127 Education As A Legacy with Brian Boswell from Savingforcollege.com

Jason and Brian talk about helping grandparents save for college education for their grandchildren.

Brian has worked with 529’s in many capacities since 2001. At Savingforcollege.com he is responsible for all things 529, including contributing content, quarterly rankings, and media relations.  Brian previously served as Director of Advisor Distribution to Ascensus College Savings, the leading administrator of 529 savings and prepaid plans. At FRC (Financial Research Corporation) Brian served as Subject Matter Expert for educational savings research. Brian has been quoted in leading publications including The Wall Street Journal, Reuters, and Investor’s Business Daily, among others. Brian received two Bachelor of Science degrees from Rensselaer Polytechnic Institute. He is a father of triplets with significant higher education expenses in his future.

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Below is the full transcript:

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Announcer: Welcome back, America, to Sound Retirement Radio where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for and transition through retirement. Now, here is your host, Jason Parker.

Jason: America. Welcome back to another round of Sound Retirement Radio. So glad to have you tuning in this morning. As always, we’re trying to bring experts to this program who we believe can make a significant meaningful difference in your financial life as you’re preparing for and transitioning into and through retirement. I’ve got a great guest lined up for you today.

 This episode we’re going to be bringing Brian Boswell onto the program. He’s with savingforcollege.com. Many of the people that we’ve served over the years have said that helping the grandkids save for college is important to them, so we’re going to talk about that today.

 Before we get started though I like to start the morning right by renewing our mind, and I have a verse here for us that I think is perfect for this morning’s episode. It’s Proverbs 12:15. It says, “The way of fools seems right to them, but the wise listen to advice.” Then, what did the fish say when it ran into a wall? Damn.

 Okay, let me do a proper introduction of our guest this morning, Brian Boswell. Brian has worked with 529s in many capacities since 2001. At savingforcollege.com, he is responsible for all things 529 including contributing content, quarterly rankings, and media relations. Brian previously served as Director of Advisor Distribution to Ascensus College Savings, the leading administrator of 529 savings and prepaid plans. At Financial Research Corporation, Brian served as Subject Matter Expert for educational savings research. Brian has been quoted in leading business publications including the Wall Street Journal, Reuters, and Investor’s Business Daily, among others. The part that I like the best, Brian, he’s the father of triplets with significant higher education expenses in the future. Brian Boswell, welcome to Sound Retirement Radio.

Brian: Thank you very much, it’s a pleasure to be here.

Jason: Yeah, so let’s start out with this triplets. How old are they?

Brian: They just turned nine last month, actually.

Jason: Nine.

Brian: Yeah, they just turned nine. I’m halfway there. Halfway there.

Jason: You just have the three?

Brian: Yes. Just three.

Jason: Just three all at once?

Brian: No, I’m all done.

Jason: Well, that’s a way to really tackle that, do it all at once, I guess. You’re very efficient.

Brian: That’s right. I’m halfway there but now quite on the college savings. We’re working on it.

Jason: Just as we were getting started before the interview, you mentioned that you have a new article coming out in Forbes that talked about required minimum distributions. Since our listeners tend to be either retired or heading into retirement and college savings is something that’s important to them, will you share with us some of the highlights from this recent article that you were preparing for Forbes?

Brian: Oh, sure. 529 savings plan tend to be a very good repository for gifts especially from grandparents to their grandchildren mainly because 529s have several benefits that you won’t find anywhere else. One, you always retain control of the assets, so no matter what happens they’re not going to take over. In the case of many other gifting vehicles, once they reach the age of majority or a certain preset age, the beneficiary takes over control of the assets. That’s not the case in 529 savings plans. From an RMD standpoint it’s a way for your assets to continue to grow tax deferred.

 There’s not a lot of tax advantage savings vehicles for those that are already in retirement, so it’s another option for continued savings. There’s a lot of versatility. If it doesn’t work out for one beneficiary, if one of your grandchildren doesn’t go to college then you can use it for another. You can roll it over and change the beneficiaries whenever you want. In the event that you need those assets for an emergency, say for example you run into unexpected medical issues, you can pull those assets back. You can actually revoke the gift and pull it back into your estate. You would have to pay taxes and there would penalties associated with that, but it’s nice to have the knowledge that if you had to absolutely get those assets you could.

Jason: Okay. Tell me just from a real basic structuring standpoint and especially for grandparents that are going to be helping fund the college savings, is this a situation where they are the owners of the accounts and the grandkids are the beneficiaries or do they gift the money to the parents of the children and then let the parents be owners of the account and the grandkids still the beneficiary? What’s the best way to structure the account when it’s grandparents that are helping to save for college?

Brian: For the grandparents you can do it a number of different ways, and it’s going to depend on what your personal financial situation is. Typically what you see is the grandparent will open the account in their own name and they will be the account owner and have control of how it’s invested and who is the beneficiary. You can select whoever you want as the beneficiary, but once you do it needs to … If you change beneficiaries it needs to be within a generation otherwise there could be penalties associated with that. For the most part you’ll see the grandparent open it and manage it themselves. You can change account owners down the line with most plans. You have to check with the plan to make sure that they allow that, but that’s the nice part is that it is really versatile in who manages it and who puts the money in.

 Alternatively, you can have the parent themselves open the account and then contribute to it. The 529 gets treated differently from a financial aid standpoint depending on who the owner is. In some cases it may be beneficial for the parent to actually own the assets in the account. It can get a little complicated. You can find more information on savingforcollege.com. When the grandparent owns the account, those assets are not included in the calculations for financial aid until money is withdrawn. Once you withdraw money from the account then those assets are counted as student income for that tax year. Student income is bad. That has the highest impact on financial aid, but it wouldn’t hit the financial aid application for a couple years down the line.

Jason: Is the strategy there then to have the kids take out loans for college all the way through school and then at the very end use the 529 to pay off the loan? Is that a better strategy?

Brian: You’ve got it. If it’s a grandparent owned 529 then it tends to be better to backload those withdrawals. It gives them a little extra incentive to stay in school and graduate on time.

Jason: Sure. It incentives them in a couple of ways. The grandparent say, “Hey, look, we’ll help with school only if you actually graduate and you get a certain grade point average, otherwise you’re going to be strapped with the loan obligations.” That’s an incentive.

Brian: That’s right. Alternatively, the parents themselves can also be the owners if you don’t mind not having control of the account directly and the parents are responsible individuals. You allow them to have control of it, they receive preferential treatment from a financial aid standpoint, and they have a much lower impact when those withdrawals are actually made. Either way you’re in a good spot.

Jason: One of my favorite quotes from Benjamin Franklin says, “An investment in knowledge pays the best interest.” Folks, if you’re tuning in to Sound Retirement Radio this morning that’s what we’re providing you, an investment in knowledge and the best way to help provide an education for the people that you care about. What a legacy to be able to leave, a legacy of education.

 Brian, you have three kids, triplets. They’re halfway there to college, and so how do you go about finding the best 529 plan? How do you compare them?

Brian: That’s one of the most common questions I get is, how do you decide which plan to use? Do you just use the in-state plan? Is there a particular plan you always recommend? The answer is, there’s no easy answer to the question. It’s going to depend on what you’re preferences are and what your state residency is.

 Everyone should always start by looking at their in-state plan first because a lot of states offer tax benefits and matching grants and other programs that make it financially desirable to use the in-state plan whether it’s $1,000 tax credit or fully deductible contributions or grants for very young kids. Every state has different plans. There’s over 30 states that offer tax benefits. Take a look at the in-state plan. See what the tax benefits are there, if there are any. If there are not, then you generally want to go out and take a look at what would be low cost and has investments that you’re looking for. If you’re looking for a very conservative option, then you would want to look for plans that have FDIC insurance and good fixed income options or maybe you’re looking for a particular fund family that you’re familiar and comfortable with. Every plan in every state is different and this is good and bad because it makes the landscape a little more complicated, but it also does make sure that everybody get the exact plan that they want.

Jason: Do you mind if I ask which plan you chose for your family?

Brian: I use multiple plans actually. I actually do have a Coverdell account, a Coverdell Education Savings Account. I also use the New York 529 plan that’s administered by my prior employer. As you mentioned, I worked for Ascensus College Savings who administers the plan, and they did a match into that plan. I also have the Massachusetts plan since they started offering a tax deduction this year.

Jason: Oh, okay. Tell us why the Coverdell. Why did you plunk some money into that type of an account? Help our listeners understand the difference between a Coverdell and a 529.

Brian: Sure. Coverdells are great because if you qualify to open one you have a broad range of investment options available to you, basically whatever is offered on the brokerage platform. The problem with Coverdells is that you do earn out of them after you reach a certain income bracket, but they can be very, very good there. They’re capped at $2,000 per year in what you can contribute, so they’re very limited from what you can put in in the first place. I like that you can select basically whatever you want [inaudible 00:10:57] to invest. The other upside is that you can use it on K through 12 expenses, whereas 529s you can only use on higher education expenses. The downside is that at the age of 30 any money that you haven’t used in a Coverdell will automatically go to the beneficiary.

Jason: My wife and I, we had a Coverdell at a time, and we ended up using it for some of those K through 12 expenses. We use the 529 as well. You’re looking at the different investment options, do you recommend going at it alone or should somebody use an advisor to help them pick the best plan, the best 529 plan?

Brian: That’s really going to depend on how confident you are in your own investment knowledge and grit. If you’re a do-it-yourselfer and don’t mind going out and doing the research and figuring these things out, then 529s are absolutely … I tell people they can be as complicated as you want to make them. You can go out and you can dig into the weeds and understand all the various expenses and how they work and compare the plans and all the different benefits, or you could just go out, open a plan, and put your money in an age-based account. If it’s a little intimidating and you’re not comfortable with all the ins and outs of the tax benefits and you just want that person that you can ask questions, then you might be better off in using an advisor. One thing to note is that advisors do have access to different products than you have as a direct purchaser. Direct sold 529 plans tend to be less expensive. Advisor sold plans tend to be more versatile and offer more individual options, so you might have access to additional investment classes.

Jason: If somebody chooses to work with an advisor, how are the advisors compensated for the advice that they are giving, typically?

Brian: Well, it depends on which kind of advisor you are using. There are two kinds of advisors. There’s your traditional broker dealer, your Morgan Stanleys and Merrill Lynches where you’re a commission based investment advisor. They’re going to get paid a fee on sales of the products. They’ll get either a frontend load, which would 5.25% of whatever you put in and that varies by plan. Some plans charge much less than that and some charge upwards of 5.75%. You’ll pay an annual fee as well based on the assets and the products. That’s kind of the traditional model.

 What you’ve seen really grow in the past 10, 15 years is something called the RIA, the registered investment advisor. These are advisors that get paid a flat fee. You’ll go in and you’ll pay them maybe a flat 1% fee on your total assets, but that’s something that you figure out with the investment advisor. It really depends on which kind of advisor you’re investing with. RIAs are becoming increasingly popular. You see a lot of that happening with discussions with the SEC and FINRA, the government right now as to what the right way to invest is by investors.

Jason: Okay. There’s some talk out there with 529 plans about upfront just maximum funding a 529 versus making monthly contributions and kind of dollar cost averaging it over time. What are your thoughts about the best way to fund a 529 plan? If grandparents have a big chunk of money they can just put in, frontload one of these accounts, should they do that or should they just make monthly contributions?

Brian: Well, if you put more in upfront it gives it more time to compound when you put money in upfront. The risk then is, is something going to happen at that particular time? When you put a large amount in at one particular time and something happens, if the market goes out from under you, you just never know. I’ve always been in the camp that you can’t really plan for that kind of stuff. Putting more money in upfront has more potential return. 529s have special gift tax benefits. You can frontload a 529 and gift up to $70,000 in a single year to a single recipient. You can do that with multiple recipients. If you open up two 529 accounts, you could gift $140,000 between the two and not have any gift tax. What that does is it takes your $14,000 annual gift tax exclusion and it applies it over the next 5 years. You wouldn’t be able to make additional contributions until the fifth year, but it’s a nice way to put a large chunk of change out of your estate and into a savings vehicle for your grandkids.

Jason: Okay. Folks, if you’re just tuning in, you’re listening to episode 127, maybe if you’re driving down the road this morning in beautiful sunny Seattle, I wish there were some sun in Seattle. Savingforcollege.com. I’m speaking with Brian Boswell. He is with the website, savingforcollege.com, and we’re talking about how grandparents can help their grandkids have a better education and how they can help them plan to pay for it because college is not inexpensive and it’s not getting less expensive with time. Brian, do you have any comments or thoughts on how much people should be saving for college?

Brian: As much as you can.

Jason: That’s good.

Brian: That’s what I save. As much as you can. Inflation rates of college tuition have far outstripped the consumer price index. The more you can put away the better, in my opinion. Prices aren’t going down. If you look at the future estimated costs for my own kids, for the triplets, it’s $1.12 million for them to go to a four year private school with no signs of tuition abating any time soon, though you never know what legislation is going to come up and that’s part of the point. You can never save too much because you don’t know what the future holds, and you don’t want to have to beholden to lenders if you can avoid it. You don’t want your grandkids to be beholden to lenders either. In fact, I had listened to a couple episodes of your podcast and prepared my own quote from Proverbs, which is Proverbs 22:7, “The rich rules over the poor, and the borrower because the lenders slave.”

Jason: Yes, that’s one of our favorites. Yeah. The borrower …

Brian: It is …

Jason: … is slave ..

Brian: … one of my …

Jason: … to the lender.

Brian: … favorites too. I think about this all the time when it comes to college savings because you don’t want your kids to be beholden to lenders. Saying save as much as you can is kind of a cop out. That doesn’t help anybody anyway. What I would suggest is there are lots of tools and all of the 529 plan providers and on my own site, savingforcollege.com, we have excellent calculators there where you can input the age of your child and it will tell you how much you would need to save on a monthly basis in order to meet the future costs of college. That’s a great place to start.

Jason: Brian, because you guys have savingforcollege.com you obviously get a lot of traffic to your site. You guys have done a great job just becoming this resource quoted all over major publications on saving for college, what’s the number one thing that brings people to your website? What are people most interested in? What are they trying to figure out when they visit savingforcollege.com?

Brian: It’s funny. I think the number one question we get from visitors is, do I have to use my in-state 529 plan? Beyond that, what plan should I use in that case? I think we talked a little bit about selecting the best plan. We have extensive comparison tools. That really is it. No, you do not have to use your in-state plan. You can use any plan in the country. There’s over 100 of them. There’s two kinds of plans. There’s savings plans and prepaid plans. We’ve been talking pretty much about savings plan, but there are plans that allow you go put a dollar in today and it will be indexed to college tuition and will be worth a dollar in the future generally at participating colleges.

 Our site is mostly educational where we’re helping the visitors understand how these savings vehicles work. They’re looking at how does a 529 work? Can I use my in-state plan? How does it impact scholarships is another big question we get. Then, they just want to know the ins and outs of their in-state plan. We have plan details pages that go through extensively all the information about your in-state plan. It gives it to you in a way that you can compare it with other state plans.

Jason: Folks, again you’re listening to episode 127. Remember, we archive all of these programs for you online at soundretirementplanning.com, and we’ll have the transcript up there for you as well. We’ll include links to the show notes including a link to savingforcollege.com where you can view some of these different tools; plug in the age of your child and find out how much money you really should be setting aside. Brian, let’s talk about what happens if you set aside all this money for a grandchild or you own child and then they end up not going to college. What happens to those funds?

Brian: Well, that’s the nice part about 529s is nothing happens to those funds. They sit there and they continue to grow tax deferred, and then you’ve got a few options. As I mentioned earlier, you can change the beneficiary of the 529 plan to another beneficiary. You can move it up or down a generation. Maybe your grandchild’s parents are going back to school or maybe you yourself want to go back to school. Our prior site founder, Joe Hurley, actually used some of the leftover 529 assets so that he could take some cooking classes and a few other classes. There’s no written, nothing to stop you from doing so. You can let the funds continue to grow and change the account owner and allow it to go to your great grandkids, if we’re talking to grandparents specifically. You could make a non-qualified withdrawal. You can take the money out, pay tax on earnings, you’ll probably be in a lower income tax bracket if you’re retired, and then there’s a 10% penalty on any earnings. Your principal is never touched, but it’s important to know how those assets are penalized when they’re taken out.

Jason: The important thing to understand there, I think, is that people, even though they have this fear of maybe the grandkids not going to college, the money’s not lost. The money can still be used. There may be a small penalty if they end up just using it for their own sake and it’s not for college expenses, but they still have access to the money. They’re not giving up access to it. What is the penalty if they access the money early?

Brian: Here’s the trouble with 529s, they don’t work like ROTH IRAs where if you make a withdrawal, you’re taking out principal. There’s always a principal and earnings portion attached to any withdrawal. If you make a withdrawal for a non-qualified expense, if it’s not for tuition fees, room and board, and the other qualified expenses then you pay tax on the earnings portion plus a 10% penalty tax, and that’s again on earnings. That’s assessed at the withdrawal.

Jason: One of the things that I found neat … I have a 529 plan. We use a plan through Fidelity is who administers it, but some of the technology that 529 plans are making available is pretty neat. With our kids, and I think a lot of kids these days, they just are so spoiled. They have everything they could ever possibly want. They don’t need more toys at Christmas or birthdays. I think my son has so many Nerf guns that they’re falling out the window at the house just trying to find a place to store them all. It is a pretty neat thing that grandparents can contribute to the 529 plans that we’ve set up for them. Fidelity’s got these really neat tools that allow for us to post social media posts, and then the grandparents can just go in and then our 529 plan tracks those contributions. We always know where that money’s coming from so if the grandparents are making contributions, at some future point the kids can have an accounting of that. What’s some of the technology you’ve seen that you’ve been impressed with as you evaluate these different 529 plans?

Brian: Well, that’s definitely a very good point. My prior employer offers similar tools. I think most of the 529 plans out there are now starting to offer these gifting platforms where it’s making it much easier for third parties to put money in. I believe that one of the providers is now allowing you to make direct withdrawals to the school through their payment system. Instead of having to cut a check and have the check sent over, the payments can be made directly to the schools. I think Ascensus is starting to do that. That was very impressive in my opinion because it can be a little difficult sometimes to get with those payment processors.

Jason: All right. Brian, we’re just about out of time, but I wanted to thank you for being a guest on the program this morning.

Brian: Sure. It’s my pleasure. Thank you very much for having me.

Jason: All right. Folks, until next week, this is Jason Parker signing out.

Announcer: Information and opinions expressed here are believed to be accurate and complete, for general information only, and should not be construed as specific tax, legal, or financial advice for any individual and does not constitute a solicitation for any securities or insurance products. Please consult with your financial professional before taking action on anything discussed in this program. Parker Financial, its representatives, or its affiliates have no liability for investment decisions or other actions taken or made by you based on the information provided in this program. All insurance-related discussions are subject to the claims paying ability of the company. Investing involves risk.

 Jason Parker is the President of Parker Financial, an independent fee-based wealth management firm located at 9057 Washington Avenue Northwest, Silverdale, Washington. For additional information, call 1-800-514-5046 or visit us online at soundretirementplanning.com.

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One thought on “127 Education As A Legacy with Brian Boswell from Savingforcollege.com

  1. The $1.2 million figure for sending Brian’s triplets to private school is probably accurate but sending any kid to a private college is a financially insane idea. You can get a four year degree from my state’s flagship public university for less than $100k right now. That’s books, tuition, room and board, pizza, all in. Extrapolate that at six percent until his three are college age and the total cost for all three is $500,000. There is no evidence anywhere that shows any private college is worth 2x a public university degree. The other question that matters just as much as cost is what degree to obtain. Degrees in history , art, English, philosophy, Italian poetry, under water basket weaving are a waste of money. Engineering, accounting, law, nursing, medical, and related, basically vocational degrees, are the only ones that make sense from a return on investment perspective. Investing serious money on silly degrees is just, well, silly.