Education Planning Strategy

There is no single amount every family should save. The appropriate goal depends on factors such as:

• The child’s age
• How many years remain before college
• Public versus private school expectations
• In-state versus out-of-state tuition
• How much of the cost the family wants to fund
• Expected scholarships or financial aid
• Available cash flow
• Other family financial priorities

Before choosing a savings amount, determine what portion of college expenses you realistically want and can afford to provide. The objective does not necessarily have to be paying 100% of college costs. It should be establishing an intentional goal that fits your family’s overall financial plan.

A 529 plan is a tax-advantaged account designed to help families save for qualified education expenses. Contributions are
generally made with after-tax dollars, and earnings can potentially grow tax-deferred. Withdrawals used for qualified education expenses can generally be federal income-tax-free when applicable requirements are satisfied.

Rules vary, including potential state tax treatment, contribution considerations, eligible expenses, and investment choices. A 529 plan can be an effective tool, but the account should follow the education strategy rather than become the strategy itself.

Starting earlier provides more time for contributions and potential investment growth. But families should not conclude that it is too late simply because a child is already in middle school or high school. Even with fewer years available, planning can help determine:

• What resources already exist
• How much can reasonably be saved
• What can be paid from future cash flow
• What other resources may be available
• What amount, if any, the student or family should borrow

The earlier you plan, the more choices you may have.

Parents naturally want to help their children. But sacrificing your own long-term financial independence to completely fund college can create a different problem later.

Students may have access to scholarships, grants, work opportunities, and education loans. There are no comparable loans for retirement. Determine what you can reasonably contribute without jeopardizing your own financial future. College planning and retirement planning should therefore be coordinated rather than treated as competing financial accounts.

Unused 529 money does not necessarily mean the money is lost. Depending on applicable rules and circumstances, options may include:

• Changing the beneficiary to another eligible family member
• Using the money for other qualified education expenses
• Keeping the account for future education
• Using certain amounts for qualified student-loan repayment
• Rolling eligible unused funds into a Roth IRA for the beneficiary when specific requirements are satisfied
• Taking a non-qualified distribution, which may create taxes and penalties on earnings

Because 529 and Roth rollover rules include important requirements and limitations, the specific situation should be reviewed before taking action.

Yes.
Grandparents can contribute to a 529 plan and may also establish one for a grandchild, subject to applicable plan and tax rules.

For grandparents who want to help fund education, a 529 can provide a way to make that goal more intentional. But grandparents should first consider their own:

• Retirement income
• Healthcare needs
• Long-term-care exposure
• Estate plan
• Cash reserves
• Other family commitments
• Helping grandchildren is a meaningful goal. It should not unintentionally compromise the grandparents’ own financial independence.

The financial-aid treatment of a 529 plan can depend on factors such as account ownership, beneficiary, current financial-aid rules, and the student’s circumstances.

Because financial-aid rules can change, families should avoid making decisions based on outdated assumptions. As college approaches, review the current rules and understand how the ownership and use of education assets may affect the family’s financial-aid picture.

For many families, the answer may be a combination. College expenses might be funded through:

• 529 assets
• Other investments
• Current income
• Scholarships and grants
• Student earnings
• Loans
• Gifts from grandparents or other family members

The key question is finding the combination that allows you to help with college while protecting your other financial priorities.

That is a family decision, not a universal financial-planning rule. Some parents want to pay everything. Others want their children to contribute. Some establish a specific dollar amount. Others agree to fund the cost of a particular type of school.

The important step is defining expectations early. Ask:

• What can we afford?
• What do we want our child to contribute?
• What happens if our child chooses a more expensive school?
• Are graduate-school costs included?
• Will helping with college interfere with retirement?

Clarity before college begins can prevent difficult financial decisions later.

Do not look only at the advertised tuition. Consider the potential net cost after scholarships and grants, along with:

• Housing
• Meals
• Fees
• Books and supplies
• Transportation
• Travel
• Personal expenses
• Expected number of years required to graduate
• Potential borrowing

Then compare those costs with the resources available. A college can be an excellent school and still be financially inappropriate for a particular family. The goal should be finding an educational path that supports the student’s future without nnecessarily damaging the family’s or student’s financial future.

Borrowing is not automatically good or bad. Key questions include:

• How much will be borrowed?
• Who will borrow it?
• What is the interest rate?
• What will repayment look like?
• What is the student’s likely financial position after graduation?
• Could the parents’ borrowing interfere with retirement?

A loan that appears manageable today can affect financial decisions for many years. Before borrowing, understand the total obligation, not simply the monthly payment.

Certain education savings strategies may provide tax advantages depending on the account, state, expenses, and individual circumstances. For example, qualified withdrawals from a 529 plan may receive favorable federal income-tax treatment when applicable requirements are met.

Education planning can also interact with gifting and estate-planning strategies. However, tax benefits should not be the sole reason for choosing an education strategy. The strategy still needs to support the family’s larger financial goals.

Yes.
For some parents and grandparents, education funding is also part of their legacy. They may want to use their wealth during their lifetime to help children or grandchildren receive an education.

That can potentially involve 529 contributions or other gifting strategies, depending on the family’s circumstances. This is where education planning, tax planning, and estate planning may intersect. When significant gifts are involved, the strategy should be coordinated with appropriate tax and legal professionals.

Earlier than many families do. Students should understand that choosing a college is both an educational and financial decision. As students approach high school and college, age-appropriate conversations can include:

• What does college cost?
• What has the family saved?
• What is the family prepared to contribute?
• What scholarships are available?
• What would borrowing mean after graduation?
• What alternatives should be considered?

Financial transparency can help students make more informed choices.

College planning should begin with the family’s complete financial picture. Feliciano Financial can help evaluate education goals alongside cash flow, investments, retirement, taxes, and other financial priorities.

The objective is not simply to calculate the maximum amount a family could spend on education. It is to determine an amount that makes sense without losing sight of everything else the family is trying to accomplish.

College is one financial goal inside a much larger financial life. Education decisions can affect:

• Income Planning: How much current cash flow can support
• Investment Planning: How education assets should be invested given the time horizon
• Tax Planning: Evaluating tax considerations associated with education funding or gifting
• Healthcare Planning: Ensuring parents and grandparents protect resources needed for their own future
• Legacy Planning: Aligning education goals with family legacy strategies

The Feliciano Financial Blueprint™ helps organize, simplify, clarify, and coordinate those decisions to fund education in a way that makes sense for the entire family.