CollegeBound 529 Education Savings Strategies

Jonathan Forsgren: 

Inflation has been top of mind for everyone over the last year or two, but the cost of tuition has been rising far faster than general inflation for decades. Between January, 2006 and July, 2016, the consumer price index for college tuition and fees increased 63% compared to an increase of 21% for all items. According to the college board, the average cost for tuition, room, board, books, and other expenses at a private college is over $57,000 now. Joining me today to discuss 529 plans are Tony Bamonte and Andrew Brown, 529 specialists at Invesco College Bound 529 Plan.

Gentlemen, thank you for joining us today.

Tony Bamonte:

Thank you.

Andrew Brown: 

Thank you.

Jonathan Forsgren:

Andrew, we're going to start with you. What's a 529 plan and what are some of its benefits?

Andrew Brown:

A 529 plan is a taxed advantaged account that could be used to save for education. Now, there's three main features. The first is, there's a tax benefit. So you have the assets inside can grow tax free if you use them for qualified education expenses. Additionally, some states may have a state level deduction as well. Two, you have flexibility. The funds inside can be used to help pay for tuition, costs that are associated with going to schools, things like books and laptops and technology costs. So you've got one, tax benefits. Two, you have a feature that allows you to use this very flexibly. And then three, you have potential for growth. Inside our College Bound 529 program, we have Invesco strategies that may help these assets grow.

Jonathan Forsgren:

So Andrew, we're going to stick with you. Can you update financial advisors watching on the updated gifting limits?

Andrew Brown:

Yes. The updated federal annual gifting limit is $17,000 per year for an individual or $34,000 per year for those who are filing jointly. And so what that means is that the accelerated gifting limit or the five-year gifting limit has been increased to $85,000 for an individual or $170,000 for those filing jointly.

Jonathan Forsgren:

Tony, we're coming to you next. Leftover money is always a concern for investors with these types of accounts. A few years ago, 529 plans changed the rules to allow up to $10,000 to be used towards student loans, but I understand that there's a new update and a new opportunity if there is leftover cash.

Tony Bamonte:

Yes, Jonathan. Yeah. One of the big concerns we see from people that are considering doing 529 investing is they worry about leftover money. They say to us, "Look, I'll save all this money for my kid, and then down the road, my kid decides not to go to college. Then what do I do with this leftover money?" They know that non-qualified distributions come with potential taxes and penalties. So they're a little leery about signing up for these accounts. So the new SECURE Act 2.0, which just went into effect at the end of last year, has a new provision that will help these people.

The new provision is they now allow up to $35,000 to be rolled from a 529 account into a Roth for that beneficiary, so it's a great change. It's a change that isn't going to happen right away. It's not going to start until 2024, but already we're getting a lot of calls from both advisors and investors that are really excited to learn more about this. So there are a few things that the IRS still has to work out on this program, but the basics are this. $35,000 is the maximum amount you can contribute, but thing one, the new Roth account has to be in the name of the beneficiary of that 529 account. A second provision is that 529 account had to be open for a minimum of 15 years before that money can be transferred to a Roth account.

And then finally, the 35,000 maximum amount that you can contribute, those transfers or those rollovers have to happen based on the IRA, the annual limit for each year, for whatever year you're rolling that money. So that number's a little bit less than the $35,000, so it's going to take a few years to roll that full $35,000. There are a few hoops that people have to jump through, investors have to jump through to get the full $35,000, but we are just hearing a lot of excitement about it. And what's nice is these people that are worried about having leftover money, this gives a reason for them not to be worried anymore.

Jonathan Forsgren:

Andrew, coming back to you. There are a lot of 529 plans to choose from. What makes College Bound stand out?

Andrew Brown:

There are four features that make Invesco College Bound 529 plans stand out. The first is that we have very competitive pricing. This is due to the inclusion of both our active strategies and our passive strategies. The second key feature is that it features many of the popular Invesco strategies that many clients have perhaps already been asking their financial advisor about. The third is that we've introduced a breakpoint schedule that features a rights of accumulation feature. And the fourth is that you get access to Invesco's College Bound 529 specialists, that's my esteemed colleague, Tony Bamonte, and myself, Andrew Brown.

Jonathan Forsgren:

Going back to you, Tony, over the years we've seen an increase in grandparent owned 529 plans, and this year there's been a favorable change for those grandparent owned 529 plans when it comes to financial aid. Can you describe that to us?

Tony Bamonte:

Sure, sure. Yeah. There's been a very favorable change that's coming on the 2023 financial aid application, more commonly known as the FAFSA form. That should really help grandparents feel a little more comfortable about opening 529 accounts for their grandchildren. Prior to this year, if a grandparent made a distribution from their 529 account, on the FAFSA equation, that distribution was counted as student income. So student income above a nominal amount is weighted at 50%, so it's pretty high. So if a grandparent made a distribution from a 529 account, especially if it was a larger one, it could adversely affect the family's overall expected family contribution equation, and it could even jeopardize any future student aid that maybe the school was going to offer.

So new in 2023, the FASFA form comes out in October, so new on that form, distributions from grandparent accounts will no longer count as in student income. As a matter of fact, they won't even be captured at all on the FASFA form. So this gives grandparents real peace of mind knowing that any distribution they make won't affect the family's financial aid picture. So now, we're excited. We think more grandparents will be getting involved to help their grandchildren save for college, and who knows, hopefully that means this generation of students won't have to borrow as much.

Jonathan Forsgren:

Tony, Andrew, thank you very much for coming in and sharing the new changes to the College 529 plans and sharing on how families can use Invesco College Bound 529 plan to help save for education.

Tony Bamonte:

Thank you, Jonathan.

Andrew Brown:

Thank you, Jonathan.

Jonathan Forsgren:

And to our viewers, thank you for watching. For Asset TV, I'm Jonathan Forsgren. We'll see you next time.

Speakers: 

• Anthony Bamonte – 529 Specialist, Invesco CollegeBound 529 Plan
• Matt McGee- 529 Specialist, Invesco CollegeBound 529 Plan

Transcript:

Jenna Dagenhart:        00:09               Hello, I'm Jenna Dagenhart with Asset TV. And thank you for joining us today to learn more about 529 plans and education savings. As tuition braids continue to climb, financial professionals and their clients continue to have an increased interest in saving for higher education. At the same time, student loan debt impacts both graduating students starting off in life, as well as parents planning on retirement. With that in mind, we're pleased to have Tony Bamonte and Matt McGee, 529 specialists with the Invesco CollegeBound 529 Plan with us to discuss a number of different topics as they relate to 529 plans. Well, Matt, Tony, great to have you.

Matt McGee:               00:49               Yes, thank you.

Anthony Bamonte:      00:49               Thank you.

Jenna Dagenhart:        00:51               And Matt, kicking us off here, could you give us an overview of 529 plans?

Matt McGee:               00:56               Well, of course, so 529 plans have a really simple goal and that's to help families save for their education expenses, but 529 plans can have a lot of nuance because of all the different rules, the investment options and then of course the tax code. So just as a broad overview, money goes into a 529 plan after tax, that money grows tax free, and the money can come out tax free as long as those assets are spent on qualified education expenses.

Jenna Dagenhart:        01:27               Yeah. And there are a lot of different ways that those funds can be used Matt. What qualifies as a qualified educational expense?

Matt McGee:               01:34               Well, yeah, that would be your next logical question. So, it includes everything that you'd suspect, so things like tuition, fees, room, board, books. The only thing that it doesn't really cover would be like your transportation back and forth and your medical expenses and by the way, it's not just for your traditional colleges, it can also be used at tech schools, vocational schools, a lot of cosmetology schools so the key is to find an institution that has a federal school ID and that ID lets you know, that you can use federal aid money at that school and it's also going to be a place where you can spend your 529 assets.

Matt McGee:               02:16               So the other thing that I'd point out is that where you can spend 529 money and how you can spend 529 money has been expanding over the years. So now you can use up to $10,000 per year to repay student loans and at the federal level, you can now spend up to $10,000 per year, per student on Private K through 12 tuition so that's the rule at the federal level, states might have different rules so you might want to check with your state or get in touch with maybe me or Tony and we can help you work through that.

Matt McGee:               02:52               The other thing that's happened more recently with the passage of the Secure Act is that you can now use your 529 assets for certain apprenticeship programs. So those apprenticeship programs need to be approved by the Department of Labor, but I think the big picture here is that where you can use 529 assets has been expanding as years have gone by.

Jenna Dagenhart:        03:14               And Tony, another advantage of 529 plans is the state income tax benefits. How do these work?

Anthony Bamonte:      03:22               So for a 529 plan to exist, it has to have both an investment manager and it also has to a state sponsor so actually 529 plans are a product of the state. So, some states want to incentivize their residents to put money away and so what they do is they will offer a tax benefit and a lot of times it's a tax deduction. So CollegeBound plan is actually the Rhode Island plan and Rhode Island likes to incentivize their residents into using the plan so if they use the CollegeBound plan, they can get a state tax deduction off their contribution.

Anthony Bamonte:      04:03               Now there are other states that, it doesn't matter if you use the home state plan or not. You can just, they want to give, they want to incentivize people to save for college. So they offer a state tax deduction or some kind of state benefit for any plan that you use and then there are a number of plans out there, states out there that they don't offer any state tax benefit, but you know, a lot of those states, they don't offer a state tax anyway so you know, you can't really give a deduction, but what we do at CollegeBound is we encourage all investors and advisors to consult our website collegebound529.com. On our website we have a map where, if you click on the map or the state, it'll tell you what the state benefits are for that state.

Speakers: 

• Anthony Bamonte – 529 Specialist, Invesco CollegeBound 529 Plan
• Matt McGee- 529 Specialist, Invesco CollegeBound 529 Plan

Transcript:

Jenna Dagenhart:        00:09               Hello, I'm Jenna Dagenhart with Asset TV. And thank you for joining us today to learn more about 529 plans and education savings. As tuition braids continue to climb, financial professionals and their clients continue to have an increased interest in saving for higher education. At the same time, student loan debt impacts both graduating students starting off in life, as well as parents planning on retirement. With that in mind, we're pleased to have Tony Bamonte and Matt McGee, 529 specialists with the Invesco CollegeBound 529 Plan with us to discuss a number of different topics as they relate to 529 plans. Well, Matt, Tony, great to have you.

Matt McGee:               00:49               Yes, thank you.

Anthony Bamonte:      00:49               Thank you.

Jenna Dagenhart:        00:51               And Matt, kicking us off here, could you give us an overview of 529 plans?

Matt McGee:               00:56               Well, of course, so 529 plans have a really simple goal and that's to help families save for their education expenses, but 529 plans can have a lot of nuance because of all the different rules, the investment options and then of course the tax code. So just as a broad overview, money goes into a 529 plan after tax, that money grows tax free, and the money can come out tax free as long as those assets are spent on qualified education expenses.

Jenna Dagenhart:        01:27               Yeah. And there are a lot of different ways that those funds can be used Matt. What qualifies as a qualified educational expense?

Matt McGee:               01:34               Well, yeah, that would be your next logical question. So, it includes everything that you'd suspect, so things like tuition, fees, room, board, books. The only thing that it doesn't really cover would be like your transportation back and forth and your medical expenses and by the way, it's not just for your traditional colleges, it can also be used at tech schools, vocational schools, a lot of cosmetology schools so the key is to find an institution that has a federal school ID and that ID lets you know, that you can use federal aid money at that school and it's also going to be a place where you can spend your 529 assets.

Matt McGee:               02:16               So the other thing that I'd point out is that where you can spend 529 money and how you can spend 529 money has been expanding over the years. So now you can use up to $10,000 per year to repay student loans and at the federal level, you can now spend up to $10,000 per year, per student on Private K through 12 tuition so that's the rule at the federal level, states might have different rules so you might want to check with your state or get in touch with maybe me or Tony and we can help you work through that.

Matt McGee:               02:52               The other thing that's happened more recently with the passage of the Secure Act is that you can now use your 529 assets for certain apprenticeship programs. So those apprenticeship programs need to be approved by the Department of Labor, but I think the big picture here is that where you can use 529 assets has been expanding as years have gone by.

Jenna Dagenhart:        03:14               And Tony, another advantage of 529 plans is the state income tax benefits. How do these work?

Anthony Bamonte:      03:22               So for a 529 plan to exist, it has to have both an investment manager and it also has to a state sponsor so actually 529 plans are a product of the state. So, some states want to incentivize their residents to put money away and so what they do is they will offer a tax benefit and a lot of times it's a tax deduction. So CollegeBound plan is actually the Rhode Island plan and Rhode Island likes to incentivize their residents into using the plan so if they use the CollegeBound plan, they can get a state tax deduction off their contribution.

Anthony Bamonte:      04:03               Now there are other states that, it doesn't matter if you use the home state plan or not. You can just, they want to give, they want to incentivize people to save for college. So they offer a state tax deduction or some kind of state benefit for any plan that you use and then there are a number of plans out there, states out there that they don't offer any state tax benefit, but you know, a lot of those states, they don't offer a state tax anyway so you know, you can't really give a deduction, but what we do at CollegeBound is we encourage all investors and advisors to consult our website collegebound529.com. On our website we have a map where, if you click on the map or the state, it'll tell you what the state benefits are for that state.

Speakers: 

• Anthony Bamonte – 529 Specialist, Invesco CollegeBound 529 Plan
• Matt McGee- 529 Specialist, Invesco CollegeBound 529 Plan

Transcript:

Jenna Dagenhart:        00:10               And there are no income limitations associated with participating in a plan. Tony, how are you seeing financial professionals using 529 plans with high-net-worth families and individuals?

Anthony Bamonte:      00:24               So 529 plans are a fantastic estate planning tool, so we'll see advisors working with a lot of wealthy people and they'll bring up 529 plans and one thing it does is it allows you to talk to our wealthy individuals and then also the extension into the next generation so to work with the next generation of investors in that family. A lot of wealthy investors, they want to gift money away, but they don't want to do it without strings attached so that's where the 529 comes in. It's a fantastic tool to gift money to the next generation.

Anthony Bamonte:      01:01               So one of the things you have to understand is how much you can gift on a 529 account and that's really driven by the gifting limit that the government puts out so there is, you can do, as of 2022, you can gift up to $16,000, that's just this year, that's subject to change, but you can gift $16,000 to any individual, as many individuals you'd want without incurring any kind of a tax consequence. Now with a 529, they do something unique where you can do five years of gifting up front. So that $16,000 becomes $80,000 and then the interesting thing is any gift to a 529 account is considered a completed gift and one of the best benefits is the owner of that account still maintains control of those assets.

Matt McGee:               01:57               That's right and maybe I can give just an example of how this might work. So, you might think of grandma and grandpa, and let's say that they have four different grandchildren. Well, what they can do is they can set up a 529 plan for each of their four grandkids and grandma and grandpa can each deposit $80,000 into each one of those accounts so that's a $160,000 per grandchild. That's $640,000 total so grandma and grandpa can gift that all at once into the 529 account and then look at what they've accomplished. So, this money has the opportunity to grow tax free and come out tax free.

Matt McGee:               02:40               This money is earmarked for college and best of all, to these high-net-worth families, this money is considered a completed gift but grandma and grandpa get to maintain ownership and control over the accounts and I think that's really the point to drive home with most of these high net worth families. Now, keep in mind if you do this, you're going to be finished gifting to these grandchildren for the next five years, but you can do this process essentially every five years and that $16,000 gifting limit for 2022, there's a potential that this might even be higher in the future.

Speakers: 

• Anthony Bamonte – 529 Specialist, Invesco CollegeBound 529 Plan
• Matt McGee- 529 Specialist, Invesco CollegeBound 529 Plan

Transcript:

Jenna Dagenhart:        00:10               And of course there are a number of different advisors sold plans for financial professionals to choose from. Tony, what makes Invesco's CollegeBound 529 Plan attractive?

Anthony Bamonte:      00:20               Well, there are really three main reasons that an advisor would choose the CollegeBound plan over another family's plan. So let me take those one at a time. So, expenses. So, we have an overall low expense ratio at CollegeBound and how we achieve that is we blend both passive investment strategies with active investment strategies. Passive investment strategies tend to have a lower overall expense ratio than an active strategy. So, the combination of the two gives us a lower overall expense ratio.

Anthony Bamonte:      00:54               And then the other thing we did just recently is we lowered the upfront sales charge on our plan. So, we start at a low 3.5% at CollegeBound and then we implemented a very progressive break point schedule. Our first break point starts at just $50,000 and then our investments. So, the Invesco Solutions Team, they're really responsible for constructing our portfolios and investors have three different ways that they can invest with us. One of them is the age-based strategy and the way the age-based strategy works is, it's just based off the age of the beneficiary. So, the older the beneficiary, is the more conservative the portfolio gets. So, the idea is with CollegeBound, every two years, that portfolio is going to get a little more conservative so that when the beneficiary reaches college, they have a more conservative portfolio.

Anthony Bamonte:      01:54               And then we have target risk portfolios. Our target risk portfolios, we offer four. They range from conservative to aggressive. The target risk portfolios are static portfolios though so these portfolios don't automatically adjust like the age-based strategy so the investor has to readjust as the beneficiary gets closer to college age and we offer 20 different mutual funds that you can build your own portfolio with and then that brings us to support so that's where we pride ourselves at Invesco. Invesco, we have the traditional consultant relationship with advisor, we have an internal and an external consultant, but we go one further. We have specialists in a large array of different investment areas and one of those is of course our college savings department. So, you have the resources of Matt and I to help any advisor with any of their questions or needs with 529 investing.

Jenna Dagenhart:        03:01               Well, thank you, Tony and Matt, another way that 529 plans can help an advisor's business is as a prospecting tool.

Matt McGee:               03:09               Well, that's absolutely right. So, one of the things that is really unique about Tony and I's vantage point is that we get to work with advisors from all over the country and we get to see the different ways they implement 529 plans into their business so just a few ideas for you. So, number one, we see advisors using 529 plans for estate and estate planning and gifting objectives with their clients. So, when advisors do this, they get to connect with multiple generations of the same family and that's really important, especially as advisors' book of business tend to age over time. They need ways to connect with those next generations and this is one of the best ways to do it, in my opinion.

Matt McGee:               03:55               And then number two, we see a lot of financial advisors who simply use 529 plans as a way to open the door to broader planning conversations so that they can talk about 401k rollovers or insurance planning, or just broader financial planning in general. Having that conversation on college planning and 529s is just a really easy door opener.

Matt McGee:               04:20               And then the last thing that I'll share with you is that 529 plans can be used as an employer benefit so these can be set up at the company level, again, as an employer benefit and people can make payroll deduct contributions into the 529 plan. That obviously gets them a head start on saving for their education goals but it's great for the business because this is another benefit that the business can offer their employees so that they can attract and retain the best talent and it's also a great tool for the advisor because the advisor is obviously going to get access to work with all the different employees. It's also going to give the advisor access to work with the business owners and then this is oftentimes a foot in the door for the advisor to try to go after maybe the other benefits that the business is offering like their 401k plan.

Matt McGee:               05:17               So we've got a ton of different ideas that we can share with people and maybe the best thing to do would be to reach out to me and Tony through your Invesco consultant channel and discuss this a little more if that's what you're interested in.

Speakers: 

• Anthony Bamonte – 529 Specialist, Invesco CollegeBound 529 Plan
• Matt McGee- 529 Specialist, Invesco CollegeBound 529 Plan

Transcript:

Jenna Dagenhart:        00:10               And of course there are a number of different advisors sold plans for financial professionals to choose from. Tony, what makes Invesco's CollegeBound 529 Plan attractive?

Anthony Bamonte:      00:20               Well, there are really three main reasons that an advisor would choose the CollegeBound plan over another family's plan. So let me take those one at a time. So, expenses. So, we have an overall low expense ratio at CollegeBound and how we achieve that is we blend both passive investment strategies with active investment strategies. Passive investment strategies tend to have a lower overall expense ratio than an active strategy. So, the combination of the two gives us a lower overall expense ratio.

Anthony Bamonte:      00:54               And then the other thing we did just recently is we lowered the upfront sales charge on our plan. So, we start at a low 3.5% at CollegeBound and then we implemented a very progressive break point schedule. Our first break point starts at just $50,000 and then our investments. So, the Invesco Solutions Team, they're really responsible for constructing our portfolios and investors have three different ways that they can invest with us. One of them is the age-based strategy and the way the age-based strategy works is, it's just based off the age of the beneficiary. So, the older the beneficiary, is the more conservative the portfolio gets. So, the idea is with CollegeBound, every two years, that portfolio is going to get a little more conservative so that when the beneficiary reaches college, they have a more conservative portfolio.

Anthony Bamonte:      01:54               And then we have target risk portfolios. Our target risk portfolios, we offer four. They range from conservative to aggressive. The target risk portfolios are static portfolios though so these portfolios don't automatically adjust like the age-based strategy so the investor has to readjust as the beneficiary gets closer to college age and we offer 20 different mutual funds that you can build your own portfolio with and then that brings us to support so that's where we pride ourselves at Invesco. Invesco, we have the traditional consultant relationship with advisor, we have an internal and an external consultant, but we go one further. We have specialists in a large array of different investment areas and one of those is of course our college savings department. So, you have the resources of Matt and I to help any advisor with any of their questions or needs with 529 investing.

Jenna Dagenhart:        03:01               Well, thank you, Tony and Matt, another way that 529 plans can help an advisor's business is as a prospecting tool.

Matt McGee:               03:09               Well, that's absolutely right. So, one of the things that is really unique about Tony and I's vantage point is that we get to work with advisors from all over the country and we get to see the different ways they implement 529 plans into their business so just a few ideas for you. So, number one, we see advisors using 529 plans for estate and estate planning and gifting objectives with their clients. So, when advisors do this, they get to connect with multiple generations of the same family and that's really important, especially as advisors' book of business tend to age over time. They need ways to connect with those next generations and this is one of the best ways to do it, in my opinion.

Matt McGee:               03:55               And then number two, we see a lot of financial advisors who simply use 529 plans as a way to open the door to broader planning conversations so that they can talk about 401k rollovers or insurance planning, or just broader financial planning in general. Having that conversation on college planning and 529s is just a really easy door opener.

Matt McGee:               04:20               And then the last thing that I'll share with you is that 529 plans can be used as an employer benefit so these can be set up at the company level, again, as an employer benefit and people can make payroll deduct contributions into the 529 plan. That obviously gets them a head start on saving for their education goals but it's great for the business because this is another benefit that the business can offer their employees so that they can attract and retain the best talent and it's also a great tool for the advisor because the advisor is obviously going to get access to work with all the different employees. It's also going to give the advisor access to work with the business owners and then this is oftentimes a foot in the door for the advisor to try to go after maybe the other benefits that the business is offering like their 401k plan.

Matt McGee:               05:17               So we've got a ton of different ideas that we can share with people and maybe the best thing to do would be to reach out to me and Tony through your Invesco consultant channel and discuss this a little more if that's what you're interested in.

Speakers: 

• Anthony Bamonte – 529 Specialist, Invesco CollegeBound 529 Plan
• Matt McGee- 529 Specialist, Invesco CollegeBound 529 Plan

Transcript:

Jenna Dagenhart:        00:10               And turning to financial aid, applying for, and navigating financial aid can be challenging, confusing. How does having a 529 plan impact financial aid? I'm sure you get that question all the time Matt?

Matt McGee:               00:24               Well, yeah, we get that question all the time and I think that the first thing we need to do is define some of these key terms. So, when Tony and I talk about what goes into a financial aid calculation, we're talking about what most four-year public institutions are going to look at when they determine your family's financial aid that they're going to deliver to you.

Matt McGee:               00:46               So this is in contrast to what a lot of private schools do. So public schools are going to look at your FASFA, that's your Free Application for Federal Student Aid. Whereas a lot of private schools are going to use what's called your CSS profile and that can differ from school to school so if you have questions on how private schools do things, you just need to reach out to that school individually and see how it works.

Matt McGee:               01:14               The other thing that I'd mention is that there are loans, there are grants, and then there's merit-based aid so loans obviously need to be repaid. Grants are typically grants that you get from the federal government that don't need to be repaid and then you have merit-based aid. So that's going to be like getting a scholarship for athletics or academics and the like.

Jenna Dagenhart:        01:39               Tony, what goes into determining a family's financial aid package?

Anthony Bamonte:      01:44               So when it comes to the financial aid, schools will look at four things. They're going to look at the asset, or I'm sorry, the income of the parent, the income of the student and also the assets of both. Really what drives it most though is the parent, so the assets of the parent and the income of the parent. Now they give each of these components a weighting so for instance, the income of the parents gets a weighting of as high as 47%. The assets of the parent get a weighting of 5.64% so let me explain how these weightings work.

Anthony Bamonte:      02:22               So let's use an example. If a parent has an income of about a $100,000, the school expect to see $47,000 or 47% of that money used towards that year's tuition. If they had that same $100,000 in a 529 account, the school would expect only $5640 of that you know, only 5.64%. So, as you see, really what drives the financial aid is the parents' income way more than the assets in a 529 account.

Jenna Dagenhart:        03:01               That definitely helps. Thank you, Tony and Matt as advisors, financial professionals go about having these conversations with their clients about financial aid, as well as 529 plans, what are some key points, some key takeaways?

Matt McGee:               03:14               Yeah, that's great and there's really just three main points that I try to drive home with financial advisors and their clients. So, number one, it's that having some savings is not going to impact your ability to get merit-based aid so that's number one. And then number two, hopefully you recognize that what really drives your financial aid eligibility. It's not how much you've saved, but how much you earn and then the last thing to point out is that most aid comes to you in the form of loans and loans obviously need to get repaid so what most families are trying to do is save everything that they can so that they can minimize the amount of money that they have to borrow.

Speakers: 

• Anthony Bamonte – 529 Specialist, Invesco CollegeBound 529 Plan
• Matt McGee- 529 Specialist, Invesco CollegeBound 529 Plan

Transcript:

Jenna Dagenhart:        00:09               Hypothetical question for you now, Tony. What if a child doesn't wind up going to college or they get a scholarship? What happens to the funds in that 529 plan?

Anthony Bamonte:      00:19               So that's really, those are the two most common questions we get when people are considering saving for college and of course, with merit, somebody doesn't want to put all this money away in a 529 account and then not be able to use it. They're worried about the tax ramifications and penalties so really what you have to understand is a 529 account, it's very flexible and you have options. So, one of the options is remember that 529 money is not just for college. You can also use the money for technical schools, trade schools, apprenticeships, and then just recently you can use the money from a 529 account to pay for K through 12 of private schools. Also, remember that the beneficiaries aren't set in stone. You don't... You can always change the beneficiary as long as it remains in that family.

Anthony Bamonte:      01:13               So say the son doesn't go to school, you change it to the daughter who is going to go to school, or there'll be somebody along the line that can use the money and if there isn't, you can even change the beneficiary to yourself as long as you're within the same family. So, a parent maybe wants to do graduate school or maybe a cooking school, that's all-accredited money.

Anthony Bamonte:      01:33               And then one other thing is with CollegeBound, it's kind of exclusive with us is that there is no timeframe for when you need to use the money so you can leave the money in there and hopefully you're waiting for another beneficiary or you leave it for the next generation but let's say, for instance, that you can't find a reason to use the money and you have to take a non-qualified distribution from the account. So, what you will owe is you'll owe ordinary federal income tax, you'll owe possibly state and local taxes and then there's a 10% penalty. Now you need to know that it's only on the growth portion that you get taxed and penalized on. Your original contributions, they come out tax free.

Speakers: 

• Anthony Bamonte – 529 Specialist, Invesco CollegeBound 529 Plan
• Matt McGee- 529 Specialist, Invesco CollegeBound 529 Plan

Transcript:

Jenna Dagenhart:        00:10               And outside of 529 plans, there are also several other savings vehicles that financial professionals can use to help clients save for higher educational expenses. A few that come to mind are UGMAs and Coverdells. Matt, how would you compare 529 plans to these other savings vehicles?

Matt McGee:               00:29               Well, right and there's a lot of different ways to save for college so with any one of these different vehicles, think about three things. So, think about how they get taxed, think about how they get controlled, and then think about how they impact your financial aid eligibility. So a Coverdell might be a, or excuse me, an UGMA might be a great vehicle if your goal is to save for your child's wedding or a car or down payment on a house or something like that, but understand that every dollar you put into an UGMA or an UTMA, that's an irrevocable gift to that minor child and that child takes over control of the account when they turn either 18 or 21 depending on the state that you live in. So, in your mind, you might have been saving for college, but when that student turns 18 or 21, they can spend that money however they want.

Matt McGee:               01:22               The other thing to point out with an UGMA and UTMA is that that's considered an asset of the minor so that gets a weighting of 20% versus an asset of the parent which gets a weighting of 5.64%. So, the biggest drawback in a lot of people's mind with the UGMA, UTMA is the control aspect and then you mentioned Coverdells too. So frankly, we don't talk a lot about Coverdells, and we don't see Coverdells getting set up very often, but it's important to have some education about Coverdells right? So, three things that make Coverdells a little bit more restrictive would be number one, they have income limits so in 2022, if you're married and filing jointly and you make more than $220,000 per year, you're no longer eligible for a Coverdell.

Matt McGee:               02:14               And then second, Coverdells have a contribution limit of just $2,000 per year and then finally Coverdell assets need to be paid, are used, technically, by the time that beneficiary turns 30, otherwise you might have to pay taxes and penalties on those assets so for all of those different reasons, Coverdells are a little bit more restrictive versus all of the flexibility that you get with the 529 plan given their tax advantages, their control advantages, and the way it looks on your free application for federal student aid.

Jenna Dagenhart:        02:54               Well, thank you so much, Tony, Matt. Great to have you.

Anthony Bamonte:      02:57               Thanks for having us.

Matt McGee:               02:59               Yes. Thank you.

Jenna Dagenhart:        03:00               And thank you to everyone watching. Once again, I was joined by Tony Bamonte and Matt McGee, 529 specialists with the Invesco CollegeBound 529 plan. I'm Jenna Dagenhart with Asset TV.