Saving for college, so many choices. Which one fits my family’s needs?

shutterstock_295169024.jpgThe hardest thing about being a parent is that time flies by so fast when raising children. One minute you can hold them in your arms and the next minute they’re graduating high school. Once they have graduated from high school, typically college or trade school education is next. Individuals with a college degree make substantially more than those who don’t. As a parent we want the best for our children. In a lot of cases we want their lives to be better than ours.

College education costs in the United States has gone through the roof. Each day we read about how college graduates are graduating with 5 to 6 figures in education debt. This has become a major problem making it harder to build for a solid financial future. Saving early on for your child’s education, so that they have a better financial footing, is becoming more and more important. The following are three college savings plans that you can implement today to bridge the financial gap to college.

  • UGMA – Uniform to Minors Act. This type of account is in the child’s name and a parent’s name. Until the age of 18, the parent is the owner/controller of the account. All money in the account needs to be spent for the benefit of the child. Once the child turns 18, legal adult age, the account goes into the child’s name alone thus removing the parent’s control over the money. The risk of this type of account is the money that was intended for the child’s education, actually ends up going to “other things”. I rarely see UGMA accounts used for education purposes only.
  • State sponsored education plans. Most states have a plan that you pay into for a period of time, the sooner you start the lower the monthly payment. Once the plan is paid up, the child can go to any state school for little to nothing out of pocket. If your child is going in-state, this can be a great plan to purchase. The risk is if your child goes out-of-state. What you paid into the plan may not be enough for out-of-state tuition. Typically, tuition costs for students with residency in a different state can be double what in-state tuition would have been. I like state sponsored plans as long as the state sponsoring them is financially sound and as long as the child is going to go to college in-state.
  • 529 plans. 529 plans are the most flexible education plans between these three education examples. A 529 plan is an investment account that is solely for the purpose of the child’s education. Each parent can contribute up to $14,000 per child each year. You can typically invest that money based on the child’s age which will determine the risk tolerance of the investment portfolio. As the child gets older, the risk of the underlying portfolio will decrease. The risks with a 529 plan is the money is invested into the stock market. The underlying portfolio value can fluctuate. The benefit of this type of education savings plan is that the assets can increase in value beyond inflation. This potentially reduces the amount that you will have to put into the plan to meet the child’s financial obligations while in college. Ginger and I have set up two 529 plans for our children. We chose the 529 plan because of its flexibility, it’s potential growth due to stock market performance and because if one of our children don’t go to school or if there’s money left over after their college education, I can change the beneficiary of the 529 plan to another family member.   I also like the 529 plan because grandparents and relatives can contribute to the child’s education.

The key to any successful education goal or financial goal for that matter is time, consistency of contributions and management of risk. If you would like to know more about college savings plans or other financial matters, contact me Let me know if this was helpful. If you have any suggestion on subjects you would like me to write about, please email me.

Happy parenting,

The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that a college-funding goal will be met. In order to be federally tax-free, earnings must be used to pay for qualified higher education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10-percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses

Realtors: It’s Tax Time!! Tax strategy that will save you $$$$!!

realtorIt’s so common. I always ask the question to our prospects who are realtors, ‘”How do you receive your commissions?” Most come back to me with a simple , “I receive them in my checking account.” And most pay ordinary income tax on their earnings.

Here is a secret…you’re a business, so structure your “Business” as a business, not a sole proprietorship. The following should be confirmed by your CPA.

  • Set up an LLC that files as a S-corp. Ever heard of Warren Buffet? He once said that he paid, percentage wise, less taxes than his secretary. How is that possible? It’s all in how receives his income. How do you receive your income?
  • Deductions. Depending how your “business” is structured, deductions can be a big savings. Mileage, advertising, entertainment.
  • Set up a retirement plan. As a small business, you have the opportunity to set up a 401(k), SEP or a Simple IRA. Great way to save for the future.

With 2015 tax’s due this month, begin to plan for 2016 tax season now. For more information on this and other financial planning strategies, contact me, Trent Grinkmeyer, at 205-266-7509 or email me at