Are you really getting specialized advice on how to pay for college from your financial advisor? Many well-intentioned advisors list college planning as one of the many services they provide. However, much of the advice in the financial services industry today focuses on saving in a 529 or educational savings account. Don’t get me wrong, saving in a 529 is a good idea, but it is merely one small component in the college funding equation. In all honesty, how many parents are actually going to be able to pay for their share of the college cost solely from a 529? The simple answer is not many. Need proof? Just take a look at the chart below that shows the estimated monthly contributions parents would need to make to a 529 just to cover the average cost of an in-state public college for one child. For example, a parent of a newborn targeting a 7% rate of return would immediately need to start socking away $559 a month just to cover the four-year cost of college … yikes! Furthermore, if parents are going to have to pay sticker price for the more expensive or prestigious colleges, then the required monthly contribution would need to go up dramatically. This feat is unrealistic for the majority of families who simply don’t have room in their monthly budget for this level of contribution.
It quickly becomes evident that college affordability isn’t simply a matter of saving in a 529. What parents really need is a strategy to pay for college and not just a savings vehicle. Creating an effective strategy to pay for college starts by focusing on four key components: college selection, financial aid, tax aid and personal resources. For example, did you know that your contributions to your 529 could actually decrease your financial aid eligibility by as much as 25% of the account balance depending on who owns the account and the aid methodology being used to assess your family’s financial situation? To make intelligent decisions in these areas requires specialized knowledge of college admissions, financial aid, taxes, investing and financial planning. Even if families have people advising them in these areas, it is very difficult to pull that expertise together for college planning and retirement purposes, but that is our specialization and that is what we can do for you.
So, don’t make the mistake of thinking that college funding and retirement planning are two separate roads because they aren’t. College planning is retirement planning, or put in other words, college is the toll booth on the road to retirement. And, as parents head down this road to retirement, the problem is that without a proper strategy they won’t know ahead of time where their children may be able to get into college, get aid and afford to go all while trying to preserve their assets and income for retirement. So, inquire with your advisor as to their expertise in college funding. If their approach centers around 529s or other savings vehicles, please feel free to Contact Us. Our approach is designed to help you determine your best strategy to pay for college using your personal resources and as much financial aid as your child can get, and to pay as little in federal and state taxes along the way.
Harmon Wealth Management | Mailing Address | 3923 28th St SE #166 Grand Rapids, MI 49546 | Phone: (616) 745-4831
Office of Supervisory Jurisdiction | 6300 Ridglea Place, Suite 910-A | Fort Worth, TX 76116 | Phone: (817) 447-2811
Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, member FINRA/SIPC. Investment advisory services offered through Cambridge Investment Research Advisors, a Registered Investment Advisor. Cambridge and Harmon Wealth Management are not affiliated. Cambridge does not render tax or legal advice.