Why Education Planning Matters

Why Education Planning Matters

By Phil Madonna, CFP®, CRPC™, APMA™

Financial Advisor

Have you ever worried about saving money to send your children to college? Investing in education—whether for yourself, your children, or a loved one—is one of the most significant financial decisions you can make. With tuition costs rising each year, having a structured savings plan can help reduce financial stress and minimize the need for student loans. After working with several clients on this, I can tell you firsthand it’s never too early to start planning. Together we can discuss the savings vehicles, estimating future costs, and maximizing tax benefits to ensure you’re well-prepared for educational expenses. Here’s how we can help you get started.

Key Steps in Education Planning:

1. Set Clear Goals: Define how much you need to save based on expected college costs, and your personal belief system. Some parents encourage their children to have “skin in the game”, where others want to be sure their child can afford any school in the country. Once we have those guiderails set, we can analyze future costs based on current costs and historical inflation.
2. Choose the Right Savings Plan: Consider tax-advantaged accounts like a 529 Plan (best for college savings), Coverdell ESA (for K-12 and college expenses), or Custodial Accounts (UGMA/UTMA) for more flexibility. Business owners have even more options available via funding Roth IRA’s for their children.
3. Incorporate Savings into Your Budget: Automate contributions and balance education savings with other financial priorities like retirement and debt repayment.
4. Maximize Tax Benefits & Financial Aid: Use tax deductions on 529 contributions, claim education tax credits (AOTC, LLC), and structure assets wisely to avoid reducing financial aid eligibility.
5. Review and Adjust Over Time: Reassess savings as tuition costs and financial situations change. If unused funds remain, consider transferring 529 plans to another family member or rolling them into a Roth IRA.

You’ve been saving for years, and now it’s time to visit schools, and ultimately, make a college decision. Now what?

Key Steps in Choosing the Right School:

1. Clear Expectations: Communicate your planned level of financial support to your child. Make sure they understand the ramifications of going to expensive schools, and the doors that can be opened based on their planned career against other options. Seeing colleges can be like going to a luxury car dealership; If you cannot afford it, it is best to stay away.
2. Timing is Everything: Some kids are not prepared to go to a four-year college when they graduate college and there is absolutely nothing wrong with that. Keep in mind that most schools will not give financial aid past the initial 4 years. Community College or a gap year can be cost effective to ensure your student is prepared for the challenges of a four-year college.
3. Private ? Pricy: Due to changes in legislation, schools could be taxed on their endowments if they are not distributed to enrolled students. In certain cases, small private schools that are attracting a target student will give more financial aid and be comparable or cheaper than state schools in some cases.
4. Appeal Financial Aid: There is a general misconception that the admissions and financial aid departments are in constant communication. This is often not the case, and they operate independent of one another. Nearly all cases, consider appealing the aid package you received.

At Inspire Confidence Group, our WHY is to Inspire Confidence, Simplify Life and Reduce Stress. Let’s start education planning today!