Holiday Financial Conversations for the Generations: Teenagers

The upcoming holiday break from school gives you the perfect opening to have conversations with your teenage children about their college plans.  Try talking to them about what they are currently interested in studying once they reach college, where they think they might apply, and also your family’s plan for college funding.  This includes what you plan to contribute, as well as your expectations about your child’s contribution. 

Here are several items that should be on your list:

How much is your child’s education likely to cost?  Go online and look up tuition rates for the schools your child might be considering. Then find one of the many online college tuition calculators to determine what your child’s costs might be.

How will you plan to pay for school?

• Discuss what you have saved (529 College Savings Plans, UTMAs, and other savings).

• Discuss opportunities for scholarships and grants.  Here are two sites to visit as early as your child’s freshman year in high school:

  • http://www.studentaid.ed.gov/  -- basic information about college costs, financial aid, etc.

  • www.fastweb.com  -- create a profile to get matched up with scholarship and grant opportunities specific to your child.

Discuss ways for your child to contribute, either now or in the future. This may include part-time work in high school, during summers, or during college.  This also includes strong academic performance and/or extra curricular activities now which can put them in a position for academic or other scholarships in the future.

The high cost of a college education makes these family conversations necessary.  By framing the discussions around the excitement of planning for your child’s future, you can make this an enjoyable and productive use of the holidays.

Talk to your financial planner about the many ways to save for your child’s college education.

In my next blog, I will talk about holiday financial discussions to have with your older adult parents.

Sandra Adams, CFP®is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

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College Savings 101: The 529 Plan

 It doesn’t quite seem possible, but yet another summer is quickly coming to an end and before you blink, the leaves will have changed and Christmas products will be on the shelves.  Very soon, school will be back in session and those who are of college age will begin the seemingly daunting task of getting their ducks in a row before another semester begins.  Deep sigh……

One of the top priorities on that list for parents should be to consider using a 529 account for college savings.   529 plans are tax-deferred accounts (like an IRA) that are an excellent way to save and invest for various higher educational expenses. 

Features:

• Potential state tax deduction on contributions up to certain annual limits
• Tax deferred growth potential
• No taxation upon withdrawal if funds are used for qualified educational expenses (such as tuition, books, certain room and board, computers, etc.)
• The owner, generally the parents have control over the account and can transfer the account to another beneficiary
• Not subject to “kiddie tax rules,” unlike UGMA accounts (Uniform Gift of Minors Act) and UTMA accounts (Uniform Transfer to Minors Act)

Items to be aware of:

• No guaranteed rate of return – subject to market risk
• Certain taxes and penalties may apply if funds are withdrawn for non-qualified expenses
• Keep records of how money was spent that was withdrawn from the 529 account in case of an audit
• Review the asset allocation/risk profile of the account periodically.  Typically, the closer the child is to entering college, the more conservative the account should become

In one of our staff meetings this week, one of The Center planners reminded us all, “there are certain aspects in life that are humanly impossible to control.  It is, however, the factors that we do have control over that we must focus on, to better ourselves and the service we provide to our clients.”  Although college expenses have risen by almost twice the rate of inflation, this is something we truly cannot control.  What we do have control over, however, are the tools we can use which can assist us in creating a solid educational financial plan – something a 529 account can help provide.

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Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 college savings plans before investing.  More information about 529 college savings plans is available in the issuer’s official statement, and should be read carefully before investing.

The information contained in this report does not purport to be a complete description of the subjects referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Prior to making an investment decision, please consult with your financial advisor about your individual situation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Favorable state tax treatment for investing in Section 529 college savings plans may be limited to investments made in plans offered by your home state.  Investors should consult a tax advisor about any state tax consequences of an investment in a 529 plan.