Page 18 - Palm Beach Vol 6 No 3
P. 18

Wealth Management
The Smart Way to Save for College
By Julie Clairmont-Shide
There is no more precious gi  you can give a child than a college edu- cation. But while the cost of living is steadily increasing, college costs are rising at a faster rate – approximately twice the rate of general in ation, accord- ing to Edvisors.com.
UTMA.
 e Uniform Transfer to Minors ac-
count is a custodial account allowing for securities to be owned by a minor. Gi s can be made into this account by any- one, subject to the annual exclusion.  is money becomes the property of the minor upon reaching the age of majority, age 21, in Florida.  e nature of this account does not require the student to use the money for education and in some cases this can become a problem with young adults.
Student Loans.
Discussion of student loans is outside the scope of this article; however, we believe this should be the student’s last resort. Stu- dent loans must be paid a er the student’s education. Frequently, the student does not make su cient income a er graduation to support both the student loan repayment and to establish and run a household. We
encourage students and their families to evaluate the realistic ability to repay based on the degrees pursued and other factors intrinsic to the student and their family.  ese loans remain “on the books” for the student’s lifetime. If they are not repaid, they cannot be discharged by bankruptcy and there is even a current strategy by the U.S. government in some cases to collect unpaid student loans from Social Security payments made in retirement.
529 Plan.
A favorite way by most advisers is a 529 college savings plan. It can o er numer- ous advantages over other college savings vehicles:
• Tax-deferred growth and tax-exempt withdrawals for approved educational expenses.
• Gi ing by parents, grandparents or any interested party can be made into the fund, subject to the annual exclu- sion of $14,000 per person; therefore, parents can contribute $28,000 per year. Further, you can forward gi  up to  ve years per person totaling $70,000 to qualify for the annual gi  tax exclusion.
•  e donor can stay in control of the account; the bene ciary has no legal right to the funds.  e earnings por- tion of non-quali ed withdrawals will incur income tax and an additional 10% penalty if not used for speci ed educational expenses.
• 529 plans are low maintenance and easy to set up and fund.  ey do not have to be reported on your federal tax return and you will not receive a Form 1099 to report taxable or non- taxable earnings until the year with- drawals are made.
• Plan investment options can change twice per year and funds can be rolled over into another 529 plan every 12 months if needed.  ere is no fed- eral limit on the frequency of these changes if the account bene ciary is moved to another qualifying family member at the same time; there are no age limits, income limits, or annual contributions limits; however, there are lifetime contribution limits which vary by plan, ranging from $235,000 to $500,000.
Prepaid State Tuition Plans.
Florida has a prepaid saving plan that allows a selection of options with speci c costs, payment schedules and bene ts.  e amount covered by the plan can also be ap- plied to other schools nationwide. You can have both a Florida Prepaid Plan and a 529 college savings plan.
Roth IRA.
Like a 529 plan, parents can contrib- ute a er-tax money and any investment gains can be withdrawn a er age 59 1/2 tax-free. Roth IRAs also allow you to with- draw funds tax and penalty free to pay for qualifying educational expenses a er  ve years.  is can be appealing to parents who want the ability to decide whether to use the Roth for their own retirement or for their children’s education. Unlike the 529, however, there are income and contribu- tion limits. Single taxpayers earning over $129,000 a year or $191,000 for married couples are not eligible and only $5,000 per year (or $6,500 if you are over age 50).
Coverdell Education Savings Account.
 is account has tax advantages when the money is used to pay for educational expenses. It also belongs to the parent, not the child so it has less impact on your
Julie Clairmont-Shide is a Senior Vice Presi- dent, Wealth Advisor and CERTIFIED FINAN- CIAL PLANNERTM for The Harbor Financial Group at Morgan Stanley in Boca Raton, Flor- ida, a team of portfolio managers and wealth advisors that help a uent investors protect and simplify complex wealth with orchestrated  nancial care. Julie Shide has 30 years of ex- perience in  nancial services with specialized training in  nancial and estate planning. Ju- lie Shide is a Wealth Advisor with the Wealth Management division of Morgan Stanley in Boca Raton.
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