The cost of college has more than doubled this century, with a current annual growth rate of 4.11%.* Most parents would like to save for their child’s future education, but it isn’t always easy to evaluate your options or figure out how saving for college fits within your overall financial plan. To discuss wealth planning considerations for higher education, we sat down with Bradley Lacore, CFP®, CPWA®, Director of Wealth Management at Cogent Private Wealth. With more than a decade of experience in the financial advisory industry, Bradley works with families, individuals, foundations, endowments, and businesses.

How can Cogent Private Wealth team help families prepare for future expenses?

Our financial planning process begins with a conversation. We want to familiarize ourselves with your financial background, kids’ ages, etc. Once we’ve gotten to know you, we can provide advice on saving for college as it fits into your overall financial plan. The variety of college savings accounts used to mean more than it does today. 

Can you discuss 529 plans, including the options in Florida?

529 plans really are the main option now; it’s just a matter of choosing your preferred type. Florida Prepaid offers both types of 520 plans: savings plans and investment options. The right one for your family will depend on several factors, including your risk tolerance, financial goals, and approach to funding your child’s education.

Prepaid plans offer true liability-matching for a portion of what your child’s future education cost will be. For example, you could contribute $189/month to pre-pay for four years of state university tuition for my 5-year-old. Another way to think about it is that you’re buying insurance on a future cost. Prepaid 529 plans could be a good option for someone who falls in the middle income spectrum. 

On the other hand, a wealthier person may want the tax advantages of the 529 investment plan. They can bet that the return on their investment will provide more value than the prepaid plan. At the same time, a family that can’t afford the payments on a prepaid 529 plan may find that an investment plan offers more flexibility.

529 plans are not a silver bullet with no downside if you fund them to the maximum. Unused funds can be transferred to a sibling’s college savings account, but any earnings used for non-qualified higher education expenses are subject to taxes and a 10% penalty. Under new legislation, unused 529 funds may also be eligible for rollover into a Roth IRA. This is a great tool for excess savings, but not a reason to overfund. You can only contribute $7,000/year, up to a $35,000 lifetime limit. 529 plans also offer tax advantages at the federal and state level, though the latter isn’t applicable to Florida.

Can you help parents and students fill out the FAFSA form?

We can help our clients fill out financial forms, including the FAFSA. We can help you keep an inventory of your finances, including income and asset levels. One recent change to the FAFSA is that the assets of the student/grandparents/other relatives are no longer penalized more than parental assets. This makes it easier for grandparents and other relatives who want to help you save for college.

What should parents know about the Coverdell Education Savings Account?

This is arguably one of the most restrictive college savings tools. You can only put in $2,000/year for the beneficiary. And depending on the income of the family, you might have to contribute less than that. Previously, the benefit of the Coverdell was that it could be used for pre-college expenses, such as buying a laptop. So there was more flexibility than with a 529 plan. But in recent years, 529 plans are now allowed to pay for K-12 private education, books and supplies, etc.

What are the benefits of a UGMA (Uniform Gift to Minors Act) /UTMA (Uniform Transfers to Minors Act) Custodial Account?

These accounts are basically a brokerage account for kids that the parents own. UGMAs and UTMAs can be used for education expenses, but they are taxed normally, so there are no special tax benefits as with 529 plans.

The tax implications of these accounts is another thing people should be aware of. As of 2024 (it changes every year), $2500 (1250 is exempt, and 1250 is taxed at child’s rate) of dividends or gains is advantaged, but anything more than that is taxed at the parents’ rate. This will really only be an issue once you accumulate around $40,000 of earnings in the account. However, does there need to be a tax return for your child much earlier in life than you thought?

What makes Cogent Private Wealth a good partner for education planning?

At Cogent Private Wealth, we are a sounding board on these topics. If we don’t know the answer, we know where to find it and we work with others when additional expertise is needed. When you’re thinking about the long term, it can be hard for parents in their 30s and 40s to think past their child’s education to their own retirement. But it’s important to plan for all those future liabilities–education as well as weddings, etc., in addition to retirement. We help our clients identify those extra expenses that aren’t always thought of in the big picture. 

While plenty of advisors will do financial planning once with a client, one thing that’s really important to me is not having financial planning be a “one and done” process. We treat planning as an iterative process that should never really be ending. At Cogent, you can expect to hear from us once a quarter about timely topics such as tax season, charitable contributions at year’s end, etc. We also check in about life and income changes that may affect factors such as how much to contribute to a 529 plan.

Our Registered Investment Advisors are trying to be the community bank of the investment advisory industry. We are very high touch, very service-oriented, and strive to know you better than a large brokerage would. Contact us today!

*Education Data Initiative: educationaldata.org

The information contained herein is for informational/educational purposes only.  The views and opinions expressed in this document may be those of the individuals and may not necessarily reflect those of Cogent Bancorp and its subsidiaries and affiliates, or the entities they may represent. Content contained herein may be used in connection with the advertising and/or marketing of products offered by Cogent Bank or Cogent Private Wealth. The material is not intended to provide or substitute for legal, tax, or financial advice or to indicate the availability or suitability of any Cogent Bank product or service. You should consult with a legal, financial, tax, or other appropriate professional(s) for your specific needs and/or objectives before making any decisions.