Latest / Money In Motion with Klaas Financial / Planning for the Costs of College

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Planning for the Costs of College · Money In Motion with Klaas Financial

0:00
This is Money in Motion with Class Financial, a fun and informative show designed
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to help you get answers to all your retirement questions in one place. And
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our phone lines are open on this fantastic Thursday morning just for you. A
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telephone number here at the station six oh eight three two one thirteen ten.
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That's three two one thirteen ten. Love to get you on the air today
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with our retirement planning professionals from Class Financial, joined this week by c J.
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Closs and Kyle Kite. As mentioned, they come to us from Class
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Financially. If you haven't been to the website recently, definitely want to check
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it out. It's a great place to get to know Class Financial, learn
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a little bit about their separate divisions. Also listen back and subscribe to the
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podcast. Another cool feature at colassfinancial dot com is that weekly market paulse newsletter.
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You can sign up for it right online. It's a nice little weekly
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email you will receive. It's got a little snapshot of what's been going on
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in the markets, as well as a link to the most recent podcast that
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online at cossfinancial dot com. That's Klaasinancial dot com. The telephone number six
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oh eight four four two five six three seven. That's for Closs's office right
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here in Madison. No charge for that initiative. To know your appointment Tech
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Loss Financial, it will be complimentary to you. Again. They're number six
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oh eight four four two five six three seven and to join us this morning.
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We'd love to hear from you. All I gotta do is call the
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station six oh eight three two one thirteen ten. That's six oh eight three
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two one thirteen ten. As mentioned this week, we are joined by our
1:26
friends from Class Financial, CJ Closs and Kyle Kite. CJ. How you
1:30
doing this week? I'm doing great. How are you? Sean? Doing
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really good? Great to hear your voice. Kyle, how have you bet
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it's been a couple of weeks. Good to hear from you. It has
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been Sean. Yes, I'm doing well. It's a beautiful fall day out
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there. It is a fantastic day and we've got a fantastic conversation ahead this
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morning. We're talking about planning for our kiddos and grand kiddos when it comes
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to education. What a fantastic gift that can be. But there are things
1:53
you want to be aware of. We'll get into that Conversation in just a
1:57
moment with Kyle and CJ and of course take your call here at Money in
2:00
Motion with Class Financial on thirteen to ten WIBA. Before we start this week's
2:05
discussion, one of the other great things that goes on in the program is
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the Class Quiz Question Week. This week you'll have a chance to win a
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twenty five dollars gift card to Red Robin from our friends at Class Financial.
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That with the Class Quiz Question Week, I'll tell you specifically later on this
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half hour how you can win that twenty five dollars gift card to Red Robin.
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A little tip though, just to kind of give yourself a leg up
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on everyone else, because a lot of folks love Red Robin. It's a
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fantastic place. You want to make sure you pay close attention because most of
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the time the question and answer to the Class Quiz question the week come up
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during the show. And before we get rolling on this week's conversation, let's
2:37
actually take a look back at last week's Class quiz last week. Get the
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question and the answer there as well. Yeah, thanks again everybody for listening,
2:46
and congratulations to our winner from last week. So last week's question was
2:50
if you are over the age of fifty and twenty twenty three and have an
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employer retirement plan, what is the total amount that you can contribute including the
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catch up amount? Is it a total of seventeen thousand or thirty thousand?
3:00
And the answer was thirty thousand dollars. And again we'll do another one this
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week as well. And that was a great podcast, great show, and
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if you missed any part of that program, you can always listen back online
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at clossfinancial dot com. That's k laasfinancial dot com. Full lines are open
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six oh eight three two one thirteen ten. That's six poh eight three two
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one thirteen ten to get you on the air with Cjankyle from Class Financial.
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And so today we're going to be talking about education planning for our children and
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grandchildren. What are those things we should be aware of concerning this, CJ.
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Yeah, this can be a stressful topic for a lot of our clients,
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and so we thought it'd be a good idea to kind of do a
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reality check on the expense of college these days and some recent trends that we've
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been seeing. Although we specifically do help people, of course with retirement planning,
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many times, education planning and retirement planning intersect as parents and grandparents either
3:54
are trying to save for retirement and plan for and pay for college at the
4:00
same time, so this could be a challenge. Of course. The fact
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is that in the last thirty years, average tuition and fees at public four
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year universities have increased one hundred and twenty five percent after adjusting for inflation,
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while private schools have increased at a rate of eighty percent. Over the same
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time period, median family income has only increased twenty seven percent. You see
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the problem, right, So it's actually kind of funny. We all focus
4:30
on inflation and hopefully people have not been living under a rock and they know
4:33
that inflation has gone up and the Federal Reserve is trying to control that,
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YadA YadA. But what's interesting is there's kind of these these core inflation or
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headline inflation numbers that we're aware of, but very often that is not evenly
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distributed across all goods and services. Right. Food might be higher, energy
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costs might be higher, but some other areas of your life might be lower.
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Well, one of the areas that has dramatically had inflation the last thirty
5:00
years, as we're finding out is public for your universities and private schools,
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which is somewhat interesting given that technology has actually enhanced our ability to access information
5:14
for free. So this will be an interesting trend to watch play out in
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the coming years because we could see there being i'll call them deflationary pressures on
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education and traditional universities in the future, just given that access to that information
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is a little bit more or more more accessible now. So when you're looking
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at what a four year college costs could look like for your loved one one
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of these days, understand that the exact cost will depend upon your financial situations,
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grades, family size, tax filing status, and your location. So
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a great place to begin to look at potential costs is the Department of Education's
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College Scoreboard. You can find this at college scoreboard dot ed gov. It
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provides detailed information on annual costs, graduation rates, and top fields of study
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for colleges across the country. For many schools, there's often a net price
6:12
calculator to input your information to see what a certain school may cost for you.
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Now, once you've done that again, this is the first step is
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Department of Education's College Scoreboard. The next step for a family is to calculate
6:26
the net price, or to calculate the net price for college is to fill
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out the Free Application for Federal Student Aid also known as FAFSA. So that
6:38
Federal Student Aid kind of form that you fill out does ask for parental income
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and assets as well as any income or assets of the student that's applying for
6:46
college. Incomfort, both students and parents have a higher weighting than assets,
6:53
and so filling out that FAFSA will then calculate your student aid index. And
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this used to be called, by the way, the ex family contribution.
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Now they just call it the student aid index, and that will impact things.
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So once you've filled out that form, and once you have that student
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aid index determined, this will then be subtracted from the school's cost of attendance,
7:15
giving you your financial need. After you've determined your financial need, realized
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that sometimes the school will fill that need with scholarships, grants, discounts,
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so on and so forth, and other times they will not. So certain
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schools have a better track record than others in filling this gap. And once
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again you can rely on that college scorecard or access to school's common data set
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to see how much financial aid schools generally award. Let me just pause,
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you know, because this is a lot of a lot of information we're going
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through here, this whole college thing. I'm in the midst of it with
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my daughter. My daughter is a senior right now. I mean, thankfully
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I'm in this field and so I have a leg up on most people,
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but I'll admit I'm getting into it. Gosh, it's frustrating and confusing,
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and so we often spend a fair amount of time with our clients kind of
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slowing down and giving them direction as to where to go, just to get
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as much information as they can so that they don't end up getting their child,
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you know, in love with an institution that they would never be able
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to afford in the first place. So really suggest go to that Department of
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Education's college scoreboard, fill out that fasta form to get a sense of what
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these the costs will be. This is really interesting stuff that is absolutely for
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sure. Whether it's for the kiddos or the grand kiddos, definitely go.
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Want to pay close attention to this week's program as always. Can learn more
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about class Financial on the website class financial dot com. That's k l aas
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Financial dot com fantastic website. To learn more about Class Financial, sign up
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for that weekly Market Pulse newsletter. Also listen back to this in the previous
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shows podcasts again all available to you at classfinancial dot com. Speaking of great
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things available to you. That meeting at COSS Financial six so eight four four
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two five six three seven. First appointment at Colss Financial. It will be
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because it will be complementary to you. Again the telephone number six oh eight
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four four two five six three seven for Coss Financial and to get on the
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air this morning with CJ Closs and Kyle Kite. Love to have you join
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us. So I gotta do is call the station six oh eight three two
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one thirteen ten. That's six oh eight three two one thirteen ten. Will
9:16
continue our conversation with CJ, Kyle and you next as Money in Motion with
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Class Financial continues right here on thirteen ten. Wuib e, you're listening to
9:26
Money in Motion with Sean Priebel and Coss Financial. This is Money in Motion
9:31
with Class Financial, a fun and informative show designed to help you get answers
9:35
to all your retirement questions in one place. Chatting with our retirement planning professionals
9:41
from Class Financial CJ Closs and Kyle Kite. The website for class Financial really
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easy to remember class Financial dot com. That's Klaasfinancial dot com. Great website.
9:50
Their telephone number six o eight four four two five six three seven.
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No charge for that initial gets to know you appointment tech costs Financial. It
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will be complementary to you again there number six oh eight four four two five
10:01
six three seven. And to get on the air this morning with your question
10:03
six oh eight three two one thirteen ten. That's six oh eight three two
10:07
one thirteen ten. We're going to talk about kind of understanding the cost of
10:13
college over those four years. Maybe a little more in just a moment,
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but real quick, CJ. We're talking about great websites, and you're mentioning
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the Department of Education their college scorecard website. Great resource. What was that
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one again? Yeah, so I think I think I miss book. I
10:28
said college scoreboard. So the website to go to is College score Cards,
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so college and it's all one word college Scorecard dot ed dot gov. So
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again, if you got to like Google and just put in college scorecard,
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it'll it'll take you right there. But this is a wonderful resource. As
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a matter of fact, it's one of the first things we tell families that
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we say, hey, have you gone to the college scorecard to start looking
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this up and understanding the costs and what it might be. And they even
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have a little link right there to start your FAFSA app application, which was
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step two in our progression. So great resource, Go ahead and take a
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look at that. Very very great information this morning from CJ. Closs and
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Kyle Kaite, our retirement plan professionals from Class Financial. So kind of once
11:13
you kind of get through that how much that college is going to cost for
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four years and those funding vehicles that we talked about, what's available then for
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parents and grandparents in that area. Kyle, Yeah, it's a great question,
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Sean. So this is by far kind of something that's continuously changed over
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the last you know, and there used to be a few other options,
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but right now, by far, the best choice for saving for college is
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what they call a five to twenty nine plan. So this is a tax
11:39
advantage account that features tax deferred growth and tax free distributions for qualified expenses.
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It also has no contribution limits or income limitations, and making it a great
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option for higher income individuals. So again, there used to be a couple
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other options. They're still out there, but by far, like I said,
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the five twenty nine is what most people use. And they've actually changed
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some of the rules around these plans, which we'll continue to talk about here
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this morning. So many states offer a state tax deduction as well or for
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contributions, so that it may may make sense to open up a five twenty
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nine plan within your residence state. So just because you open up this five
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twenty nine in a certain state doesn't mean that you can't attend a university out
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of state or anything like that. But some states offer that state tax deduction,
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so it makes sense to open it in your home state. And these
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accounts have been granted additional flexibility with the passing of the Secure Act, which
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allows ten thousand dollars lifetime limit to pay off student loans, So meaning you
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could put this money in a five twenty nine and you know, let's say
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the grandkids pulled out some student loans, they didn't use all the funds that
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you had set aside in this account, they could actually pull ten thousand out
12:45
of this account towards to pay off their student loans and still get those tax
12:48
breaks, which is really really nice. And another great feature about this is
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that the Tax Cut and Jobs Act included K through twelve K through twelve tuition
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in the definition qualifying expenses up to ten thousand per beneficiary per year. So
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this is again why these things have become so powerful, is that not only
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is it a great college saving vehicle, but it can also be used for
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private school tuition things like that. So you definitely want to consult with your
13:15
tax professionals. Not all states can form with the federal definition of a qualified
13:18
expense, so again, what what each state qualifies as a qualified expense changes
13:24
state to state. Real great tool, but a lot of details, a
13:26
lot of important things you need to know as here as you're learning about any
13:30
making use of a five to nine plans. We're talking this morning with Kyle
13:33
Kite at CJ. Closs, our retirement planning professionals from Class Financial. They're
13:37
telephone number six oh eight four four two five six three seven. No charge
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for that initial get to know you appointment at Class Financial. It will be
13:45
complementary to you. Again, they're telephone number six soh eight four four two
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five six three seven the website class financial dot com. That's k Laasfinancial dot
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com took an opportunity for you as well. If you've got a question for
13:56
CJ and Kyle, we'd love to get you on the air. Six oh
13:58
eight three two one thirteen ten. That's six so eight three two one thirteen
14:01
ten to get on the air this morning. So, Kyle, what then
14:05
happens if you're kiddo or the grandkid doesn't that that has that that five two
14:09
nine plan doesn't go to college, or maybe there's some leftover funds they found
14:13
a fantastic school that they didn't need all that money, So what happens there?
14:16
Yeah, it's a great question, by far the most popular question we
14:20
hear about these, but there's some really really good answers. So something to
14:22
keep in mind is that even though contributions into five twenty nine plans are completed
14:28
gifts to the beneficiary, the owner always has the option to change the beneficiary.
14:33
So let me kind of walk you through that. Let's say, you
14:35
know, grandma and grandpa put money away for their oldest grandchild, their oldest
14:39
grandchild goes to school but doesn't end up using all these funds, they could
14:43
then change the beneficiary to the next grandchild or whoever they want to use the
14:46
funds for, and it doesn't even have to be siblings or anything like that.
14:50
You can change it to cousins, nieces, nephews, whatever it is.
14:54
So they can change the beneficiary to another eligible family member, or even
14:58
change the beneficiary to themselves else for their own qualified expenses without any gift or
15:03
income taxes. So again, they've come a long way with the flexibility of
15:05
these types of planes. The one drawback funds are not used for education qualified
15:11
expenses. The earnings in the account could be subject to a ten percent penalty,
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ordinary income taxes on the federal level, and possibly some income taxation at
15:22
the state level as well. So again, if you want, if you're
15:24
pretty confident that someone in your family is going to be using these fun right,
15:30
but there is a little bit of drawbacks that we have to be aware
15:31
of, so really important a guidance and understanding for that information. And I
15:39
know what podcast I'm listening to on my way home with the kiddo this afternoon,
15:41
just so he's aware. He thinks he's an only child, he thinks
15:43
that's automatically mine. Well, you've got cousins. I never know really good
15:48
stuff this week. It's a great idea, Sean threatening is always a good
15:52
parenting strategy. Yes, I'm talking this morning with c J Laws and Kyle
15:58
Kaide everytirement planning professionals COSS Financial talking about the importance of planning. It's a
16:03
great day to start that conversation with COSS Financial. There telephone number six eight
16:07
four four two five six three seven, no charge for then she gets no
16:10
you appointment at Colss Financial. It will be complimentary to you again their number
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six O eight four four two five six three seven. The website coss financial
16:17
dot com. That's k l aa S financial dot com. What happens if
16:22
the kidd or a grand kid we talked about that doesn't go to college.
16:25
What about other options you may have as a with a five two nine plan.
16:29
We'll get the details from CJ and Kyle. We will do that.
16:30
Next has Money in Motion with Coss Financial continues right here on thirteen ten w
16:34
IBI. This is Money in Motion with Colass Financial, a fun and informative
16:41
show designed to help you get answers to all your retirement questions in one place.
16:45
Talking with our retirement planning professionals CJ. Closs and Kyle Kite always having
16:49
a lot of fun on money in Motion with cost Financial. Don't forget if
16:52
you missed any part of today's program. If you get it. Sometimes you
16:55
step out, you got to grab that coffee, or maybe you're driving the
16:57
kiddos a grand kids to school. You missed part of the show. You
17:00
can always listen back at colss Financial dot com. That's k l a a
17:04
s Financial dot com. Also a great podcast to share with your family and
17:07
friends. Again that all available to you at Costs Financial dot Com. The
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telephone number six O eight four four two five six three seven. No charge
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for that initial get to know you appointment tech Coss Financial. It will be
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complimentary to you again their number six oh eight four four two five six three
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seven on the website Coss Financial dot com. That's Coss Financial dot Com.
17:27
Talking this week, I'm about planning and helping kids and grandkids when it comes
17:32
to college college costs and talk a lot about the five two nine plan and
17:37
are there other ways, uh CJ that creative ways that grandparents might choose to
17:42
uh oh excuse me, wait, I'm I've got to start noting where we
17:47
are because we're also talking about some of the other options with the five two
17:49
nine things like you know, the kiddo gets a scholarship or or of course
17:55
things change, So are certainly things to be aware of in that area as
17:57
well, aren't there CJ There are yes. So there was there was a
18:02
passing of Secure Act one point zero as we call it back and I think
18:06
that was twenty nineteen, and then Secure Act two point zero came into place
18:10
here not too long ago, and so it's it's added additional provisions and flexibilities
18:15
to five twenty nine plans, which is often why the other forms of education
18:21
saving are becoming less common. So there's a bunch of things. Now you
18:25
can use up to ten thousand a year per child for private eduction for private
18:27
high school. It used to only be for college. Kyle was talking about
18:32
the ability to change beneficiaries. There's you know, there's a lot of flexibilities,
18:38
but there's a couple more that I'm going to emphasize. So with the
18:42
passing of Secure Act two point zero, the owner of the five to twenty
18:45
nine plan can transfer funds directly to a roth IRA for the beneficiaries. Starting
18:52
in twenty twenty four. So this is the idea of oh, you know,
18:56
Johnny goes to college, but he doesn't use all the money, or
19:00
doesn't go to college at all, and so now it's you're stuck, and
19:03
you've got to change beneficiaries to a niece or nephew, and that's not what
19:07
you want to do. And now suddenly you're dealing with taxes and penalties to
19:11
get the money out because it's not a qualified distribution. Well, with the
19:15
passing of secure IC two point zero starting in twenty twenty four, you can
19:18
actually use that money for roth Ira contributions for the beneficiary. Now, these
19:25
transfers are limited. They're limited to the annual maximum contribution limits. However,
19:32
there is no agi limitation, which there normally would be. There's a young
19:37
person earning money and they wanted to make a roth Ira contribution, they would
19:41
have income limitations. That is not the case here as it relates to using
19:45
five twenty nine money. But again it's still limited to the maximum amount per
19:49
year and it is subject to a lifetime limit of thirty five thousand dollars.
19:56
However, the five to twenty nine account must also have been open for at
20:00
least fifteen years to be eligible for this rollover. So couple of restrictions to
20:04
be aware of there. You've got to have income to offset the contribution.
20:08
You've got to have You can only put thirty five thousand dollars from five twenty
20:14
nine into a roth IRA and then the five twenty nine had to be open
20:17
for fifteen years. So a few things to be aware of. But this
20:21
is one of the greatest fears of parents in using these accounts is I don't
20:25
want to get stuck with money in one of these things that can't be used
20:30
for anything. And here's a new option. And another one actually is with
20:34
regards to scholarships, because that's another concern. What if Johnny gets a scholarship,
20:38
Well, the amount of the scholarship can be distributed without penalty. Now,
20:44
the earnings would be taxable in that case because it's not a fully qualified
20:48
distribution where you're using the money to pay for education, but it would avoid
20:55
the penalty if you take distributions out that match the amount of the scholarship.
20:59
Again, increased flexibility on these plans has really made them even more popular.
21:04
Fantastic. Are there other things CJ as far as creative ways grandparents might choose
21:08
to help fund college expenses. Let's think about it. Yeah, they could
21:12
consider paying tuition directly to their grandchild school. So, using a special tax
21:18
code exemption, the amount of tuition will not be subject to gift tax.
21:22
Now, if you choose this method, remember that the gift tax exclusion only
21:26
applies to tuition and does not include books, supplies, room and board.
21:30
But it is a simple way to pay for a grandchild's college education just to
21:34
make a payment directly to the institution for their grandchild school. Another choice is
21:41
to choose to pay off your grandchild's student loans after they graduate. If you
21:45
choose to help in this way, it will have no effect on the grandchild's
21:48
financial aid eligibility, and your grandchild will have an incentive to graduate. He
21:52
or she will also be able to deduct student loan interest up to twenty five
21:56
hundred dollars on their tax return without having to itemize. But one potential drawback
22:03
to note here is that since your loan payments will be considered gifts, any
22:06
amount you give over seventeen thousand in one year from one parent to one child
22:11
or one parent to one grandchild will be subject to gift tax. Limitations and
22:15
unforeseen circumstances such as death or illness before your grandchild graduates, could prevent you
22:22
from being able to keep your promises. So there's pros and cons to all
22:26
of these strategies. But there's another couple to consider. Any other ones here
22:30
we should be thinking about their CJ. Yeah. The only other one we
22:33
would mention here is you could choose to set up an education trust. Trust
22:38
provide a measure of control because you can specify your wishes in the trust agreement
22:42
and the trustee will be legally obligated to fulfill them. So, thinking,
22:47
you know, grandparents, I don't want to do a five twenty nine and
22:49
I don't want to just listen as beneficiar. Are there any other options?
22:52
And the answer is yes and education trust And you can also restrict your grandchild's
22:56
access to the funds regardless of his or her age, but legal and accounting
23:02
fees to establish and maintain a trust can be high, and of course gifts
23:06
into the education trust are irrevocable, meaning that once you put the money in
23:10
there, you can't pull it out. So, in summary, with some
23:14
strategic planning, your children's or grandchildren's education futures could be well provided for.
23:19
We just recommend sitting down with a financial planner. We've said this a million
23:23
times on the show. It doesn't have to be us. Just sit down
23:26
with somebody who's a fee based, good financial planner who can walk you through
23:32
kind of the steps you need to take to be an educated consumer when it
23:37
comes to your child or or a grandchild's future. Education costs a lot of
23:41
really good information this week. As always, don't forget if you missed any
23:45
part of the show, you can listen back at klossfinancial dot com. That's
23:48
Klaasfinancial dot com. Link to the podcast right on the website. Also their
23:52
sign up for the weekly market Paul's newsletter' tell off a number for Class Financial
23:56
six so eight four four two five six three seven charge for that initial get
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to know your appointment at Coss Financial. It will be complimentary to you again
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their number six oh eight four four two five six three seven here. Don't
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want to hold on to that telephone number now as well, because it's time
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for the Coss Quiz Question of the week. It works like this. In
24:12
just a moment, I'll ask you the Class Quiz question of the week.
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You will then have thirty minutes from the and today's program to call the Class
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Financial office right here in Madison at six oh eight four four two five six
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three seven. And if you are the first call correct answer, win this
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week's prize, which is a twenty five dollars gift card to Red Robin.
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This week's class quiz question the week is this, what is the name of
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one of the funding vehicles used for college planning? Is it a five to
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two nine plan or a four nine to nine plan? Telephone number six oh
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eight four four two five six three seven first cal out correct answer win that
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twenty five dollars gift card two Red Robin. And again that is Coss Financial's
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office right here in Madison six oh eight four four two five six three seven.
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C J. Kyle, it is always great chatting with you guys.
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You enjoy this fantastic day. Thanks shaw Sean, Take care guys. News
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comes your way next right here on thirteen ten WIBA. This is Money in
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Motion with Coss Financial Asset Advisors, LLC, a registered investment advisor registered with
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the SEC. The content of this show is for informational purposes only and should
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not be considered individual investment advice. Class Financial does not offer tax or legal
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advice. Any opinion offered during the course of this show is the opinion of
25:33
that particular investment advisor representative, and not necessarily the opinion of Coloss Financial