Because clients tend to view assets allocated toward a child’s education more emotionally, they’re also at risk of investing too conservatively. A recent study found that 61% of college savers use savings accounts, compared to only 37% using 529 plans.1
Savings alone won’t pay for college, especially with FDIC-insured accounts now yielding far less than annual tuition inflation. J.P. Morgan Asset Management’s, College Planning Essentials guide provides advisors with a tool for informing their 529 plan discussions and investment decisions.
Illustrate the tax benefits
More than half of college investors aren’t even aware of 529 plans and their tax benefits.1
College Planning Essentials includes charts and investing illustrations you can use to:
- Compare 529 plans to other commonly used college savings vehicles
- Evaluate after-tax outcomes for 529 plans and taxable accounts
- Demonstrate potential cost savings of investing in a 529 plan versus borrowing or paying out of pocket
Take advantage of special estate and gift tax benefits
Only 529 plans allow five years of “accelerated” tax-free gifts in a single year. With annual gift tax exclusions rising in 2018, 529 plan gifts can now be completed up to $75,000 per beneficiary from individuals and $150,000 from married couples filing jointly.2 For clients with estate planning needs, all 529 plan gifts and investment earnings are removed from the contributor’s taxable estate without losing control over the assets.
Discuss the limited impact on financial aid eligibility
Some families don’t invest in 529 plans because they mistakenly believe it will severely hurt their chances for financial aid. The fact is, assets count much less than income in the formula for awarding federal aid, especially when held in parents’ names.
In calculating Expected Family Contribution (EFC), the Department of Education considers up to 47% of parents’ income but only a maximum of 5.64% of their assets – even those earmarked specifically for college. You can find more details in College Planning Essentials, along with EFC estimates and a case study comparing financial aid packages for investing and non-investing clients.
Set realistic expectations for free financial aid