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Get a Jump on College Tuition
The cost of college continues to grow.
As a result, investing for college has become big business. By helping your clients who are parents and grandparents save money for college in a Section 529 plan, you can help them avoid gift taxes and provide generations with a valuable education! Read on to see how these flexible plans can help ensure some tax relief while your clients' children or grandchildren get an education.
Assets in 529 savings plans are projected to grow about 27% in 2007 up to $112 billion1. Don't miss this opportunity to help your clients who, as parents or grandparents, are interested in helping a child or grandchild save for college. With a Section 529 plan, they have an opportunity to put money aside in a tax-advantaged plan that they control, and you could have an opportunity to grow your practice in the area of investments.
Section 529 plans are available in all states and the District of Columbia and allow you to either prepay or contribute to an account for paying a student's qualified education expenses. Among the advantages:
- Qualified withdrawals are free from federal tax and the earnings are allowed to grow tax-free.
- There is a flexibility to change from one type of investment to another within the plan.
- Family members, such as grandparents, can contribute and benefit by reducing their taxable estates.
- The investor retains permanent control over the account.
- The student or the student's parents still may be eligible to claim federal tax credits - the Hope or the Lifetime Learning credits.
- The designated beneficiary of an account can be changed to another member of the family.
- Any institution that is allowed to participate in federal financial aid programs administered by the U.S. Department of Education qualifies so your client has a choice of schools.
There is no federal tax deduction for contributions to these plans (although some states do allow deductions). Section 529 plans are a way to approach clients about investments. People love talking about their kids and grandkids. Helping your clients who are grandparents start 529 plans for their grandkids not only enables the grandchild to have a wider choice of colleges, but it helps their parents with the expenses of college.
Your clients can front-load their contributions. Federal law lets taxpayers give up to $12,000 a year, per beneficiary, without triggering gift taxes; a married couple can give $24,000 a year.
"For 529 plans, though, your clients can exceed the annual limit if they elect to make five years' of contributions in one year," says Joe Hurley, founder of SavingforCollege.com2. Over the years, this can mean a wonderful nest egg for the beneficiaries of these Section 529 plans. It can also mean a revenue stream for you.
Can adding 529 Investments Impact My Profitability?
Let's look at a college funding example.
| Approach 10 clients per week about college funding | 2.5 hours per week |
| Meet with 5 clients per week | 5 hours per week |
| Set up 3 Section 529 plans per week | 1.5 hours of paperwork per week $12,000 avg acct. = $36,000 per week invested = $144,000 invested in 4 weeks |
| Assuming 5% commission, of which a new Advisor averages 65% = $4680 Approximately $130/hr |
36 hours spent in 4 weeks @ approximately $130/hr |
This is a generalization as some clients will invest more and some less, but from a time commitment standpoint, the money can make sense and your clients need your help with this financial need.
Your opportunity: new asset acquisition
Examine your existing client base for clients who might benefit from 529 plans by considering:
- Clients who are parents, grandparents, aunts or uncles often list education as a priority.
- Clients who are taking required minimum distributions that they don't spend can reduce their taxable estate by making contributions to a 529 plan for their grandchildren.
- Clients who are small-business owners are attracted to the combined benefits of education and estate planning that a 529 plan offers. They also may be interested in offering a 529 plan as an employee benefit.
Your financial services partner should be able to provide an overview of the available 529 solutions and assist you with identifying the best solution for your client. It should also be available to provide training on how to identify 529 prospects, open the conversation and deliver your solution.
Note: Section 529 investors should consider the investment objectives, risks, and charges and expenses of the municipal fund security before investing. More information about municipal fund securities is available in the issuer's official statement, which should be read carefully before investing.
529 plans may not be suitable for every investor and a mass solicitation of 529 plans should not be made.
12/13/07, Smart Money Magazine, A Fresh Look at 529-College Savings Plans, by Nicole Bullock
212/20/06, USA Today, Contribution to 529 college tuition plan unwraps multiple benefits, by Sandra Block
| Securities offered through H.D. Vest Investment ServicesSM, Member SIPC |
| Advisory services offered through H.D. Vest Advisory ServicesSM. |
| Non-bank subsidiaries of Wells Fargo & Company, |
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