I’ve seen a lot of discussion about how the Kansas City Chiefs won the Super Bowl because the San Francisco 49ers chose to take the ball first in overtime. Long story short, you usually want the ball second in overtime because you know what you’ll need to do to win. And with Patrick Mahomes at quarterback, the Chiefs had to feel extremely confident in their chances.
And a college savings plan you add funds to regularly will make you feel like you’re the Chiefs. For parents, complaining about the perpetually rising cost of college tuition has been an annual event for many years. Average tuition increases actually were less than the inflation rate for the current school year—2.5% for in-state students at public four-year colleges. By the way, Florida has the lowest tuition and fees for students at these schools at less than $6,400 annually.
Parents of young children might be able to enjoy a continuing positive trend in tuition. Many colleges have been having trouble attracting and retaining students, so the pricing environment isn’t strong. If the pattern continues, parents can have more predictability and security in saving for their children’s education.
What once was a confusing marketplace for savings plans seems to have more clarity now, with 529 plans the default option for many families. Coverdell Education Savings Accounts are another popular choice.
With 529s each state has its own limit on lifetime contributions, there are no income restrictions for funding the account, and the maximum annual contribution varies by state but is in the $300,000 range. Coverdells do have income restrictions, and the maximum annual contribution is $2,000 per beneficiary. The advantage of a Coverdell seems to be more flexibility in investment options and the ability to use the account for K-12 expenses.
But one reason to favor a 529 plan in Florida is that it’s one of the few remaining states to have prepaid tuition option open to new enrollees. For a child born in Florida on New Year’s Day this year, a prepaid plan for a participating four-year college in the state would cost $86 a month for the next 18 years. That might be cheaper than your internet bill. If the cost of college rises faster than the state of Florida expects, you’re not out any extra funds.
There are a lot of tax and legal intricacies with these programs, so I suggest talking to a financial advisor about the best program for your current situation and savings goals.
It’s always difficult to project your needs so far ahead in the future, but I’d suggest setting up college savings accounts as soon as possible after your future beneficiaries are born. Given all the competing needs for your income, saving for college is difficult, and you might find yourself falling short of paying for 100% of your children’s education needs.
But having some of the funds already set aside will provide some security when trying to determine how to fill the funding gap—just like having the second possession in overtime in the Super Bowl.
https://www.investopedia.com/financial-edge/0311/the-last-states-with-prepaid-tuition-plans.aspx
https://www.myfloridaprepaid.com/
https://www.myfloridaprepaid.com/existing-customers/schools/
https://www.myfloridaprepaid.com/prepaid-plans/plans-and-pricing/
https://www.savingforcollege.com/article/coverdell-esa-versus-529-plan
Units of the 529 plan investment options are municipal securities and may be subject to market value fluctuation. Before investing in a state specific 529 plan, you should compare your own state's qualified tuition program and any state tax or other advantages it may provide.Subject to certain restrictions. By investing in a plan outside your state residence, you may lose available state tax benefits. 529 plans are subject to enrollment, maintenance, administration/management fees & expenses. Make sure you understand your state tax laws to get the most from your plan. If you make a withdrawal for any other reason, the earnings portion of the withdrawal will be subject to both states and federal income tax & a 10% federal tax penalty. As with any investment, it is important to fully consider the plan’s objectives, risks, charges and expenses before investing.
Evan R. Guido is the Founder of Aksala Wealth Advisors LLC, a 2018 Forbes Next-Gen Advisors List Member, and Financial Professional at Avantax Investment ServicesSM. Evan heads a team of retirement transition strategists for clients who consider themselves the “Millionaire Next Door.” He can be reached at 941-500-5122 or eguido@aksalawealth.com. Read more of his insights at https://finance.heraldtribune.com/category/ask-guido/. Securities offered through Avantax Investment ServicesSM, Member FINRA, SIPC. Investment advisory services offered through Avantax Advisory ServicesSM, Insurance services offered through an Avantax affiliated insurance agency. 6260 Lake Osprey Dr. Lakewood Ranch, FL 34240. The views and opinions presented in this article are those of Evan R. Guido and not of Avantax Wealth ManagementSM or its subsidiaries. Past performance does not guarantee future results. The S&P 500 is an index of 500 major, large-cap U.S. corporations. Standard & Poor's is a corporation that rates stocks and corporate and municipal bonds according to risk profiles. The S&P 500 is an index of 500 major, large-cap U.S. corporations. You cannot invest directly in an index. An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. CDs are FDIC insured and offer a fixed rate of return. They do not necessarily protect against a rising cost of living. The FDIC insurance on CDs applies in case of insolvency of the bank, but does not protect market value. Other investments are not insured and their principal and yield may fluctuate with market conditions. Investments are subject to market risks including the potential loss of principal invested.