In Perspectives

Being a new parent is overwhelming. While you’re biologically wired to focus on keeping your baby happy and healthy in the current moment, it’s important to start thinking ahead. Saving for college or secondary education can be daunting. The cost can feel impossible and if you’re in my situation – the father of twin baby girls – all of this stress is multiplied by two. Whether you started saving the day your child was born, or if you just started thinking about it this month, described below is one of the most popular ways to save for your child’s education.

As a starting point, it is important to establish your goals and make a plan with a trusted advisor. Perhaps, it’s not realistic to plan to pay for all of your child’s tuition, room and board – that’s OK! By talking with an expert, you can decide what is realistic and make a plan to achieve that. Because there are so many variables – the future cost of college, your child’s education choices and possible athletic scholarships – the most important thing is to have a plan that makes you comfortable.

All this being said, the most common method to save for your child’s college education today is through the use of 529 plans.

Who offers them?

The plans are offered at the state level with nearly every state having a plan and some offering more than one plan.

Tax Benefits

You are able to invest in any state’s plan but many states offer income tax deductions for residents so you would certainly want to do some research before committing to a specific plan. As an example, contributing to a Michigan 529 savings plan of up to $5,000 individually or $10,000 jointly is deductible for Michigan income tax purposes on an annual basis. Any earnings within the account grow tax free and distributions are income tax free when used for qualified education expenses.

Types of Plans

College Savings Plans – these plans work like a Roth IRA account. The funds allocated to the plan are invested and the balance of the plan will go up or down as the underlying investment options selected perform. These plans put the onus on the owner to set the best asset allocation mix for the beneficiary (typically based on age, time horizon, risk tolerance and overall goals). That choice may seem too complex but there are target date funds offered within each plan that tailor the asset allocation based on when your child will need the funds. This helps alleviate the pressure of making sure the asset mix is appropriate and you are not putting your hard-earned savings in too risky a portfolio.

Prepaid Tuition Plans – this plan allows you to pre-pay all or part of the costs associated with a college education, most commonly for an in-state, public college. The benefit is that you are purchasing credits at today’s rates vs. what rates will be in the future. These types of plans are also offered for some private colleges and, in select cases, may be converted for out of state and/or private institutions.

What are the funds used for?

The funds available in a 529 plan are meant to be used for qualified education expenses. These expenses include tuition and fees, books and materials, room and board, computers, etc. The recent Tax Cuts and Jobs Act also allows tax-free distributions of up to $10,000 per year to be used for K-12 tuition expenses.

What if the funds aren’t used?

So, your child got a scholarship or decides not to attend college, what happens now? In order to avoid the taxes and penalties associated with withdrawing funds from the 529 account you could do any of the following:

    • Change the beneficiary to another qualifying family member
    • Keep the funds in the account in case they ultimately decide to attend school or further their education
    • Make yourself the beneficiary and go back to school
    • Roll the funds over to a 529 Able account which is a savings accounts for people with disabilities

529 accounts can be especially helpful if you are feeling overwhelmed by the generosity of friends and family and would find gifts for college savings more valuable than more burp cloths or diapers (although our girls do go through a lot of those.) 😊

As you can see, when it comes to planning for your child’s education, there are many items to consider. Whatever your plan entails, at a minimum we recommend regular, automatic deposits into a savings account. Having a regular savings amount, no matter how small, helps families get in the habit of saving. Increasing the amount slowly, each year, can lead to a long-term increase and a substantial savings that can be used toward education costs, a rainy-day fund or even towards your nest egg for retirement.

For wealth management and long-term savings, good habits and an end goal provides a roadmap for the future. If you would like to have a conversation regarding education planning or even a broader discussion about your overall wealth plan, please do not hesitate to call Legacy Trust.

Legacy Trust and Your Right to Financial Privacy

At Legacy Trust we have established policies and practices that respect the financial privacy of all individuals who use our trust company. We believe it is critical to comply with the laws and regulations designed to secure your financial privacy. Your relationship with us as our client is very important to us, and we want you to understand our policies and practices about handling your information.

This Policy applies to you – This Policy applies to our relationships with individual clients who inquire about or obtain products or services from us for personal, family and household purposes.

Strict security measures – We take the security of information very seriously. We have established security standards and procedures to prevent access to client information. We maintain physical, electronic and procedural safeguards to guard client information.

Limited employee access – We have established procedures to limit employee access to information to only those employees with a business reason for accessing such information. We educate our employees about the importance of confidentiality and client privacy. We take appropriate disciplinary measures to enforce employee responsibilities regarding client information.

Why we collect information – We collect information about you to:

  • accurately identify you;
  • protect and administer your records, accounts and funds;
  • help us design or improve our products and services;
  • understand your financial needs;
  • save you time when you apply for new products and services; offer you quality products and services; and comply with certain laws and regulations;

We collect information – We collect and maintain your personal information so that we can provide investment management and other services to you. The types and categories of information that we collect and maintain about you include:

  • Information we receive from you to open an account or provide investment advice or other services to you (such as your home address, social security number, telephone, financial information and investment objectives).
  • Information that we generate to service your account or from our transactions with you (such as account statements and other financial information).
  • Information on your transactions with nonaffiliated third parties.

We have established procedures so that the financial information we collect is accurate, current and complete. We are committed to work with you to promptly correct any inaccurate information.

Our selective sharing of information – In order for us to provide investment management and other services to you, we do disclose your personal information in very limited instances, which include:

  • Disclosures to nonaffiliated companies as permitted by law, including those who help us service your account (such as providing account information to brokers and custodians).
  • Other limited disclosures as permitted by law, for example, required reports to government entities.

We do not share your information with third parties for marketing purposes. We do not sell your information.

Former clients – If you end your relationship with us, we will continue to adhere to the privacy policies and practices described in this notice.


Important Information About Procedures For Opening A New Account

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account.

What this means for you: When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

We apologize for any inconvenience this may cause; however, federal law prohibits us from waiving these requirements.

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