive college is. So, what are you gonna do with $2000? Not much?

Speaker 0: And I don't think we've, we've mentioned what is the average for a, a public and private tuition per year now? Yeah.

Speaker 1: Well, I mean, public is about 25,000 year and that's assuming you're in state. Ok. Yeah. Right. You know, and then private you're looking at, you know, anywhere between 60 and $80,000 a year for that. So multiply that by four and you get around,

Speaker 1: you know, 240 change. Right. So, fast forward 18 years and you're doubling those numbers. So, so what was $100,000 becomes about 200 actually a little bit more. Um And then same thing with private. So what was 2 40 is 500 plus 18 years from now? So these are huge amounts of dollars to put away. But

Speaker 1: the reality is, is if you, if you plan for it and you determine what that number is and the number is different for every one of us, whether you want to save 100% or 50% or 25% your number is your number. But that's where you have to start is what is the number or the goal you're trying to achieve and then back into it

Speaker 1: and we tell families all the time, you know, you don't need to just save once a year or once a month. Some families need to put away a certain amount of dollars each month, but multiple times a month. And I personally did that as my son got into high school, I doubled down and I, I invested twice a month, um do what works for you, but start with that number because it's very difficult to try to plan without somewhere to start without a goal.

Speaker 0: Erica. Uh Tony just mentioned that uh the cover o only allows 2000. Are there any limitations to how much someone can contribute? Uh uh on a 529?

Speaker 0: Yes. Ok. We're done. So what is the amount then? Yes, there are limits on the 5 29 plans. And um I do wanna bring up first, that many, many families have the misconception that there's an annual limit um that you can contribute to the 5 29 plan, namely because that annual limit coincides with the annual gift tax exclusion.

Speaker 0: So in 23 17,000, oh, we can't contribute more than $17,000 because that's above that threshold. Well, that's not a fact, there are no maximum annual amounts, but typically the most that you can contribute to a plan is a function of state that you live in. And on the low end, it's about $235,000. On the high end, it's about 550,000 that you can contribute.

Speaker 0: Now, in addition to the contribution limits, there are also overall aggregate limits. So once a 5 29 plan reaches a certain amount, then the owner can no longer make contributions to it.

Speaker 0: Now, to the extent that this is important, may not be New York, California have a high end of a half a million dollars or more. But then when you look at a state like Georgia or Mississippi, which is under $250,000 as a maximum aggregate, we know that that's not enough.

Speaker 0: So given that there is no 5 29 police and nobody's watching where you are um opening a 5 29 plan. Nothing prevents a family from opening a 5 29 in another state so that they can meet their college funding goals.

Speaker 0: Understood.

Speaker 0: Uh does investing in a 5 to 9 impact financial aid that someone might receive?

Speaker 1: No, and I, I think Tony just pointed this out earlier too, just talking about the, the calculation that, you know, parental assets count a lot less than a student owned asset. So it is such a misconception that I'm not gonna save because that's gonna affect what I'm gonna get in aid. It really doesn't the biggest contributor or the the is, is really your income.

Speaker 1: So the income is the biggest issue a contributor but driver um of whether or not you're going to get aid um is, is family income and student income. So the whole family together. But I would say if you're, if you're, if you want to figure out what you may get, you can go to student aid dot gov. And there are calculators on there that you can ask, you can answer some simple questions and it gives you an idea of what you're gonna be expected to pay. So for families out there that aren't sure you certainly could leverage that

Speaker 0: can families go to the colleges directly and say, hey, I've got this offer from this school. Can you negotiate, pit them against each other?

Speaker 1: 100%? And, and clients will ask me all the time what should I be doing? Is there anything you you suggest? And we talked about this outside, you should absolutely gather up your other offers and present them to the financial aid office. Um

Speaker 1: I did it multiple times. My son got upset with me when I did it. But you know what, every time I asked, I got a little bit more and with college every, every $1000 helps, every $1000 helps every penny helps. So, absolutely, you should feel be very aggressive about it. You should write the letter include other scholarships and ask. There is nothing wrong with asking.

Speaker 0: I think $1000 was my uh my allowance for the year when I was in college. So, yes, it does. It

Speaker 1: absolutely does. It absolutely

Speaker 0: does. And so earlier, we touched on the new and revised FASA form. So Trisha, uh I hear it's gonna be available later this year 2023. Can you tell us a little bit about it?

Speaker 1: So that, so I'm gonna keep this as simple just like they're trying to simplify the process. So, um, basically, they are taking a pretty lengthy form which was previously about 100 and change questions and they've simplified it down to 36. Uh

Speaker 1: um So for those of us who've done it in the past multiple times, um, it's a big change, right? So it's about a third of the length. That's number one. Um, they're also trying to simplify the way in which they ask the question so that more people can comprehend and answer appropriately. So in general, they're trying to simplify it and make aid more accessible to more.

Speaker 1: Um they, of course, the calculation is changing, they're changing some of the terminology um from E F C expected family contribution to student Aid index. So a lot of things are changing and there's going to be winners and losers, right? So I would say the biggest thing that I'm concerned with um when it comes to the F F and we're trying to because I think it affects the most people out there is and we're trying to communicate this as much as possible is the sibling discount is going away.

Speaker 1: And what does that mean? So today you have a family that has three kids in college and when they do their FA F S A, they get an E F C score of $90,000. That means that family is required to pay $90,000 for all three of their students. So technically, it's $30,000 per child

Speaker 1: in 2024 that number changes to 90,000 per child. So instead of dividing it up, it's per child, that's a major, major difference for families. So we are trying, you know, at JP Morgan as

Speaker 1: much as we can to really distinguish that and highlight that to encourage families even more. So to plan because that number for those of them that did get aid and maybe most of them got it because they have multiple kids at school at once. That is changing dramatically.

Speaker 0: Yeah, you wouldn't wanna be blindsided by that

Speaker 1: one. No, no, no. So yes, that's a big one. Overall. It's trying to simplify and make aid available more available and there are significant changes. But I would say that's one I would highlight because I think that affects a lot of families.

Speaker 0: And Tony earlier, you mentioned that uh that a lot of people can contribute, who, who are the people that can contribute to a 529 plan. Uh Pretty much anybody can contribute to 529 plan. And like I had mentioned, uh most of the firms like we at, we have a, a way that people can, you know, not like a, it's like a crowd funding kind of idea where you can actually, you know, anybody, you can invite anybody to

Speaker 0: um add money to the account. Um What we're seeing though, the big change is grandparents actually opening accounts, grandparents where we'd always advise people, especially advisors because we work with advisors to say, look, if you get a smaller, you know that like a younger couple that can't really put a lot of money away, tell them to tell their grandparents the kids', grandparents that they're allowed to contribute. And most of the time that works, the grandparents are only more than happy to contribute to their grandchildren.

Speaker 0: Um, but now what we're seeing is more and more grandparents are actually opening their own accounts. And so, and they're bigger accounts too. And so that's been the big change where grandparents are getting involved and does it have to be parents and grandparents could be an aunt, anybody? So, the thing that you wanna, uh, consider is yes. So I, I have friends that say, oh, I'm gonna open up an account for a friend of mine. Well, once you name that beneficiary, it has to stay in that family.

Speaker 0: So you really don't wanna do for a friend because then you, you just gave that money away and maybe you're ok with that. But um, if you keep it in the family, then the money always stays in the family. Ok. Erica, are there any advantages or disadvantages to a grandparent or, or someone else rather than the immediate parent of a child opening up a 529 plan

Speaker 0: up until recently? There was a huge advantage given the fact that there's a two year look back period. Um, any withdrawals

Speaker 0: two years ago from a grandparent plan was considered income for the student. And the expected family contribution of the student would have been 50%.

Speaker 0: Now that the rules have changed withdrawals from 5 29 plans, regardless of who the owner is, is not considered uh income for the student and as such will not impact their financial aid eligibility. So this is a huge plus. It

Speaker 1: is a huge plus, agreed.

Speaker 0: And then uh speaking of distributions from 5 to 9 plans, uh let's say that a student might want to study abroad for a semester. Tony uh

Speaker 0: can funds from a 529 plan be applied to tuition board uh at University of Salamanca or, or any other institutional uh university outside of the United States. So it's not all universities, but there are over 700 universities that do accept 529 money. And the um

Speaker 0: uh uh department of Education has a list of all those schools that will accept 529 money. And kind of a general rule is if there's a study abroad program, then that school is probably gonna be a 529 school. And then how about within the United States? Uh

Speaker 0: there are a variety of different higher educational options out there. Uh So what is the range, what are the limitations for, for funds when it comes to types of schools domestically? So the the newest thing is K through 12. So 2017, they made a uh a change where you can take $10,000 out of a 529 account to pay for tuition for private schools. So that was a new thing.

Speaker 0: But you can use the money for a graduate school. You can use the money for um uh vocational schools, technical schools. So there's a lot of things you can do. Yeah. And I even know, like, some people will say,

Speaker 0: you know, the owners, the parents will say, well, if I have left over money, what can I do with that money? You could take cooking classes as long as it's an accredited school so they can use it for themselves. Not the child there. As long as it's a qualified education. Tony, you, you just helped us kind of get a sense of where someone could spend the money. But let's say a child decides higher education isn't for them for whatever the reason. Uh,

Speaker 0: what can parents do? I mean, we just kind of touched on that parents could use it for themselves. Are there any other, let's say the parents don't wanna go take a cooking class or, or whatever it may be? What are other applications that they can use these funds for? Are there any? Yeah, there, there certainly are. And, and really, that's the number one objection we hear from people. What if my kid doesn't go to college? I shouldn't be saving because, you know, this kid decides not to go to school and that's as we talked earlier, most kids are going to college.

Speaker 0: So, uh, in, in my career, I haven't seen too many people, you know, their kids not go to college, but even if they decide not to, they're probably gonna go to a technical school so they're gonna still use the money or maybe they decide later to go to school. So you wanna hang on to that money

Speaker 0: or you got uh you know, uh other siblings that are probably gonna go to school. So you can always change the beneficiary on a 529 account. And like I mentioned, you can even change it back to yourself. But even think about, you know, the next generation or nieces, nephews hang on to that money. You know, you can change the beneficiaries as long as it stays in the family.

Speaker 1: I think the, the nice thing about a 5 29 plan is there's no required minimum distribution. You can let it sit there forever if you really want it to. So you don't have to like an Ira, you're not required to take money out at any point in time so it could grow, that excess could grow forever.

Speaker 0: But it has to be started. Uh, as Erica mentioned, uh, when someone's born with the, and they have a social security number. Is that, that's correct.

Speaker 0: Yeah, I, I couldn't just open one for myself. That one. Yeah. Well, you have a social security number. I could open a 59. Right. So I, some people probably were gonna say so some people, um, if, if they know they're gonna have kids, they may wanna start early, say, say you're thinking about it, you want, you can name yourself and then just change the beneficiary. That's good to know. But you have to have a beneficiary for the, I mean, a social security number for the, for the beneficiary that's required.

Speaker 0: And speaking of taxes. Well, this sounds to Erica, uh sorry. So Erica, can you explain some of the, the state tax benefits that uh 529 offers?

Speaker 0: Uh not all states offer a tax benefit, but the ones that do uh typically will offer a state tax deduction for contributions up to a certain amount. So for example, New York will give $5000 per taxpayer or 10,000 for married filing jointly

Speaker 0: and they'll give a $10,000 tax deduction for that year's contribution. So if you made a $10,000 contribution to the 5 29 plan, and let's say it's a 6% state bracket, then you just received a $600 tax deduction.

Speaker 0: Different way of looking that is you just invested $10,000 and you got an immediate 6% rate of return. So that's a plus um for residents of state that do not provide a tax deduction,

Speaker 0: then their choices are endless. They can select any state that they want to, which is not to say if you live in a state that offers a state tax deduction that you must use that plan, but it would be wise to do that. So if you live in a state that doesn't provide a deduction, ideally, your role is to find the plan that is has ideal investments and is most cost effective. And beyond that, I think most of your job has been done

Speaker 1: and I think the benefit, there's certainly the in state tax deduction is great, but it's really that federal. Right. So that's federal, the ability to grow tax free and withdraw tax free at a federal level is, is really like the true quality of a 5 29 plan as long as you make those qualified

Speaker 1: distributions. But on top of it, if your state has that deduction too, the in state, it's terrific. And, and even like for New York, you could live in New Jersey, you work in New York, you're still paying New York income tax, so you could still get the benefit of that. You know, if you're in the New York plan,

Speaker 0: could you dig it a little bit more into the federal tax breaks that, that come with the 529 plan? Yeah. So,

Speaker 1: so again at a federal level, no matter what you're getting tax free growth and you're getting tax free withdrawals on qualified withdrawals at the federal level, then they get down to the state and it varies because just like Erica said, whether you get an in state tax deduction or not, there are states out there that are called tax parity states

Speaker 1: where like Pennsylvania is a tax parity state. So no matter what plan you invest in, you still get the benefit of an in state tax deduction. So those states are great as well. If we also see some people that may reside in one state and they open an account in that particular state, get their in state tax deduction. But they really like another plan in another state. So they might have more than 15 29 account too.

Speaker 0: And what if they move?

Speaker 1: Yeah, you could do that. Yeah, you could roll over. I mean, there's a lot of options

Speaker 0: and Tony, uh, earlier we were talking about things that you can do with 529 if, if your child doesn't go to, to school, um, I understand that you can roll some of that money over

Speaker 0: into a rough. Is that correct? And if so can you? Yeah. So that's a new provision. It doesn't come out till next year, 2024. But we are certainly hearing a lot, I'm sure, you know, Erica and Trisha, we're getting a lot of phone calls, uh, you know, at Invesco, but it's great news for us because, you know, people are getting excited about 529. You know,

Speaker 0: so, you know how it works is you could take $35,000 out that starts in 2024 transfer it to a Roth account, but it has to be in the name of the beneficiary of the 529 account. Um, and then in addition to that, the, uh, 529 account had to be opened for 15 years. You just can't open an account and move money over. So, really, what they're doing is giving people the option, you know, if there's leftover money, they have a place for it to go.

Speaker 0: Um The other thing is so it's $35,000 but you can't move 35,000 at one time. It's gonna be based off of the Roth annual contribution limit and that number this year is 6500. I think it's gonna go up next year. I didn't see the number but still you can't do the full 35,000 at once.

Speaker 0: Uh Tony, what are some of the, the most commonly asked questions? You get about 52 nines and then saving for college in general. So, um, so we've covered a lot of them already. So the other ones that I get will be um about the state specific specific, you know, do, do I have to use my state? And if I do use my state is my child, have to go to a state school and that's not the case you can use any state you want.

Speaker 0: Um, and we talked about the benefits of the state taxes. So, yeah, you wanna look at that, that's, that's a big issue, but you can use the money anywhere you want any, any of the schools throughout the country.

Speaker 0: The other thing I get is um about investments, you know, how, how should I invest the account? And really the plans are set up really to, to help people. Uh I mean, we, we have uh three different, most plans have three different types of investments, you know, would be, you can pick your own funds and build your own portfolio. They have like a risk based uh type strategy. But where we see the bulk of the money going is the age based strategies and the age based strategies,

Speaker 0: they're based off of the age of the beneficiary and when that child or that student is gonna um reach college. So as that child gets closer to college, the portfolio gets more conservative. So it's kind of and you, you're letting the professionals run the portfolios, which I think is a good idea.

Speaker 0: But I I may add to that is is um maintaining the uh making the decision within the 5 29 plans and the portfolios for our clients who are not severely over funded within their 5 29 plans. One good strategy is the same strategy you would utilize for any short term expense, move it to the money market.

Speaker 0: So when your child, I'm sorry. So when the student is a senior in high school and you anticipate you needing the funds the subsequent year, take that money out from the investment portion of the 5 29 plan and keep it in a money market. And now you know that you have one year of expenses that are secure because markets are not always forgiving

Speaker 0: and, and what are some of the questions that you get most uh from your clients surrounding saving for college. We advise our clients to save as much as you possibly can in the future. And Trish made a good point that as the the student reaches high school years and we become more aware of this upcoming expense, you rush to it. But if you do the bulk of your contributions,

Speaker 0: the first year out of 18, the 2nd, 3rd and the fourth, the value of that compounding is huge. So we tell clients to throw as much money as you possibly can. And then they say, well, what if my child doesn't go to college? That I'm sorry, that is a class. And what if my child doesn't go to college?

Speaker 0: And because we don't know that answer, I would say, well, if your child doesn't go to college, that means you will now have a huge savings bucket. And if it's not used for college, you'll pay 10% penalty and you'll pay tax on the gains. Ok. But what if your child does go to college? You're nowhere.

Speaker 0: So we sometimes make decisions of what the path of least resistance is, which is often doing nothing. And assuming that your kid is not going to go to school means that you can continue doing nothing.

Speaker 1: Or assuming you're gonna get a lot of aid

Speaker 0: or assuming that you're going to get a lot of aid. Exactly. So all of those assumptions are convenient but they're not helpful. Um, I think as with any plan that

Speaker 0: individuals, families, institutions have, identify that time and money, when will we need the money, how much will we need? And where is that going to come from? And sometimes it is, what is it that we're going to give up today, which might be so small to have that huge benefit. And now we talk about with clients, let's see where this money is going to come from. What are some of your discretionary expenses?

Speaker 0: I notice you're taking $20,000 vacation, you know, what, give it up for a couple of years and you, you might have, uh, a nice impact. And then I think the last one to consider is, um, you know, as the student gets to be,

Speaker 0: um, as a student gets to be high school age, there's so much power that a student has when they have a great record.

Speaker 0: If the student recognizes how important it is for them to perform their best just for three years of their life,

Speaker 0: that will have a huge impact on their college. So that has less to do with finance. But it does have to do with considerations that do impact the financial outcome.

Speaker 0: So those are the things that I would share with clients. Like, what does your kid do? What does, what do they do really? Well, what's the right thing to do?

Speaker 0: Yeah. What are you

Speaker 1: say? All I, I, I get the questions I get and I think, you know, I tend to talk about my family when I, when I talk to clients and advisors and I, they always ask like, how do I get the most money? What else can I be doing? And I think what Eric has just said is I've seen in my personal experience going through the process a few years ago and, and continuing is that

Speaker 1: the best place for your student to start is their own high school, high schools that my son went to public school and both my kids went to public school, but start with their own guidance office because typically those guidance office have a folder

Speaker 1: of scholarships and whether it's academic, whether it's community based, whether it's service based, whatever it may be, that's a great place to start. Um or it could be athletics, you know, like, you know, so, so I think that's the best place to start is, is your own guidance office because again, there's a lot of community based scholarships, but 100% grades get you money without a doubt, especially if a student is maybe not look, not at, maybe at their

Speaker 1: reach school, but a school that's a target for them. If you have good grades and good scores, you will absolutely get some scholarship money. No doubt you're not gonna get it from your reach. But certainly your target school So that's what I tell people. Same thing, encourage that kid academically to do strong because it will help them you financially, but it also get them into the best institution. But again, community service and all those things um and, and things that you do inside the community can help as well.

Speaker 0: I have a question for you.

Speaker 0: How much should a family rely on the guidance counselor and their recommendations for colleges? Is it possible that their objectives may not be

Speaker 1: aligned? I think, I think it depends really on your school, right. So I know if in our experience, we, we really like the counselor but we know that this particular person probably had 75 kids that they were helping.

Speaker 1: Um And so how much, you know, attention are you really getting? I think it's a family decision. I think it's everybody sort of has to be involved. Ultimately, it's the kid but, but most of the time the parents are contributing to that dollar. So I think it's really sure get their idea in terms of targets. Like what are your target

Speaker 1: schools? What are your reach schools? What are your safety? But I think you gotta do the work, you gotta put in the time and I mean, I went through it, you went through it, you know, you gotta get them to sit down and really look things through. Um and then the big decisions come, do you go to the school? That's offering you money or do you go to the school? That was a reach that you have to pay full, that's a family decision

Speaker 0: in, in research you've done for, for college planning essentials. Uh, what have you found to be the greatest downside to loans? And what impact does it have on the matriculating students life after

Speaker 1: college? Yeah. Uh, gosh, I, I, we've done a lot of proprietary work and, and done our own surveys um to power college planning essentials. And

Speaker 1: I think I would say the biggest impact is for somebody to save for their own retirement. Right? So we see about 40% of people put off saving for their own retirement because they're paying back loans.

Speaker 1: And you know, gosh, those are the years, those younger years, just like you mentioned earlier, the younger you start or the earlier you start, the longer you have to invest and you have time to, you know, make up, make, make some money in the market. So you want that long time horizon plus with contributing to your 401k, you want to at least do what your company is gonna match. So if you're not doing that because you're paying off student debt, what a shame.

Speaker 1: Um And so that all that's, you know, it's sort of a cycle. So if you're not saving for retirement, that means ultimately, when you go to have a family yourself, potentially you're not gonna be able to save for that child that you may have in the future to go to college and the debt just continues. So, look as parents, we all do the best that we possibly can and not everybody can pay the full boat, not everybody can. And that's ok. But a dollar saved and invested today

Speaker 1: is a dollar less owed tomorrow. So every single dollar counts. And so, you know, people ask me all the time, what is your advice? It is never too late to start and it's never too little

Speaker 0: love that. Yeah, pretty, pretty simple, but that's how you need messages like that to, to really just drill in. Uh, and then Erica going back to saving, uh, what are the, the types of clients that you work with, um, that are most successful in achieving their, their college savings goals? Are, are there certain behaviors that work best? Uh,

Speaker 0: I'd say discipline, recognizing

Speaker 0: the relationship between time and money. And I think that the answer to this is similar to what we talked about. Those who recognize that you have to start this as soon as you can. Those are the ones who reach out to all their family members and tell them we have a kid and we have a 5 29 plan and this is the address and the account number,

Speaker 0: keep the bike, put money in the account and the more people they share the information with that account grows. But honestly, it is discipline and scheduling it, not waiting for when I have some free money and free time I will add to it. Have those automatic deductions come right out of their checking account right into the 5 29 plan. And don't mess with that.

Speaker 0: One of the benefits of a 5 29. I'm sorry. One of the features of a 5 29 plan, which is a great benefit to investors is you can't trade it right. You can't trade it. You have to leave it alone. You could, there's, I think you can make one or two changes depending on the plan. But the plan itself recognizes that the long term investor is going to be successful. So those that leave their plans alone are also the most successful.

Speaker 0: So I think that's pretty much the profile is discipline starting early, being consistent with your contributions and truly investing as much money as you possibly can. And of course, there's that that conversation is, do I forego retirement or do I forgo college? Well, if you're 30 if you're 25 years old and your college is 20 years from now, your retirement is going to be 50 years from now. I say this might be a no brainer

Speaker 0: and Trisha bringing it back to you uh as a parent of a college age student and, and being active in college planning uh professionally uh for over two decades. What is one piece of advice that you would leave advisors watching today's panel uh with what when it comes to saving for college and, and 529

Speaker 1: for advisers specifically. And I think Erica just nailed it and saying that accounts need to be set up for automatic contributions and we see it all the time. We see people maybe put in a larger sum of money.

Speaker 1: Um and, and they don't set up automatic contributions, so maybe they make a $10,000 contribution to start out the account or 15 or 17, whatever that number may be. But then they don't set up contributions over time. And that's where people are most successful when they're consistently periodically saving because we all say, OK, we're gonna get our tax return or we're gonna get our bonus or we're gonna get a check from.

Speaker 1: So, and so there's always something to buy and spend it on. But if you have the automatic contributions set up, it's so much better for the client. So I advisor when I talk to them all the time, not Erica because she's clearly setting those up. But when I do, I, I open the account but set up automatic contributions. So I would say that's the one piece I would give to advisors. Um I would ask them to please do that and consider that um for clients themselves. I think I'd say the same thing is that it's never too late and it's never too little

Speaker 1: and don't just save because saving is not gonna get you there, you got to take that next step and invest.

Speaker 0: So, in conclusion Tony, are there any thoughts that you would like to, to leave our, our viewers with? Well, I think we've said it enough. You know, the cost of college has gone up and it's, it's expensive. Right. Uh, so, and we've also said that every dollar you save is a, uh, is a dollar you don't have to borrow. And that, that's important because borrowing you have to pay borrowing cost. I like to say, since we're talking about 52 nines and we're investing

Speaker 0: then every dollar you save maybe two or potentially $3 that you don't have to borrow. Um, and really what we're looking for is, you know, maybe you can't save everything, but at least you want to reduce the amount of borrowing that, that your kid's gonna have to do. And, you know, maybe an additional motivator for parents is, you know, the more your kid has to borrow,

Speaker 0: the more likely after graduation they're moving back home with you. Yeah, I guess, and just kind of reiterating what you just said, we just talk about tuition rising in, in terms of ticket, but in actuality, if you're taking loans, it's, it's way more expensive.

Speaker 1: That's right. So, so that cost of that education is even greater, you bet. And

Speaker 0: to add to that regarding college loans just because you can, doesn't mean you should

Speaker 0: just because the funds are made available to you doesn't mean that you need to take those loans

Speaker 0: and that's a smart thing to do.

Speaker 0: Tricia. Any final thoughts. I

Speaker 1: absolutely agree with both of them. And there is some place for everyone,

Speaker 1: not everybody has to go to the most expensive school. They are great in state options. A lot of kids also do the combination of going to a community college for a couple of years and then go and sometimes you'll even get into a better school at the end of the day. It's just where you're graduating from. And your diploma from is what you're going to put on your resume. So every family is unique. Every family's, you know, journey through college, paying for college, saving for college is unique. Do the best you can.

Speaker 0: Well, thank you all for joining us today.

Speaker 1: Thank you. Thank you. It's been a pleasure. Thank you

Speaker 0: and to our viewers. Thanks for watching, for Asset TV. I'm Jonathan Forsman. We'll see you next time.

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