Life Stages Planning


Your kid’s journey towards a career begins. First class… Adulting 101! Nowadays you need to save a lot of money to get a college education. Understanding how to budget and limit your child’s student loans is the key to them not falling behind financially and succeeding at life as an adult. Sounds simple, but too often we see clients scramble last minute to figure out how to pay the tuition bill and take out unnecessary amounts of student debt. That’s why we are such big advocates of planning ahead and going through our college pre-approval process.

  College 529 Savings Plans  

  • Proceeds can be used toward qualified educational expenses, including tuition, room and board, books, and more

  • Funded with after-tax dollars that grow tax deferred

  • Growth can be withdrawn tax-free if used for qualified education expenses

  • Flexible funding, especially compared to Coverdell Savings

  • Anyone can contribute without income limits

  • Contributions are permitted at any age

  • Ability to reassign beneficiary (i.e. student or child)

  • 10% IRS penalty applies on growth withdrawn if not used for qualified education expenses

  College 529 Prepaid Tuition  

  • This option allows you to “lock in” tuition costs today and avoid the annual tuition increases

  • According to the College Board, are growing at an average of 5% per year

  UGMA Custodial Accounts  

  • Parents maintain control of assets until child reaches age of majority (18), but the child is the owner of the funds

  • Once child reaches 18 they technically have control over the money

  • Earnings taxed at child’s lower income tax rate

  • Kiddie tax is a potential unintended consequence

  • Capital gains and dividends taxed

  • Non-education spending is not subject to the 10% IRS penalty like 529 plans

  Coverdell ESA  

  • Funds grow tax-deferred, however, the contributions are NOT tax deductible

  • Money can be used towards private school tuition as early as elementary school, whereas 529 plan funds are only eligible for higher education expenses

  • Contributions are limited to an annual total of $2,000 per beneficiary, until the beneficiary reaches age 18

  • Income limits apply based on modified adjusted gross income

    • Single = $110,000

    • Married = $220,000

  Series EE & Series I Bonds 

  • Backed by the full faith and credit of the U.S. government

  • Interest earnings typically exempt from state and local taxes

  • Interest earnings avoid federal income taxation for qualified education expenses under the following assumptions:

    • Bondholder made purchase after age 24

    • Annual gross income is at or below the phase-out range

  • Phase-out range (2016 tax year)

    • Single = $77,200 - $92,000

    • Married = $115,751 - $145,750

  Dual Purpose Strategies 

  • Roth IRA

    • Good supplemental alternative, especially if other accounts are on target to satisfy retirement goals

    • Contributions can be withdrawn without taxes or penalties

    • Earnings grow tax deferred, but can only be withdrawn tax-free after age 59 ½

    • 5-year look-back rule applies to Roth conversions

  • Brokerage account

    • Better flexibility

    • Funds can be earmarked for multiple purposes

    • Can repurpose the money without being “boxed in”

      • ie: College scholarship reduces the need to fund education related expenses

    • After-tax investments

    • Lacks the tax-sheltering of other strategies

    • Bonds subject to income tax

    • Stocks and equity funds subject to capital gains and dividends taxes

    • Financing the costs (coming soon) – student loans, financial aid, grants, scholarships, and other opportunities



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