Planning for a Child’s Educational Expenses

Education is a powerful investment in the future, and your commitment to securing a bright academic future for your loved ones is commendable. We, like you, value education and are incredibly grateful for the vehicles available to us that enable tax-advantaged college savings. 529 investments grow tax-free if the funds are used for higher education expenses.

If your funds are invested in a target enrollment mutual fund, then the investment allocation becomes more conservative as your beneficiary approaches the stated enrollment year. It is wise to review the target enrollment fund’s glide path which represents the level of risk taken as the student approaches anticipated enrollment. If planned enrollment is delayed or if the account balance is expected to be used over a greater number of years due to higher-than-expected contributions, growth, or anticipated scholarships it is wise to verify that the target enrollment fund matches your needed education funding.

Some investors have designed a custom allocation that they feel more appropriately aligns with their beneficiary’s circumstance. It is wise to periodically review your custom allocation to verify that it adequately reflects your education goals.

Here are a few key points to consider during your review:

1. Time Horizon: Assess the expected time to enrollment for your beneficiaries. Ensure your investment strategy aligns with this timeline, considering the stage of their educational journey. This can be very brief but valuable.
2. Risk Tolerance: Evaluate your risk tolerance and comfort level with market fluctuations. Your risk profile may evolve over time, and it's essential to ensure that your investment allocations reflect your current preferences.
3. Desired Financial Support: As you know, the cost of education is significant. Most families are not able to sustain 100% of their child’s educational expenses. Consider how much you plan to support your student(s) and shoot for consistent funding in the college savings account. If you have the resources available, you could try to make larger contributions to the account when the child is younger to allow for compounding over more years.
4. Expected Educational Destination: Cost varies meaningfully based on the selected institution of higher education. It is advisable to have a realistic expectation of tuition costs and plan appropriately for funding.
5. State Tax Credit: Remember that in addition to your investment growing tax-free, if used for educational expenses, some States provide a tax credit for contributions to the State's sponsored plan. Utah, for example, provides a 4.65% State Income Tax credit for contributions up to specified annual limits based on filing status. For example, for married filing jointly, the 2023 contribution limit for the tax credit was $4,580 per beneficiary.

Remember, proactive monitoring of your 529 college savings plan ensures that your investment strategy remains aligned with your unique financial situation and educational aspirations.

If you have any questions or concerns, please contact one of the financial advisors at PWA. We are here to provide guidance and support in navigating these important financial decisions.

ABOUT PHYSICIAN WEALTH ADVISORS (FORMERLY UMA FINANCIAL SERVICES)

For over 30 years, the salaried advisors at Physician Wealth Advisors have been working with physician members of the Utah Medical Association. Our expertise in creating customized retirement plans as well as tailored investment strategies specifically to fit the needs of the medical community has led us to manage over $1.5 Billion of investment assets for physicians and their families.

If you would like to see what Physician Wealth Advisors can do for you, call 801-747-0800 and schedule your financial consultation today.