When my daughter was born 25 years ago, I needed over $100,000+ to pay for her education. That was a lot of money than and now. Fortunately, I read about an education savings tool, the Custodian – UTMA/UGMA, which I used to invest for her education and minimize taxes. I invested 50% of my savings into Apple shares. Those investments, coupled with the good careers my daughter’s Mom and I had, enabled her to graduate from college with ZERO debt.

Two family friends recently had handsome and healthy baby boys. Congratulations Jen and Jake and Jen and Tony! The projected cost for their sons, is $250,000 to $600,000, to obtain a four year degree. That’s per child by the way. Not a Medical, Law or PHD, a four year degree! How on earth do you pay for this and avoid as much as possible, debt for hundreds of thousands of dollars, in loans? The good news, there is a much better tax effective tool, called the 529 Plan. The time to start building for their son’s (and maybe a LOT more children) college education is now!

In 2018, tuition at private U.S. college or university ranges between $50,000 to $75,000 per year! Reality, it is closer to five years of funds required. At most universities, only 19 percent of full-time students earn a bachelor’s degree in four years.

Before we tackle paying for college, lets discuss if every child needs to go to a four year college? I believe the answer is absolutely NOT. There are millions of successful Americans that did not attend or graduate from college. We all know Steve Jobs, Bill Gates and many other tech Billionaires and Millionaires did not finish college. But we tend to ignore the hard working, intelligent plumbers, landscapers, car mechanics, etc. that make a great living without that four year degree. Do not force your child to spend hundreds of thousands on a degree they do not want or may not need. Listen to what your child believes is their best path. What career/decisions will help them, as Warren Buffet does, tap dance to work everyday?

For those who make the decision to attend college, the average student by 2038, will pay ~$250,000 or more for a four year degree. And those private big name universities will run $500,000 to $600,000 for a four year degree. This is mind blowing money.




The California State University system increased their full time faculty 4.9%, from11,614 to 12,019 between 1973 and 2008. But during that same period grew administrators were increased by a ridiculous 321% from 3,800 to 12,183. Students and parents are NOT paying for better education! As the above charts show, college cost inflation is running ~ nine times higher than cost of living, between 1978 and 2008. The U. S. Education system is on a non-sustainable path and we are paying the consequence.

A 529 is a college savings plan that allows your money to grow on a tax-free (federal and sometimes state) basis until you withdraw it to pay for higher education cost. You fund your 529 with after tax dollars. But as that money is invested and generates returns, you do not pay taxes on any gains on your account’s earnings. You get to reinvest those earnings and accumulate a higher savings balance. When the time comes to withdraw from your 529 to pay for college, that money is yours FREE AND CLEAR – OF TAXES!

Most states offer a tax deduction when you contribute to a 529 provided you choose the plan offered by your home state (which you don’t have to). Some states will give you that deduction for funding any 529, including Indiana, Utah, and Vermont.

Picking the right 529 plan requires looking at costs as well as benefits. Expenses related to 529s vary greatly across states, and in some cases, it will make sense to give up a tax benefit from using a high-cost plan in your state, in order to reap the greater savings from using a low-cost plan, in a different state. Morningstar and other fund analysis specialists offer looks at various 529 plans, with proprietary rating systems that can help you make the right decision for your situation. It pays to run the numbers and see which plan is most likely to leave you ahead.

If you don’t use the money in your 529 account to pay for qualified higher education expenses, you will be assessed a 10% penalty on that cash if you withdraw it, for purposes other than education. You may use any remaining money for another child’s college education, or if your child goes for a graduate degree. If you decide to withdraw the money for non educational expenses, the penalty will only apply to the earnings portion of your account, not the principal amount you deposited.

Below website is a calculator allowing you to determine how much to save monthly/annually to achieve your goals,

Many parents want to help their children with college cost. But use caution and PLEASE DO NOT sacrifice your ability to live independently during your retirement. Anything you can give your child, most especially your love and support, will be appreciated.

Here is a federal government website providing more detailed information on tax and college financial aid impacts, etc.

Powers Investments Management, LLC

This blog will provide, information and simple strategies, that will assist you to achieve YOUR financial objectives and long term targets. For over 30 years, I solved multi-million dollar problems, for Fortune 10-250, companies. My formal education includes: Business, Finance and Chemical Engineering {Problem Solving} at: Harvard, Rutgers and North Carolina State. And an additional 30+ years, managing my family’s investment decisions. I currently manage/advise people with net-worths ranging from the tens of thousands to several million dollars.

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