Efficient Education Planning
Get going
Efficient education planning starts early. Unfortunately, far too many well-intentioned parents and grandparents start the process far too late to capitalize on what could be their best ally . . . time. The earlier you start investing the less you have to carve out of your budget to meet this important objective.
For example
If the average cost of tuition, room and board at a state school for an in-state student is $42,000 for four years now, then a child born today would have to pay approximately $142,000 for four years when they head off to college eighteen years from now (assuming 7% inflation – the historical rate of inflation for education costs). If you assume an 8% rate of return on your college funds invested, just look how much of a difference starting early can make:
Required monthly commitment at various starting ages:
| 1. $328.76 | 6. $590.24 | 11. $1,266.19 |
| 2. $366.62 | 7. $674.12 | 12. $1,542.59 |
| 3. $410.24 | 8. $775.95 | 13. $1,932.00 |
| 4. $460.87 | 9. $901.72 | 14. $2,519.00 |
| 5. $520.14 | 10. $1,060.42 | 15. $3,502.00 |
The first step
As you set out to accumulate assets for college funding, it is wise to start with the end in mind. Consider what type of institution you want to plan for and how much it costs today. Next, calculate how much it will cost in the future when the child will attend by factoring in a generous assumption for inflation (DeWaay Capital Management can do this for you). With that target in mind, you need to determine how much you need to regularly set aside to reach that objective, assuming relatively conservative assumption on the rates of return on the money.
Shortest distance between 2 points
By quantifying the amounts you need to save you have taken a very important step. However, to get the most efficient use of the dollars you set aside for education you must carefully craft a strategy, given several criteria, to yield the best results. There are many funding options to choose from:
- Strategic Gifting
- State Sponsored 529 Plans
- Educational IRA
- Uniform Gift to Minors Accounts (UGMA/UTMA)
- Roth IRA in child’s name
- Prepaid College Fund
- US EE Savings Bonds
- Child as a beneficiary of Trust
- Hope and lifetime learning credits
Which one of these strategies is right for you? Because of the continuous changes in the tax codes and personal circumstances, it may be advisable to use a combination of these strategies.
The basis for your decision
The most important criteria that you must consider as you evaluate your options are:
1. Control over assets to make sure that resources are ultimately used as you intended them to be used.
2. Tax planning to formulate the most tax efficient approach to accumulating college resources.
3. College aid qualification to make sure you maximize the odds of qualifying for all available assistance.
4. Flexibility to adjust to the ever changing tax landscape and personal circumstances.
In some cases there are logical conclusions that can be drawn making the choice of which strategy to utilize relatively easy. More commonly, the choice is not so clear cut and may even require blending several strategies to hedge against various outcomes.
DeWaay Capital Management can help
DeWaay Capital Management will assist you in evaluating your personal circumstances and applying the various criteria to help you map out your most efficient college funding strategy.
Having helped thousands of investors prepare for college, we are equipped with the experience, knowledge and resources to formulate as logical and efficient strategy for you.
