Are 529 Plans The Right Option For Your Boomer Clients?
Producers and financial advisors who want to increase sales of 529 college savings plans need to develop a close understanding of their clients finances, experts agree.
Right after developing the clients financial plan is the time to determine whether a 529 is even an option for them, they say.
Before college financing consultant Judy Miller considers a 529 as a possibility, she asks the client three questions:
“Do you have a satisfactory cash reserve? Are you adequately insured for health, life and property? And are you contributing to a retirement account?”
Only when the client can answer “yes” to those questions, is it appropriate to look at 529s as an option, says Miller, principal of College Solutions, Alameda, Calif.
Miller, who specializes in advising parents and their children on all aspects of funding a college education, insists that 529s can sometimes be the wrong solution.
When parents come to Miller seeking help, she has them identify their education goals, she says.
“What part of the cost are they willing to pay for themselves? What part will their child pay? Will the child get aid? Can he or she get a scholarship? Will it be a public or private school?
“Once we identify the mix, then we start crunching money numbers. Now we know how much they need and project out what their savings need to be monthly or annually to meet that goal.”
Finally, Miller helps the parents calculate whether a 529 plan will work within their cash flow.
“We know everyone wants to retire and meet current income needs,” she says. “Sometimes, the cash flow doesnt permit all of the objectives to be supported.”
Relatively young boomers, who have some time before their kids go to college, are prime 529 prospects, notes Robert Cusick, an advisor with Investor Insight Ltd., Cortlandt Manor, N.Y.
With these clients, the first step is to figure out what their ultimate college costs may be, notes Cusick. He finds data released by the College Board, New York, useful in helping the client project those costs for years down the road.
In one recent case, Cusick projected $288,000 as the cost to educate a child at Duke, assuming he or she would enter in about 15 years and complete all four years there. That also assumes an annual rate of inflation for private college costs of around 7%, he says.
“Most recently, public colleges have been increasing at an even faster rate than private colleges,” Cusick notes.