Education Planning: What is your plan?

• What dreams for college education do you have for your children/grandchildren?
• How often do you meet with your trusted advisor to review your education planning?
• How much will a four-year college education cost when your children/grandchildren are ready?
• What savings and investment programs do you currently have in place to provide for those future dollars?
• Which rate of inflation have you factored into your savings and investment plan?
• Has your family made funding for higher education a part of the estate planning process?

 

Education planning involves meeting a client's goal of providing enough assets to fully or partially fund a child or grandchild's education costs. Education planning can involve asset allocation, income tax planning, estate and generation skipping planning, asset protection planning and financial aid considerations. Postgraduate work and public school vs. private school issues should be considered. College costs in general have increased at a rate substantially higher than the consumer price index. Private college costs have had a higher annual increase than public college costs.

 

Tax-Advantaged College Funding Vehicles

• Section 529 Savings Plans
• Pre-Paid Tuition Plans
• Education IRAs

 

Other Income Tax Issues

When designing college-funding strategies it should be remembered that unearned income (over a certain threshold) of a child under 14 is taxed at their parent's marginal tax rate. However, once the child turns 14, income shifting opportunities open up. Also tax brackets of trusts are compressed (39.6% bracket at $89,000 in 2001) and make trusts expensive to use for college funding from an income tax viewpoint.

 

Advisors should also consider the following income tax breaks available to certain taxpayers to help fund the costs of higher education.

• Hope Scholarship Credit
• Lifetime Learning Credit
• Dedicated for student loan interest (above the line)