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How 529 plans can help take the bite out of the college price tag

/// Posted by Mark Alaimo, CPA/PFS, CFP®

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Every May, years of all-night study sessions and grueling examinations endured by thousands of young men and women culminate with graduation and the receipt of a four-year college degree.  While more and more young men and women are attending college, the cost to attend continues to skyrocket.  The Institute for College Access and Success reports that as of 2012, over 70% of students graduated four-year colleges with student debt[1].  66% of graduates from public colleges had debt (with an average balance of $26,000), 75% of graduates from private not-for-profit colleges had debt (with an average balance of $32,000) and 88% of graduates from private for-profit colleges had loans (with an average balance of $40,000)[2].  Despite the cost, the value of a college education remains – the Bureau of Labor Statistics reports that in 2015, college graduates enjoyed an overall unemployment rate of less than half of high school graduates and earn more than double the wages[3].  The bottom line is simple – more students have access to a four-year college education, which positions them in the long run significantly ahead of their peers who do not attain a four-year degree, but costs a significant sum, which acts as a millstone around the neck for many graduates. 

To help better manage the cost of higher education, many families set up and fund 529 college savings plans to help defray (or in some cases, fully pay for) the cost of education, helping to minimize financial hardship before, during or after college.  Federally established by the Small Business Job Protection Act of 1996, 529 plans are tax advantaged investment vehicles designed to encourage tax free saving for higher education expenses of a designated beneficiary[1].  Two types of 529 plans exist: prepaid tuition programs and the more common, college investing plans.

Since college savings plans were initially created by states under state law prior to the enactment of the 529 plan statute, all 529 plans are sponsored by a state, though most permit both residents and non-residents to participate in their program (there may be state income tax benefits to participating in the plan of your home state). 

Types of Plans

Ten states offer prepaid tuition programs, such as the U.Plan Prepaid Tuition Program in Massachusetts, which permit the purchase of Tuition Certificates in $300 increments to be used towards tuition and mandatory fees at a large list of participating colleges within the Commonwealth.  The primary benefit of this program is locking in the percentage of tuition and mandatory fees paid for by your contribution at today’s prices– meaning your purchase is guaranteed to keep pace with the inflation of tuition and fees.  The growth factor of your initial investment is not taxable if the certificates are exchanged for attendance at a participating school.  For example, the purchase of ten certificates today equates to 7.25% of one year’s tuition at Berklee College of Music (2016-2017 tuition & fees of $41,398), 67.97% of one year’s tuition at Roxbury Community College (2016-2017 tuition & fees of $4,415), or 6.26% of one year’s tuition at Smith College (2016-2017 tuition & fees of $47,904)[1].  The school the beneficiary will attend does not have to be determined until the student makes his/her college attendance decision.  In the event the beneficiary attends a non-participating school or decides not to attend college, you will receive your investment plus interest at a rate of the growth in the Consumer Price Index (CPI) without penalty.  The interest received will be taxable.

The more prevalent 529 plan used today are college investing plans, such as the U.Fund College Investing Plan, in Massachusetts, which is managed by Fidelity Investments.  These plans function in many regards like a 401(k)/403(b) account.  Each state’s plan (most only sponsor one plan) in most cases is managed and administered by an investment custodian, such as American Funds, Fidelity Investments, T. Rowe Price or Vanguard (several states, including Utah, are not run by a fund company and have several different fund families among the investment options).  Most plans offer age-based investment options (akin to target-date retirement mutual funds), which are typically pooled investment vehicles comprised of mutual funds managed by the custodian, that become more conservatively invested as the beneficiary’s moves closer to college age.  Many custodians also permit the account owner (the person who sets up the account) to invest the plan balance according to their own investment allocation from the available fund options within the plan. 

Funds invested in 529 college investing plans grow tax-deferred and withdrawals are tax-free, provided they are used for Qualified Higher Education Expenses paid to a US institution or a qualified foreign institution, including required college or other post-secondary tuition and fees.  Generally, anything that is not a mandatory expense is excluded.  The gain associated with any funds withdrawn from a 529 college investing plan not used for Qualified Higher Education Expenses is subject to ordinary income taxes and a 10% penalty. 

Who can setup and fund a 529 plan? 

Anyone can establish a 529 plan for a beneficiary. Most plans are owned by parents and grandparents.  Per a 2014 survey released by Fidelity Investments, 72% of grandparents feel that it is important to help pay for their grandchildren’s college education; 529 plans are a great way for grandparents to lend a helping hand[2].  Once established, anyone can make contributions to a 529 plan setup for a beneficiary. 

 Tax considerations and other benefits. 

Annually, anyone can contribute up to $14,000 ($28,000 for married couples who elect to split gifts) per year into a 529 college savings plan without making a taxable gift[3] [4].  Donors may also make an election under 529(c)(2)(B) on their gift tax return to make five years’ worth of contributions up front without making a taxable gift ($70,000 for single filers, $140,000 for couples who elect to split gifts)[5]

Over 30 states, including the District of Columbia offer state tax benefits for contributions to 529 plans[6].  For example, Massachusetts affords single filers a state tax deduction up to the first $1,000 and joint filers a deduction up to the first $2,000 contributed to either of the state’s two plans[7].  The value of this deduction should be considered but not be the overriding reason to choose one plan over another (the $2,000 deduction in MA is worth $102, since the MA income tax rate is 5.10%). 

Many plans offer additional incentives to entice enrollment in their plan.  For example, the MA 529 college investing plan offers a credit card, where 2% of all eligible spending will be contributed directly into your 529 plan[8].  Other plans offer the ability for you to make contributions via direct deposit from your paycheck[9].  Plans such as the Nevada plan enable you to link your Upromise shopping loyalty account to your 529 plan directing rebates and incentives into your plan account[10]

Which plan should I choose?

Many factors should be considered when choosing the optimal plan.  First, as with all investments, fees and investment choices should be considered.  Next, you should consider whether any state income tax benefits are available to you for establishing an account with your state’s plan.  Lastly, consider whether you are likely to take advantage of any additional plan benefits, such as a rewards credit card or shopping program, associated with some plans. 

Okay, now what?

Saving for college is a daunting task for most families.  Setting up 529 plans is a great first step, but its benefits can only be realized if a funding plan is established and maintained.  Many families commit 50% of the money received from birthdays, religious celebrations and holidays to a 529 plan.  Other families establish periodic investments coordinated with their payroll into the plans.  Another choice is to dedicate a portion of tax refunds or other cash windfalls into the plans.  

College savings is an integral part of the financial planning process for most families.  Consider reaching out to a holistic wealth manager to develop a college savings plan coordinated with a retirement savings plan and customized based upon your resources to ensure you are on track to meet your goals. 


[1] Quick Facts About Student Debt (Rep.). (2014, March). Retrieved May 16, 2017, from The Institute for College Access & Success website: http://ticas.org/sites/default/files/pub_files/Debt_Facts_and_Sources.pdf
[2] Ibid.
[3] Unemployment rate 2.5 percent for college grads, 7.7 percent for high school dropouts, January 2017: The Economics Daily. (n.d.). Retrieved May 16, 2017, from https://www.bls.gov/opub/ted/2017/unemployment-rate-2-point-5-percent-for-college-grads-7-point-7-percent-for-high-school-dropouts-january-2017.htm
[4] Public Law 107-188, Small Business Job Protection Act of 1996
[5] Participating Schools – Massachusetts Educational Financing Authority. (n.d.). Retrieved May 16, 2017, from https://www.mefa.org/plan/participating-schools/
[6] Fidelity Investments, “2014 Grandparents and College Savings Study,” June 2014
[7] 26 USC §2503(b)
[8] 26 USC §2513(a)
[9] 26 USC §529(c)(2)(B)
[10] How Much Is Your State’s 529 Plan Tax Deduction Really Worth? (n.d.). Retrieved May 16, 2017, from http://www.savingforcollege.com/articles/how-much-is-your-states-529-plan-tax-deduction-really-worth-733
[11] MA G.L., c. 219, §66
[12] Fidelity® Rewards Visa Signature® Card. (n.d.). Retrieved May 16, 2017, from https://www.fidelity.com/cash-management/visa-signature-card
[13] Compare 529 Plans. (n.d.). Retrieved May 16, 2017, from http://www.savingforcollege.com/compare_529_plans/?plan_question_ids%5B%5D=387&page=compare_plan_questions
[14] 529 Plans Can Help You Save for College. (n.d.). Retrieved May 16, 2017, from https://www.upromise.com/save/529-plans/
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It’s International Women’s Day, and I have been thinking about how financial advisors interact with women, especially when those women are one half of a couple, and how I wished both advisors and women would behave differently.

I’ve been to several conferences in recent years, where I find myself in hotel ballroom, listening to a speaker (usually female) patiently explaining to hundreds of (mostly male) financial advisors that they ­should pay attention to their “clients’ wives.” (Let that sink in for a minute . . . . as though the female half of a couple isn’t a client. But I digress.)

Advisors should pay attention to women for several reasons, the conference attendees are told: women outlive men; women are frequently the ultimate decision-makers; women have their own income and own assets; women think differently than men do; not paying attention to women is bad for business. I see the male advisors shifting uncomfortably in their chairs, knowing that courting “the wives” is probably a good idea for a variety of reasons, but stumped about how to actually do it.

Inevitably, during Q&A some brave soul goes to up to the microphone: “Hi, I know I should get to know my client’s wife, but it’s been 12 years and I’ve only met her once. How do I do that?” Once, I couldn’t stand it anymore, and I sprang up to the mic after him and said, “Um . . . . you should call her.” Uncomfortable silence all around. I ventured further, “Call her, and say, ‘Hi, Jane, it’s Bob. I know we haven’t really ever spoken, but I’d like to connect with you – can I take you out for coffee sometime?’” I look at the presenter. She’s nodding and beaming; we are having a mind meld. There are noises around us – a sort of rumbling, whispering among the masses, as though I’ve suggested something radical.

I’m fortunate to have been part of advisory firms which embrace the idea of working with the whole family, rather than with just the spouse that takes the lead on investments and other related matters. We set an expectation that we build a relationship with both spouses, by meeting with them both. (Eventually, when children grow to be teenagers or young adults, we meet with them as well.)

Unsurprisingly, there is typically one spouse who is more engaged, or knowledgeable, or interested in everything related to household financial matters than the other. Despite an increasingly egalitarian approach to marriage and work in recent decades, this spouse is most often the husband.

Often, the less-engaged, less-knowledgeable, less-interested spouse (usually the wife) will say, “I’m so lucky – Kevin is really so attentive to all of this, and I don’t pay that much attention because I don’t have to.” Indeed, husbands like Kevin are often fantastic, responsible stewards of their family’s wealth. Ironically, this exacerbates the dynamic: the list of things to do to manage a household these days is long, and in an attempt to divide and conquer, this item simply falls to only one spouse, over and over and over again. It’s not seen as a shared responsibility. Over the years, women fall farther and farther behind in knowledge and familiarity with all things financial.

When it comes to other household tasks, dividing and conquering works: it probably doesn’t much matter, over the course of years, who gets the oil changed in the cars, or who picks up the prescriptions from the drugstore, or who takes the dog to the vet. But I posit that your family’s wealth, and the stewardship of it, and the use and distribution of it, is vitally important to both of you, and to your heirs. This doesn’t fall into the category of “it doesn’t matter, as long as it gets done.” It matters: each spouse’s long-term, cumulative knowledge on this subject matters.

I’m speaking to you, 50-something woman with the awesome husband who manages the family’s finances single-handedly, allowing you to focus on your own stuff. I’ve seen your 75-year-old future self, in my conference room, after your husband’s death or your divorce. You don’t really know what resources you have, or how much, or in whose name. You don’t know how much you can spend, or what the rest of retirement will look like for you. Perhaps you wish that you knew that your recently-deceased husband left funds to his children from his first marriage, or that you hadn’t been named trustee of your own trust. You have a lot of catching up to do – a lot of learning, in a short amount of time – and surprises in your estate plan or the handling of your investments are the last thing that make the process more pleasant. We both wish you had known more, and had a plan, and a voice, much, much sooner.

Fortunately, this problem can be addressed, with only a few adjustments. Quite simply, just resolve to be 10% more involved. Being engaged just a little bit more, even by only 10%, will be very helpful for you, your husband, and your advisor over the long term.

Here are some things that you can do differently, now, to avoid having to play catch-up later in life. Pick your favorite(s) – anything will help.

  • Decide that both of you attending meetings with your advisor is the way it has to be. Find dates on the calendar that work for both of you, even if that means scheduling far in advance, or not as frequently as you’d like.
  • Tell your advisor that both of you should be copied on all e-mails. We send e-mails to both spouses as a matter of course, with very few exceptions. (Caveat: commit to actually reading the e-mails that your advisor sends!)
  • Open your account statements or performance reports when they come in the mail, or when the link to the electronic version comes via e-mail. Actually read those documents. Make sure you understand what they say. Ask, if you don’t.
  • Read your tax return before submitting it. Remember what your mother always told you? To never sign something that you didn’t understand? All those numbers on the first two pages came from somewhere. It’s usually not that complicated. Ask, if you don’t know. You deserve to know. Perhaps you didn’t earn all the money, but everything on that tax return affects you.
  • Review your estate plan, and by this I mean actually read your estate planning documents (or at the very least, the summary). Understand how much flows from where to where, when, and why. I’m acutely aware that estate documents are not fun to read. Read yours anyway. They affect your life, especially your life after your spouse dies, and sometimes significantly so.
  • Seek out an advisor who supports helping families, as a core philosophy. Listen to the answer, when you ask an advisor who their typical client is. The response should include the word “families” or “couples.”
  • Knowledge is power. In a meeting, ask questions, if you don’t understand. I welcome questions, before, during, and after meetings, especially, and perhaps most critically, from the quieter spouse. Quiet Spouse: I want you to know, and understand, and learn. It takes work, but learning should be satisfying and rewarding for both you and your advisor. An advisor who doesn’t support your learning or growth is not the advisor for you.
  • Avoid advisors who make you feel like things are so complicated that you have to keep working with him (ok, I concede, or her) forever, because that person has led you to believe that he/she is the only one who understands everything. You can understand this. It’s not rocket science. Refer back to the previous point about feeling welcome to ask questions and learn more.
  • Pay attention to how the advisor communicates in meetings. If the advisor always directs the conversation to your husband, and doesn’t engage with you, look at you, or address you, you’re being treated as an accessory, not as an integral part of your family’s finances. Think twice about working with this person long-term.

Here are the things that I believe:

  • Knowledge is power. It’s also cumulative.
  • All adults in a family should have basic knowledge and understanding about their financial situation, including day-to-day finances, investments, estate plans, and taxes.
  • All advisors need to support, address, and engage with both members of a couple, rather than just husbands.

There are advisors out there who believe these things, who support you in all you want, and need, and should, know. Resolve to be 10% more engaged – it will make a big difference in the long run.

Go get ‘em, ladies. Happy International Women’s Day.

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Leadership Lessons learned from Bill Belichick

/// Posted by Aviva Sapers

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The Superbowl excitement is behind us and we all celebrated the success of the New England Patriots during the famous Duckboat Parade.

The continuous success of this team is possible with a great leader at its helm: Bill Belichick. The way he leads and assembles a first class team year after year provides valuable lessons for me as a business leader and for many other executives who are faced with difficult decisions and the demand to lead effective and efficient.

Let’s look at 3 aspects of Belichick’s leadership style:

For him it is all about assembling the right team and putting the tools in place to enable success.  In a service business it is important to be organized so that your team can service clients efficiently and that they are trained to be persistent to get correct answers in a timely fashion. For the team to sustain success, there needs to be continued growth and learning.  Leaders need to find people with a quest for constant growth and knowledge. 

Team members need to respect one another and be willing to learn from each other.  Teams with big ego’s end up throwing off the concept of team as they are more focused on themselves and not working as a team.  Working as a team is paramount and when you fill it with hard working smart players you are more likely to have success. 

The final point is probably the hardest thing for companies to do as we don’t have recordings of all other companies in action.  However you can learn about the completion from asking new clients why they hired you and what was different from their previous provider.  You can review their service offerings from their websites or ask others who work with them. 

We have always strived to hire smart people who share our core values and who get excited by helping other that has helped us succeed for 3 generations.

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Gifts in Perpetuity

/// Posted by Bill Sapers

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Wooing, educating, maintaining annual gifts for Charitable Institutions is “tough business” for the thousands of fund raisers working desperately to meet ever increasing costs. Most annual gifts are the product of endless meetings, dinners, phone calls, tours and creative discussions.

Once a donor has bought into the needs of the institution, there is an annual romancing necessary to maintain or increase the gift. If successful the donor tends to increase the annual gift over years as his ability to give increases and as his support for the charity deepens.

But what happens when the donor dies? Years of building collapses unless “Gifts in Perpetuity” becomes an integral part the Fund Raising Plan.

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Red is the color of choice for the Sapers & Wallack team these days. This is not the newest fashion trend around Newton, but a cause close to the heart for all of our team members: women’s health.

We are proud to participate in the national Go RED for Women Day on February 3rd to help raise awareness about the women’s heart disease epidemic while promoting education and essential lifestyle choices to reduce risk factors.

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The time is now: Make your annual IRA contribution

/// Posted by Karen Van Voorhis

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Happy new year! 

Now that the holidays are over and all those new year’s resolutions have almost been broken (come on, admit it), here’s something you can do to help your long-term financial situation: make your IRA contribution now. 

I’m not referring to prior year’s contributions (which you can make until April 15th of the current year); I’m talking about your 2017 contribution.  It’s 2017 already – why wouldn’t you make 2017’s contribution as early as possible in 2017?

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Oxfam Case Study – Finding the best solution to retain talent

/// Posted by Aviva Sapers

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Oxfam America is known worldwide to “create lasting solutions to poverty, hunger, and social justice.” The non-profit is not only leading the efforts to find new ways to fight hunger, but also re-defines internal organizational structures. To attract and retain its highly skilled leadership, Oxfam America started a customized executive benefit restoration initiative and chose Sapers & Wallack as partner for the implementation.

Read our newest case study to learn about our customized approach to provide the choices executives needed in different stages of their careers combined with continuous education to make the program successful.

 

 

 

 

 

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Welcome our new hires

/// Posted by Aviva Sapers

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This year brought additional growth to our Sapers & Wallack family with industry-experts that joined us over the last couple of weeks.

We want to take a moment to introduce them and take you on a tiny tour behind the scenes, sharing something from their personal life:

Mark Alaimo mark-small-colorhas come aboard to lead our Wealth Management practice as Managing Director. He brings a passion for tying together all the loose ends of a client’s financial portfolio into a cohesive plan, and he utilizes his extensive background in tax and estate planning to best serve every need.

 

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New Video: Long Term Disability Insurance

/// Posted by S&W

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The year comes to an end and we enjoy the time with family and friends during the holiday season. But many also ask themselves important questions: what happens if this idyllic gathering won’t be possible in the future? What if a family member becomes disabled or ill?

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Intelligent Charitable Giving

/// Posted by Aviva Sapers

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Charitable Giving is an important topic for us at Sapers & Wallack year round, but especially during the holiday season when the needs of so many come under heightened focus. My family and I remain active supporters of many charities in the Boston area. We give as much as we can to those in need, knowing that so many are not as fortunate as we are.

At Sapers & Wallack, Inc. each year we strive to volunteer as a team, donate to the important work of many local non-profits, and act as a sponsor of events that bring the community together. Fortunately, many of you are already as deeply committed to giving to various organizations as we are.

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