Planning for the Costs of College

None

Episode Transcript

(00:00):
This is Money in Motion with ClassFinancial, a fun and informative show designed
to help you get answers to allyour retirement questions in one place. And
our phone lines are open on thisfantastic Thursday morning just for you. A
telephone number here at the station sixoh eight three two one thirteen ten.
That's three two one thirteen ten.Love to get you on the air today

(00:22):
with our retirement planning professionals from ClassFinancial, joined this week by c J.
Closs and Kyle Kite. As mentioned, they come to us from Class
Financially. If you haven't been tothe website recently, definitely want to check
it out. It's a great placeto get to know Class Financial, learn
a little bit about their separate divisions. Also listen back and subscribe to the
podcast. Another cool feature at colassfinancialdot com is that weekly market paulse newsletter.

(00:46):
You can sign up for it rightonline. It's a nice little weekly
email you will receive. It's gota little snapshot of what's been going on
in the markets, as well asa link to the most recent podcast that
online at cossfinancial dot com. That'sKlaasinancial dot com. The telephone number six
oh eight four four two five sixthree seven. That's for Closs's office right
here in Madison. No charge forthat initiative. To know your appointment Tech

(01:08):
Loss Financial, it will be complimentaryto you. Again. They're number six
oh eight four four two five sixthree seven and to join us this morning.
We'd love to hear from you.All I gotta do is call the
station six oh eight three two onethirteen ten. That's six oh eight three
two one thirteen ten. As mentionedthis week, we are joined by our
friends from Class Financial, CJ Clossand Kyle Kite. CJ. How you

(01:30):
doing this week? I'm doing great. How are you? Sean? Doing
really good? Great to hear yourvoice. Kyle, how have you bet
it's been a couple of weeks.Good to hear from you. It has
been Sean. Yes, I'm doingwell. It's a beautiful fall day out
there. It is a fantastic dayand we've got a fantastic conversation ahead this
morning. We're talking about planning forour kiddos and grand kiddos when it comes
to education. What a fantastic giftthat can be. But there are things

(01:53):
you want to be aware of.We'll get into that Conversation in just a
moment with Kyle and CJ and ofcourse take your call here at Money in
Motion with Class Financial on thirteen toten WIBA. Before we start this week's
discussion, one of the other greatthings that goes on in the program is
the Class Quiz Question Week. Thisweek you'll have a chance to win a
twenty five dollars gift card to RedRobin from our friends at Class Financial.

(02:15):
That with the Class Quiz Question Week, I'll tell you specifically later on this
half hour how you can win thattwenty five dollars gift card to Red Robin.
A little tip though, just tokind of give yourself a leg up
on everyone else, because a lotof folks love Red Robin. It's a
fantastic place. You want to makesure you pay close attention because most of
the time the question and answer tothe Class Quiz question the week come up
during the show. And before weget rolling on this week's conversation, let's

(02:37):
actually take a look back at lastweek's Class quiz last week. Get the
question and the answer there as well. Yeah, thanks again everybody for listening,
and congratulations to our winner from lastweek. So last week's question was
if you are over the age offifty and twenty twenty three and have an
employer retirement plan, what is thetotal amount that you can contribute including the
catch up amount? Is it atotal of seventeen thousand or thirty thousand?

(03:00):
And the answer was thirty thousand dollars. And again we'll do another one this
week as well. And that wasa great podcast, great show, and
if you missed any part of thatprogram, you can always listen back online
at clossfinancial dot com. That's klaasfinancial dot com. Full lines are open
six oh eight three two one thirteenten. That's six poh eight three two

(03:21):
one thirteen ten to get you onthe air with Cjankyle from Class Financial.
And so today we're going to betalking about education planning for our children and
grandchildren. What are those things weshould be aware of concerning this, CJ.
Yeah, this can be a stressfultopic for a lot of our clients,
and so we thought it'd be agood idea to kind of do a
reality check on the expense of collegethese days and some recent trends that we've

(03:44):
been seeing. Although we specifically dohelp people, of course with retirement planning,
many times, education planning and retirementplanning intersect as parents and grandparents either
are trying to save for retirement andplan for and pay for college at the
same time, so this could bea challenge. Of course. The fact
is that in the last thirty years, average tuition and fees at public four

(04:09):
year universities have increased one hundred andtwenty five percent after adjusting for inflation,
while private schools have increased at arate of eighty percent. Over the same
time period, median family income hasonly increased twenty seven percent. You see
the problem, right, So it'sactually kind of funny. We all focus

(04:30):
on inflation and hopefully people have notbeen living under a rock and they know
that inflation has gone up and theFederal Reserve is trying to control that,
YadA YadA. But what's interesting isthere's kind of these these core inflation or
headline inflation numbers that we're aware of, but very often that is not evenly
distributed across all goods and services.Right. Food might be higher, energy

(04:50):
costs might be higher, but someother areas of your life might be lower.
Well, one of the areas thathas dramatically had inflation the last thirty
years, as we're finding out ispublic for your universities and private schools,
which is somewhat interesting given that technologyhas actually enhanced our ability to access information

(05:14):
for free. So this will bean interesting trend to watch play out in
the coming years because we could seethere being i'll call them deflationary pressures on
education and traditional universities in the future, just given that access to that information
is a little bit more or moremore accessible now. So when you're looking
at what a four year college costscould look like for your loved one one

(05:36):
of these days, understand that theexact cost will depend upon your financial situations,
grades, family size, tax filingstatus, and your location. So
a great place to begin to lookat potential costs is the Department of Education's
College Scoreboard. You can find thisat college scoreboard dot ed gov. It

(06:00):
provides detailed information on annual costs,graduation rates, and top fields of study
for colleges across the country. Formany schools, there's often a net price
calculator to input your information to seewhat a certain school may cost for you.
Now, once you've done that again, this is the first step is
Department of Education's College Scoreboard. Thenext step for a family is to calculate

(06:26):
the net price, or to calculatethe net price for college is to fill
out the Free Application for Federal StudentAid also known as FAFSA. So that
Federal Student Aid kind of form thatyou fill out does ask for parental income
and assets as well as any incomeor assets of the student that's applying for

(06:46):
college. Incomfort, both students andparents have a higher weighting than assets,
and so filling out that FAFSA willthen calculate your student aid index. And
this used to be called, bythe way, the ex family contribution.
Now they just call it the studentaid index, and that will impact things.
So once you've filled out that form, and once you have that student

(07:10):
aid index determined, this will thenbe subtracted from the school's cost of attendance,
giving you your financial need. Afteryou've determined your financial need, realized
that sometimes the school will fill thatneed with scholarships, grants, discounts,
so on and so forth, andother times they will not. So certain
schools have a better track record thanothers in filling this gap. And once

(07:32):
again you can rely on that collegescorecard or access to school's common data set
to see how much financial aid schoolsgenerally award. Let me just pause,
you know, because this is alot of a lot of information we're going
through here, this whole college thing. I'm in the midst of it with
my daughter. My daughter is asenior right now. I mean, thankfully
I'm in this field and so Ihave a leg up on most people,

(07:56):
but I'll admit I'm getting into it. Gosh, it's frustrating and confusing,
and so we often spend a fairamount of time with our clients kind of
slowing down and giving them direction asto where to go, just to get
as much information as they can sothat they don't end up getting their child,
you know, in love with aninstitution that they would never be able

(08:16):
to afford in the first place.So really suggest go to that Department of
Education's college scoreboard, fill out thatfasta form to get a sense of what
these the costs will be. Thisis really interesting stuff that is absolutely for
sure. Whether it's for the kiddosor the grand kiddos, definitely go.
Want to pay close attention to thisweek's program as always. Can learn more
about class Financial on the website classfinancial dot com. That's k l aas

(08:41):
Financial dot com fantastic website. Tolearn more about Class Financial, sign up
for that weekly Market Pulse newsletter.Also listen back to this in the previous
shows podcasts again all available to youat classfinancial dot com. Speaking of great
things available to you. That meetingat COSS Financial six so eight four four
two five six three seven. Firstappointment at Colss Financial. It will be
because it will be complementary to you. Again the telephone number six oh eight

(09:03):
four four two five six three sevenfor Coss Financial and to get on the
air this morning with CJ Closs andKyle Kite. Love to have you join
us. So I gotta do iscall the station six oh eight three two
one thirteen ten. That's six oheight three two one thirteen ten. Will
continue our conversation with CJ, Kyleand you next as Money in Motion with
Class Financial continues right here on thirteenten. Wuib e, you're listening to

(09:26):
Money in Motion with Sean Priebel andCoss Financial. This is Money in Motion
with Class Financial, a fun andinformative show designed to help you get answers
to all your retirement questions in oneplace. Chatting with our retirement planning professionals
from Class Financial CJ Closs and KyleKite. The website for class Financial really
easy to remember class Financial dot com. That's Klaasfinancial dot com. Great website.

(09:50):
Their telephone number six o eight fourfour two five six three seven.
No charge for that initial gets toknow you appointment tech costs Financial. It
will be complementary to you again therenumber six oh eight four four two five
six three seven. And to geton the air this morning with your question
six oh eight three two one thirteenten. That's six oh eight three two
one thirteen ten. We're going totalk about kind of understanding the cost of

(10:13):
college over those four years. Maybea little more in just a moment,
but real quick, CJ. We'retalking about great websites, and you're mentioning
the Department of Education their college scorecardwebsite. Great resource. What was that
one again? Yeah, so Ithink I think I miss book. I
said college scoreboard. So the websiteto go to is College score Cards,

(10:33):
so college and it's all one wordcollege Scorecard dot ed dot gov. So
again, if you got to likeGoogle and just put in college scorecard,
it'll it'll take you right there.But this is a wonderful resource. As
a matter of fact, it's oneof the first things we tell families that
we say, hey, have yougone to the college scorecard to start looking

(10:54):
this up and understanding the costs andwhat it might be. And they even
have a little link right there tostart your FAFSA app application, which was
step two in our progression. Sogreat resource, Go ahead and take a
look at that. Very very greatinformation this morning from CJ. Closs and
Kyle Kaite, our retirement plan professionalsfrom Class Financial. So kind of once
you kind of get through that howmuch that college is going to cost for

(11:16):
four years and those funding vehicles thatwe talked about, what's available then for
parents and grandparents in that area.Kyle, Yeah, it's a great question,
Sean. So this is by farkind of something that's continuously changed over
the last you know, and thereused to be a few other options,
but right now, by far,the best choice for saving for college is
what they call a five to twentynine plan. So this is a tax

(11:39):
advantage account that features tax deferred growthand tax free distributions for qualified expenses.
It also has no contribution limits orincome limitations, and making it a great
option for higher income individuals. Soagain, there used to be a couple
other options. They're still out there, but by far, like I said,
the five twenty nine is what mostpeople use. And they've actually changed
some of the rules around these plans, which we'll continue to talk about here

(12:01):
this morning. So many states offera state tax deduction as well or for
contributions, so that it may maymake sense to open up a five twenty
nine plan within your residence state.So just because you open up this five
twenty nine in a certain state doesn'tmean that you can't attend a university out
of state or anything like that.But some states offer that state tax deduction,

(12:22):
so it makes sense to open itin your home state. And these
accounts have been granted additional flexibility withthe passing of the Secure Act, which
allows ten thousand dollars lifetime limit topay off student loans, So meaning you
could put this money in a fivetwenty nine and you know, let's say
the grandkids pulled out some student loans, they didn't use all the funds that
you had set aside in this account, they could actually pull ten thousand out

(12:45):
of this account towards to pay offtheir student loans and still get those tax
breaks, which is really really nice. And another great feature about this is
that the Tax Cut and Jobs Actincluded K through twelve K through twelve tuition
in the definition qualifying expenses up toten thousand per beneficiary per year. So
this is again why these things havebecome so powerful, is that not only

(13:07):
is it a great college saving vehicle, but it can also be used for
private school tuition things like that.So you definitely want to consult with your
tax professionals. Not all states canform with the federal definition of a qualified
expense, so again, what whateach state qualifies as a qualified expense changes
state to state. Real great tool, but a lot of details, a
lot of important things you need toknow as here as you're learning about any

(13:30):
making use of a five to nineplans. We're talking this morning with Kyle
Kite at CJ. Closs, ourretirement planning professionals from Class Financial. They're
telephone number six oh eight four fourtwo five six three seven. No charge
for that initial get to know youappointment at Class Financial. It will be
complementary to you. Again, they'retelephone number six soh eight four four two
five six three seven the website classfinancial dot com. That's k Laasfinancial dot

(13:52):
com took an opportunity for you aswell. If you've got a question for
CJ and Kyle, we'd love toget you on the air. Six oh
eight three two one thirteen ten.That's six so eight three two one thirteen
ten to get on the air thismorning. So, Kyle, what then
happens if you're kiddo or the grandkiddoesn't that that has that that five two
nine plan doesn't go to college,or maybe there's some leftover funds they found

(14:13):
a fantastic school that they didn't needall that money, So what happens there?
Yeah, it's a great question,by far the most popular question we
hear about these, but there's somereally really good answers. So something to
keep in mind is that even thoughcontributions into five twenty nine plans are completed
gifts to the beneficiary, the owneralways has the option to change the beneficiary.

(14:33):
So let me kind of walk youthrough that. Let's say, you
know, grandma and grandpa put moneyaway for their oldest grandchild, their oldest
grandchild goes to school but doesn't endup using all these funds, they could
then change the beneficiary to the nextgrandchild or whoever they want to use the
funds for, and it doesn't evenhave to be siblings or anything like that.
You can change it to cousins,nieces, nephews, whatever it is.

(14:54):
So they can change the beneficiary toanother eligible family member, or even
change the beneficiary to themselves else fortheir own qualified expenses without any gift or
income taxes. So again, they'vecome a long way with the flexibility of
these types of planes. The onedrawback funds are not used for education qualified
expenses. The earnings in the accountcould be subject to a ten percent penalty,

(15:16):
ordinary income taxes on the federal level, and possibly some income taxation at
the state level as well. Soagain, if you want, if you're
pretty confident that someone in your familyis going to be using these fun right,
but there is a little bit ofdrawbacks that we have to be aware
of, so really important a guidanceand understanding for that information. And I

(15:39):
know what podcast I'm listening to onmy way home with the kiddo this afternoon,
just so he's aware. He thinkshe's an only child, he thinks
that's automatically mine. Well, you'vegot cousins. I never know really good
stuff this week. It's a greatidea, Sean threatening is always a good
parenting strategy. Yes, I'm talkingthis morning with c J Laws and Kyle
Kaide everytirement planning professionals COSS Financial talkingabout the importance of planning. It's a

(16:03):
great day to start that conversation withCOSS Financial. There telephone number six eight
four four two five six three seven, no charge for then she gets no
you appointment at Colss Financial. Itwill be complimentary to you again their number
six O eight four four two fivesix three seven. The website coss financial
dot com. That's k l aaS financial dot com. What happens if
the kidd or a grand kid wetalked about that doesn't go to college.

(16:25):
What about other options you may haveas a with a five two nine plan.
We'll get the details from CJ andKyle. We will do that.
Next has Money in Motion with CossFinancial continues right here on thirteen ten w
IBI. This is Money in Motionwith Colass Financial, a fun and informative
show designed to help you get answersto all your retirement questions in one place.

(16:45):
Talking with our retirement planning professionals CJ. Closs and Kyle Kite always having
a lot of fun on money inMotion with cost Financial. Don't forget if
you missed any part of today's program. If you get it. Sometimes you
step out, you got to grabthat coffee, or maybe you're driving the
kiddos a grand kids to school.You missed part of the show. You
can always listen back at colss Financialdot com. That's k l a a
s Financial dot com. Also agreat podcast to share with your family and

(17:07):
friends. Again that all available toyou at Costs Financial dot Com. The
telephone number six O eight four fourtwo five six three seven. No charge
for that initial get to know youappointment tech Coss Financial. It will be
complimentary to you again their number sixoh eight four four two five six three
seven on the website Coss Financial dotcom. That's Coss Financial dot Com.
Talking this week, I'm about planningand helping kids and grandkids when it comes

(17:32):
to college college costs and talk alot about the five two nine plan and
are there other ways, uh CJthat creative ways that grandparents might choose to
uh oh excuse me, wait,I'm I've got to start noting where we
are because we're also talking about someof the other options with the five two
nine things like you know, thekiddo gets a scholarship or or of course

(17:55):
things change, So are certainly thingsto be aware of in that area as
well, aren't there CJ There areyes. So there was there was a
passing of Secure Act one point zeroas we call it back and I think
that was twenty nineteen, and thenSecure Act two point zero came into place
here not too long ago, andso it's it's added additional provisions and flexibilities
to five twenty nine plans, whichis often why the other forms of education

(18:21):
saving are becoming less common. Sothere's a bunch of things. Now you
can use up to ten thousand ayear per child for private eduction for private
high school. It used to onlybe for college. Kyle was talking about
the ability to change beneficiaries. There'syou know, there's a lot of flexibilities,
but there's a couple more that I'mgoing to emphasize. So with the

(18:42):
passing of Secure Act two point zero, the owner of the five to twenty
nine plan can transfer funds directly toa roth IRA for the beneficiaries. Starting
in twenty twenty four. So thisis the idea of oh, you know,
Johnny goes to college, but hedoesn't use all the money, or
doesn't go to college at all,and so now it's you're stuck, and

(19:03):
you've got to change beneficiaries to aniece or nephew, and that's not what
you want to do. And nowsuddenly you're dealing with taxes and penalties to
get the money out because it's nota qualified distribution. Well, with the
passing of secure IC two point zerostarting in twenty twenty four, you can
actually use that money for roth Iracontributions for the beneficiary. Now, these

(19:25):
transfers are limited. They're limited tothe annual maximum contribution limits. However,
there is no agi limitation, whichthere normally would be. There's a young
person earning money and they wanted tomake a roth Ira contribution, they would
have income limitations. That is notthe case here as it relates to using
five twenty nine money. But againit's still limited to the maximum amount per

(19:49):
year and it is subject to alifetime limit of thirty five thousand dollars.
However, the five to twenty nineaccount must also have been open for at
least fifteen years to be eligible forthis rollover. So couple of restrictions to
be aware of there. You've gotto have income to offset the contribution.
You've got to have You can onlyput thirty five thousand dollars from five twenty

(20:14):
nine into a roth IRA and thenthe five twenty nine had to be open
for fifteen years. So a fewthings to be aware of. But this
is one of the greatest fears ofparents in using these accounts is I don't
want to get stuck with money inone of these things that can't be used
for anything. And here's a newoption. And another one actually is with

(20:34):
regards to scholarships, because that's anotherconcern. What if Johnny gets a scholarship,
Well, the amount of the scholarshipcan be distributed without penalty. Now,
the earnings would be taxable in thatcase because it's not a fully qualified
distribution where you're using the money topay for education, but it would avoid

(20:55):
the penalty if you take distributions outthat match the amount of the scholarship.
Again, increased flexibility on these planshas really made them even more popular.
Fantastic. Are there other things CJas far as creative ways grandparents might choose
to help fund college expenses. Let'sthink about it. Yeah, they could
consider paying tuition directly to their grandchildschool. So, using a special tax

(21:18):
code exemption, the amount of tuitionwill not be subject to gift tax.
Now, if you choose this method, remember that the gift tax exclusion only
applies to tuition and does not includebooks, supplies, room and board.
But it is a simple way topay for a grandchild's college education just to
make a payment directly to the institutionfor their grandchild school. Another choice is

(21:41):
to choose to pay off your grandchild'sstudent loans after they graduate. If you
choose to help in this way,it will have no effect on the grandchild's
financial aid eligibility, and your grandchildwill have an incentive to graduate. He
or she will also be able todeduct student loan interest up to twenty five
hundred dollars on their tax return withouthaving to itemize. But one potential drawback

(22:03):
to note here is that since yourloan payments will be considered gifts, any
amount you give over seventeen thousand inone year from one parent to one child
or one parent to one grandchild willbe subject to gift tax. Limitations and
unforeseen circumstances such as death or illnessbefore your grandchild graduates, could prevent you
from being able to keep your promises. So there's pros and cons to all

(22:26):
of these strategies. But there's anothercouple to consider. Any other ones here
we should be thinking about their CJ. Yeah. The only other one we
would mention here is you could chooseto set up an education trust. Trust
provide a measure of control because youcan specify your wishes in the trust agreement
and the trustee will be legally obligatedto fulfill them. So, thinking,

(22:47):
you know, grandparents, I don'twant to do a five twenty nine and
I don't want to just listen asbeneficiar. Are there any other options?
And the answer is yes and educationtrust And you can also restrict your grandchild's
access to the funds regardless of hisor her age, but legal and accounting
fees to establish and maintain a trustcan be high, and of course gifts
into the education trust are irrevocable,meaning that once you put the money in

(23:10):
there, you can't pull it out. So, in summary, with some
strategic planning, your children's or grandchildren'seducation futures could be well provided for.
We just recommend sitting down with afinancial planner. We've said this a million
times on the show. It doesn'thave to be us. Just sit down
with somebody who's a fee based,good financial planner who can walk you through

(23:32):
kind of the steps you need totake to be an educated consumer when it
comes to your child or or agrandchild's future. Education costs a lot of
really good information this week. Asalways, don't forget if you missed any
part of the show, you canlisten back at klossfinancial dot com. That's
Klaasfinancial dot com. Link to thepodcast right on the website. Also their
sign up for the weekly market Paul'snewsletter' tell off a number for Class Financial

(23:56):
six so eight four four two fivesix three seven charge for that initial get
to know your appointment at Coss Financial. It will be complimentary to you again
their number six oh eight four fourtwo five six three seven here. Don't
want to hold on to that telephonenumber now as well, because it's time
for the Coss Quiz Question of theweek. It works like this. In
just a moment, I'll ask youthe Class Quiz question of the week.
You will then have thirty minutes fromthe and today's program to call the Class

(24:18):
Financial office right here in Madison atsix oh eight four four two five six
three seven. And if you arethe first call correct answer, win this
week's prize, which is a twentyfive dollars gift card to Red Robin.
This week's class quiz question the weekis this, what is the name of
one of the funding vehicles used forcollege planning? Is it a five to

(24:38):
two nine plan or a four nineto nine plan? Telephone number six oh
eight four four two five six threeseven first cal out correct answer win that
twenty five dollars gift card two RedRobin. And again that is Coss Financial's
office right here in Madison six oheight four four two five six three seven.
C J. Kyle, it isalways great chatting with you guys.
You enjoy this fantastic day. Thanksshaw Sean, Take care guys. News

(25:02):
comes your way next right here onthirteen ten WIBA. This is Money in
Motion with Coss Financial Asset Advisors,LLC, a registered investment advisor registered with
the SEC. The content of thisshow is for informational purposes only and should

(25:22):
not be considered individual investment advice.Class Financial does not offer tax or legal
advice. Any opinion offered during thecourse of this show is the opinion of
that particular investment advisor representative, andnot necessarily the opinion of Coloss Financial