Back to School: Conversation Starter for Education Savings

Kevin Janiec CFP®, MBA

College was a transformative experience in my life.  Penn State is where I met my wife (Jordan) and many of my closest friends.  It’s where I gained experience and learned valuable lessons- some in the classroom, but even more from outside the classroom.  It’s where I launched my career at Vanguard and found myself on the path to becoming a Financial Coach.  College was the time and place where I made some of my favorite memories.  

And college is also where many parents spend a significant percentage of their savings to help their kids pay for this transformative experience.  I’m officially becoming one of those parents.  

With a 2-year-old daughter and a son approaching his first birthday, my wife and I hope our kids can have the same experience that we both had.  We dress the kids up as Nittany Lions and read them bedtime books like “A Weekend in Happy Valley.”  It’s tempting for my wife and I to envision football tailgates and “Parents Weekend” in the year 2040.  But for that vision to play out, there’s going to be a hefty price to pay, and we’d like to plan how we or they will pay for it. 

Inconveniently, we don’t have a crystal ball predicting what universities will be like in 15-20 years, or how much they’ll cost compared to what they are today.  We also don’t know what type of education or post-high school pursuits will best fit our children down the road.  We don’t know if there will be scholarships or financial aid programs.  But we do know the earlier that we plan, and the sooner we take appropriate actions, the more financially prepared we’ll be to align our future vision with our eventual circumstances. And as I see my colleagues send in tuition checks and take their kids to college tours or to freshman orientations, I realize it’s going to be here sooner than we think. 

This month on @NewWealthProject’s Instagram, we shared the questions that Jordan and I use to discuss our vision and determine our current savings commitment.  And we identified the types of accounts that can be used to strategically grow our savings in a strategic way that balances tax-efficiency with flexibility.  New Wealth Project leverages calculators and tools that can help you analyze the amount of monthly, quarterly, or annual savings that will be required to fund a hypothetical percentage of a hypothetical school in a hypothetical year at a hypothetical growth rate.  But it first starts with an open and honest discussion.  

Here are some of the questions to spark your conversation:

       What type of school would I like my children to attend? Why?

       K-12: Public/Private/Charter/Religious/Other

       College: Private/public, in vs. out-of-state, big vs. small university

       What factors or circumstances would lead me to change my mind?

       What commitment would I like to make in paying for my children’s education?

       What compromises would I be willing to make to my current lifestyle and/or future goals to fulfill that commitment?

       What degree of flexibility would I like to maintain in my choices?

       How much do I have saved/earmarked for education expenses today?

       Would I prefer to save when I can in bigger deposits (like a bonus or a gift), or set up smaller systematic monthly contributions?

Here are three types of accounts that you might want to use for your education savings:

       529 Savings Plan

       Pro: Maximum tax benefits for education savings

       Con: Lack of flexibility (Penalties and taxes for non-education use)

       Taxable brokerage account –

       Pro: Flexibility and accessibility

       Con: Less tax-benefits (subject to income and capital gains taxes)

       Roth IRA –

       Pro: Tax benefits and some flexibility

       Con: Limitations on income, contributions, and withdrawals

If you have any questions, or want some guidance determining your own game plan, we’re here to help.  Parents Weekend was one of my favorite weekends when I was in college.  I can’t wait for our turn to be the visitors…and still have enough money left over to pick up the dinner tab.  

Investment Advice offered through FC Advisory LLC, a registered investment adviser doing business as “New Wealth Project” and as “Financial Coach”.  This content is provided for informational purposes only.  Views and opinions expressed are those of the authors and do not necessarily reflect those of FC Advisory, LLC.  Information provided is not and should not be interpreted as investment, tax, legal, or other professional advice or recommendation by FC Advisory, LLC or the members of our firm.  Always consult the appropriate professional regarding your specific situation before implementing any options presented or inferred.  FC Advisory LLC, All rights reserved.