ARBOR WEALTH: Tuition hikes, the 529 Plan and Rascal Flatts
“My wish for you … is that this life becomes
All that you want it to.” From “My Wish” written by Steve Robson and Jeffrey Steele and recorded by Rascal Flatts
The cost of educational expenses, which includes college tuition, increased by over 2 percent last year. Nevada just enacted a 17 percent university tuition increase over the next four years. Let’s hope last winter’s freeze applies to tuition hikes at Florida’s public universities.
College is affordable for fewer American families than ever before. Ironically, a college education is, more than ever, widely viewed as a prerequisite to decent employment in today’s tight job market.
How much does college cost these days? Say last year you paid $15,000 in tuition, plus housing, a meal plan, activity fees, and spending money, and your child’s total college expenses were $25,000. And let’s say you currently have a senior and a freshman in college. Well, with a 2 percent increase, now your total annual expenses are $51,000 instead of $50,000.
Many parents and grandparents utilize 529 education savings plans to fund college expenses. Investors fund the account and their dollars grow tax-free, and stay that way as long as distributions are for qualified college expenses. Any form of savings is beneficial, but in the case of 529’s, sometimes college parents and grandparents may be better off simply investing their discretionary income in a taxable brokerage account in their own name.
Simply put, the fees associated with many 529 plans sometimes offset the benefits of utilizing them. While you forego tax deferred growth by utilizing a taxable brokerage account, you have a much wider selection of investment options without any restrictions on how the funds can be spent. Say little Johnny Angel becomes little Johnny Devil. You own the account and can use the funds for your own retirement needs or anything else, for that matter. Or say your child is an exceptional student and receives several scholarships. You can provide financial assistance as you see fit; perhaps send them on an interim trip to Europe or help them buy a car.
Locking in tuition rates with a state sponsored pre-paid tuition program is usually a money saver. Some 20 states currently offer such plans, usually under a 529 Plan umbrella. Florida’s official website details four of these pre-paid tuition options, which include two 2-year plans and two 4-year plans. Start a pre-paid tuition plan while your child is a toddler, and you’ll save significant dollars by the time they start college.
College always costs so much more than we think it will. Children still need all the financial support they normally accept from you, in addition to their college expenses: health and medical insurance, doctor visits, car payments, car insurance, clothes and more.
Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.