Piedmont, CA

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Piedmont, CA

by: ALISON VAN DYKE

FIRST AND MAIN FINANCIAL

(510) 601-1935

Oakland, CA | Piedmont; Planning for College with a State Sponsored 529 Plan

Hi, I’m Erik Wolfers. I’m the founder and managing member of First & Main Financial. Today I want to talk a little bit about college savings.

My own firstborn child is headed off to college in the fall. She went through an extensive process of researching schools and visiting schools and applied to many—it was somewhat different during the pandemic. We help our clients do college savings calculations and we guide them as to how to invest money for college. Most of our clients opt to do 529 plans—529 being a section of the tax code that allows states to create master trusts with sub-accounts so people can put money in and have that money grow tax-deferred or tax-free. You put the money in and then when you take it out, if it’s for educational purposes, you pay no taxes on the gains—which is good, but it’s also nice just to have a place that you’ve ear-marked for college savings so it feels separate and has a specific purpose. We often recommend that our clients consider what’s called the my 529 plan, which is sponsored by the state of Utah. That Utah educational savings plan has now become so popular that they changed the name because people all over the country use it.

Some states have a tax deduction if you participate in your state-sponsored plan. Colorado has a tax deduction. Oregon has a tax deduction. We do have clients that live in those states and participate in their state plan for that reason. California does not have a tax deduction. Most of our clients reside in California, so there’s no reason to participate in the California plan. I also think that the Utah plan is superior in service and in fees and investment options.

529 plans have what are called age-based investment options, so the the asset allocation gets dramatically more conservative within just a few years of your child being born or depending on their age. The returns can be somewhat muted if you choose an age base plan. Some people like a set it and forget it option. You can do what’s called a static investment option, where you invest in one or more parts of the stock market around the world and then you get to maintain that investment until you choose to change it—and you can usually change it once or twice a year depending on the plan. If you’re lucky you may be able to stay in the stock market the whole time until your child goes to college and that will offer the greatest return. There is a timing element potentially to switching to a more conservative means of investing inside of a 529 plan. For my own timing and luck, I could have left all my older daughter’s money in the stock market but I did make a shift. So some in the stock market and some in something more conservative leading up to her entering college.

Private college is really expensive—generally about twice as much as public university—so the savings numbers if you want to actually prepare for private university are pretty high. Most people don’t necessarily want to save that much. They want to plan for public and then if their child goes to private, they want to make adjustments later. We actually do college savings advice for free for our clients. It’s not rocket science and we’ve figured it out—we’re happy to guide our clients and help them with calculations. The investment choices are ultimately up to them—we do make recommendations, but if they do want to consider changing their asset allocation as their child gets closer to the college, we’re happy to have those conversations—since we’re not paid for that advice, were not necessarily challenging our clients to consider that. Sometimes we do depending on the circumstances in the market and how old their kids are—sometimes we will be proactive. It’s a great service that we provide on a complimentary basis and it makes a big difference for a lot of people.

If you are looking for some financial guidance; whether for a one time financial plan or continuing advice on your investments, we invite you to meet with a First & Main Financial planner for a free consultation. We would be more than happy to sit down with you, assess your situation and review our services to help navigate your financial future.

Recent

“Best Financial Advisor in Piedmont, CA”

Top Rated Local Financial Advisor / Planner

East Bay Area: Piedmont, Oakland, Berkeley, Alameda, Orinda, CA

Recent

“Best Financial Advisor in Piedmont, CA”

Top Rated Local Financial Advisor / Planner

East Bay Area: Piedmont, Oakland, Berkeley, Alameda, Orinda, CA

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