Making the case for college savings

Nine out of 10 parents believe college is an investment in their children’s future,* but with college costs continuing to rise, saving enough can feel like an insurmountable task. Use the following resources to answer common client concerns and demonstrate how a 529 plan can help your clients pursue their college savings goals.

“How much do I need to save?”

In 2021-2022, the average cost of a year at an in-state public university was approximately $27,330, while a year of private school was more than $55,800.† When you consider a household with multiple children, affording tuition is no small feat.

Talking point you can use with clients:

• Note that despite the rising costs, a college degree is more important than ever. Studies show that those with bachelor’s degrees earn 61% more than high school graduates and experience lower unemployment.^ǂ

“What if I can’t afford to save right now.”

The average graduate leaves college with around $28,400 of debt.** Outstanding student debt in the U.S. has swelled to approximately $1.59 trillion, surpassing credit cards ($840 billion) and auto loans ($1.47 trillion).^{† †} When clients consider this fact, the question becomes not “How can I afford to save?” but “How can I afford not to save?”

Talking point you can use with clients:

• Explain that by the time today’s newborns are set to enroll in college, four years at an in-state public university will likely cost more than $186,524.^ǂǂ Every little bit helps, and it’s never too early to begin saving for the educational objectives of those you care about.

• Starting a savings plan can make a meaningful difference by potentially reducing the amount your client or the account beneficiary may need to borrow to pay for school.

“Can tax-advantaged saving really make a difference?”

Saving for college with a 529 account can represent an advantage over taxable accounts.

Talking point you can use with clients:

• Explain that with a tax-advantaged college savings plan, the money clients withdraw to pay for qualified education expenses like tuition is free from federal and, in many cases, state tax.

• Explain to clients how a hypothetical investment of $100 per month for 18 years in a tax-free account, with an average return of 6% per year, would have grown to $38,929 (assuming no withdrawals were taken). The same hypothetical investment in a taxable account would have incurred $5,708 in taxes.^§

• By increasing the regular investment amounts, the potential for added growth offers considerable incentive.

State tax-advantaged treatment applies to savings used for qualified education expenses. Tax treatment varies. If withdrawals are used for purposes other than qualified education expenses, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax. States take different approaches to the income tax treatment of withdrawals. For example, withdrawals for K-12 expenses may not be exempt from state tax in certain states. Please consult your tax advisor for state-specific details. Tax deductions may be disallowed in the event of non-qualified withdrawals.

“How can I possibly reach my college savings goals?”

Saving for college is often a family affair, with parents, grandparents and even beneficiaries contributing to the goal. Opening a college savings account allows everyone to pitch in.

Talking point you can use with clients:

• Explain that while anyone can contribute to a 529, control remains with the account owner.

• Grandparents may opt to help grandchildren with larger gifts, which may also have estate planning benefits. Note that those seeking to transfer assets out of their estates can contribute up to $17,000 ($34,000 for married couples) annually toward a loved one’s college education without gift-tax consequences. Under a special election, grandparents can invest up to $85,000 ($170,000 for married couples) at one time by accelerating five years’ worth of investments. No additional gifts can be made to that beneficiary over the next four years after the year in which the one-time gift is made. If the donor of an accelerated gift dies within the five-year period, a portion of the transferred amount will be included in the donor’s estate for tax purposes. Consult with a tax advisor regarding your specific situation. For gift-tax purposes, the assets are considered completed gifts, but the grandparents — provided they own the accounts — control the assets and the withdrawals.