Mark is a CERTIFIED FINANCIAL PLANNER™ professional and his main responsibilities include managing and monitoring client portfolios, researching and monitoring our mutual fund investments, financial planning and reviewing portfolios with clients. Prior to joining our team, Mark was involved in portfolio and wealth management at Charles Schwab & Co. and Clarity Financial, LLC.
Mark earned a bachelor’s degree in Business Management from Central College.
Outside of my professional career I am passionate about: I am passionate about living life and fully engaging in many activities; tennis, pickleball, working out, family, yard work, photography, and football.
What drew you to the wealth management industry? What drew me into wealth management was being able to work in an industry that centered on investing and having your money working for you.
What is the most rewarding part of being a BFSG Team Member? The teamwork, collaboration, and being around great people.
The one word or phrase that best describes me is: The word that best describes me would be Disciplined.
What’s the best piece of advice you have ever been given and how might this apply to your role here at BFSG? Work hard and do the right thing even when no one is watching.
One of the biggest decisions that a person about to graduate from high school can make in life is whether or not they choose to go to college. That’s also why it’s no coincidence that when toymaker Milton Bradley was designing the board game, The Game of Life®, one of the first things you do in the game is to decide whether or not your character will go to college.1 In the real world, electing to go to college is not as easy of a decision. The actual game of life is much more complicated. Going to college means a significant financial cost for you and your loved ones that has outpaced inflation over time. To highlight this, take the University of Pennsylvania’s tuition and associated expenses in 1960 (the year that the board game Life® was published).
Now fast forward to the 2020-2021 academic year for the University of Pennsylvania and the price tags have increased drastically:
I’m not here to preach one way or the other on whether or not this is wrong. I’m just here to point out that this is the reality we live in. If you went to college in the early 60s, imagine what life was like for you. If you have grandchildren, chances are that you want them to have a better start to the game of life than you did. If their parents do not have the means to fund college, then they will have to use student loans and fill out the FAFSA (Free Application for Federal Student Aid) to receive financial aid to help pay for those post-secondary education goals.
You may want to contribute to an investment vehicle to help them save for college. The most popular investment vehicle for saving for future college expenses is the 529 plan. There have been new changes to the 529 plan and how it interacts with the FAFSA form. My goal today is to show you how you can take advantage of these new changes to help your grandchildren have a better opportunity to graduate from college and have a fulfilling career of their choosing.
What is a 529 plan?
A 529 plan is an investment account that is sponsored by states, agencies, or investment companies, that grows tax-free, and distributions can be tax-free as long as the distributions are made to pay for qualified education expenses (such as tuition or room and board). In 2023, you can contribute up to $17k per person, per beneficiary. There is also the option to “superfund” a 529 plan, which would be making 5 years of contributions to the 529 plan in one year. This is where you can put $85,000 into the 529 in year one (5 * $17,000) but cannot make additional contributions until year 6. This can also be used to help mitigate the size of your taxable estate at the time of your death. However, careful planning must be done since if the 529 plan is super funded and you pass away within the 5 years of super funding, the 529 plan as the contribution would then be added back to your estate.
The FAFSA Rules
The old FAFSA Rules when it came to grandparent-owned 529 plans were that distributions from the 529 plan would be counted as non-taxable income to the student and 50% of the distributed value would impact potential financial aid. This would impact the Expected Family Contribution (EFC), potentially meaning that less federal financial aid would be awarded to the student.
The new rules are that distributions from a grandparent-owned 529 plan are not counted at all towards FAFSA and are not considered non-taxable income to the student. The EFC is not impacted, and the grandparent-owned 529 plan is just assumed to not exist when it comes to awarding federal financial aid to the student. Keep in mind, however, that grandparent 529 plans are still considered on the CSS Profile (an additional financial aid form used by about 200 private colleges to award their institutional aid).
The rules for a parent-owned 529 plan are that the first $10,000 of a 529 plan account is excluded from FAFSA and only 5.64% of the account’s value above $10,000 is factored into the EFC when filing the FAFSA and determining any potential federal financial aid.
What does this mean for you?
If education planning is important to you and your family, it may be more beneficial to focus on having a greater balance in a grandparent-owned 529 plan rather than a parent-owned 529 plan. There also may be options to change the owner of a 529 plan from a parent to a grandparent, depending on the state that your 529 plan is in. If you have both a parent-owned and a grandparent-owned 529 plan, it is important to coordinate the distributions from each account for the optimal financial aid available for the student. Due to the new Secure Act 2.0, there is also the ability to roll over up to $35,000 of funds in a 529 plan to a Roth IRA for the beneficiary if the beneficiary chooses not to go to college. The funds had to be in the 529 plan for at least 15 years to take advantage of this and the amount that can be rolled over each year is subjected to the annual Roth contribution limits.
Conclusions
As a grandparent, now your grandchildren have all of the tools they need to succeed in any post-secondary education that they choose. You sit down with your grandchild, explain that you started a 529 plan to save for their future post-secondary education goals, and they give you a hug since they know that they can fulfill their dreams now because of you:
Ok, maybe some dreams should be scrutinized. I’m guessing you probably don’t want your legacy walking around in oversized shoes, wearing multicolored overalls, and donning a large fake red nose (and I’m not here to judge if that is what you want for your legacy).2 If you wish, you can also change the beneficiary on the 529 plan at any time and as often as you like. Since Bart isn’t planning on using the funds in the 529 plan wisely, it may be prudent for you to change the 529 plan beneficiary to his more responsible sister, Lisa:
While Bart is upset that he won’t get any funds from the 529 plan (he’ll just need to pull himself up by his oversized bootstraps and work hard to finance his Clown College tuition), you and Lisa are ecstatic to learn how the new FAFSA rules for grandparent-owned 529 plans and how you contributing to a grandparent-owned 529 plan can bolster your grandchild’s future educational endeavors and help instill your personal morals and values to the next generation.3
Legacy planning is one of the most important financial planning topics that we address with our comprehensive financial planning services. If you are in a comfortable financial position where you are looking to help others in your family succeed by passing on your personal morals and values, we can help you fulfill those goals. To summarize, I would like to point out this chart from the National Center for Education Statistics:
To reference another board game from my childhood (this time from Hasbro), don’t take the Risk® of waiting to discuss your grandchildren’s future education needs with your family and your financial planner.4 The above chart shows that delaying this conversation means funding future education goals will only become more difficult over time. That hurdle can be conquered by setting up an investment vehicle like a 529 plan to fund future education expense needs now. Our team of Certified Financial Planner™ (CFP®) professionals is here to construct your comprehensive financial plan and be a sounding board for you to voice how you want your family legacy to be remembered by future generations. We’re here to help you win at this game of Life® (at least financially) and the first step to playing is by giving us a call at 714-282-1566 or emailing us directly at financialplanning@bfsg.com to schedule an appointment with our team.
Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.
*Please Note: Limitations. The scope of services to be provided depends upon the terms of the engagement, and the specific requests and needs of the client. BFSG does not serve as an attorney, accountant, or insurance agent. BFSG does not prepare legal documents or tax returns, nor does it sell insurance products. Please Also Note: Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by BFSG) or any financial planning or consulting services, will be profitable, equal any historical performance level(s), or prove successful.
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