What All Financial Advisors Should Do (but Don’t): Plan for Education Costs

Higher education is expensive and only getting more so. The College Board estimates that, for the 2020-2021 academic year, the average cost for a public, four-year, in-state college was $26,820. If that doesn’t give you sticker shock, the average cost of a private, nonprofit four-year college was $54,880.

How will your child or grandchild (or you, if you’re going back to school) pay for this? Financial aid exists; however, the more affluent you are, the less financial aid you can anticipate. Loans will be available, but the less debt our children and grandchildren graduate with, the sooner they can create a stable financial foundation.

A plan to pay for the high cost of education is necessary in today’s world. Yet many people lack one. Fidelity’s 2019 college savings study found that 42 percent of parents surveyed regretted not saving for college earlier.

If you have a financial advisor, you shouldn’t be one of those parents (or grandparents) wishing they had saved earlier. Your financial advisor should help you set up an education savings plan and help you determine how much to contribute.

Unfortunately, a lot of financial advisors don’t take this step. Their focus is investment management, and all the other aspects of your money go un-optimized. To help you determine whether your financial advisor is worth the fees you pay them, here is how we would help make sure your child or grandchild can afford their dream university.

How We Create a College Savings Plan

Whenever we start working with a client, we get to know them personally. We can’t do our job if we don’t! Working with you, we would ask about your family—whether you have children or grandchildren and their ages. We’d ask if you have educational goals for yourself—for example, you want to go back to school once the kids are out of the house so you can get a master’s degree.

We’re not being nosey! Details like these help us create a comprehensive financial plan, which includes your goals for education. We also meet with you regularly to help ensure that your financial plan stays current with your life. For example, if you have a new grandchild, we’ll talk about whether you want to contribute to their future college costs.

Assuming you want to contribute, we evaluate current and probable future education costs. And we keep communicating with you. Do you want to cover your child’s or grandchild’s total costs? Or do you want to pay a portion of those potential costs? These are essential questions all financial advisors should ask.

We then recommend an education savings vehicle, such as a 529 plan. Our recommendations have a twofold goal:

  1. To help meet your objective for saving for a child’s or grandchild’s tuition; AND,

  2. Ensure you meet your other financial needs, like saving for your retirement.

We advise you on the optimal amount to save in the 529 plan or another fund. Again, we give this recommendation with an understanding of all your goals—including your financial ability to enjoy your life now. We want our clients to live life to the fullest, so we always strive to find the right balance between enjoying today and saving for tomorrow.

We also integrate education savings into tax planning, whether that’s today or in the future when the money is dispersed.

Finally, we help our clients determine what to do with any excess savings. Sometimes the route to a degree is less expensive than anticipated—for example, the student may have attended their first two years at a community college. Or the child or grandchild goes to a trade school that costs less, or they don’t go to college at all.

In such cases, we discuss with you whether you want to apply the funds to other loved ones (or yourself). And if that route isn’t an option, we help you determine the most tax-efficient, cost-effective way to direct those funds to meet your other goals.

Final Thoughts

It’s crucial to plan as early as possible for a child’s or grandchild’s college education. Your financial advisor should help you do this while making sure that the plan integrates with all your other financial goals.

This is something our Greenwood Village, CO financial planning firm assists clients with regularly. If you want to discuss your financial situation, schedule a complimentary 15-minute call. We can briefly discuss your goals and concerns and share how we may be able to help.

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