Saving for College in 2016
When it comes to college savings, families can feel overwhelmed when deciding what’s best for a child – and the family budget. To help families as they plan for 2016 finances, Florida Prepaid sat down with Certified Financial Planner Mitch McLendon, CRPC, a Wealth Management advisor and senior vice president-Wealth Management for Merrill Lynch in Naples.
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How early do you recommend saving for college?
As with most saving opportunities, the sooner the better. Unlike some transition events in life, there is a shorter runway (i.e. 18 years) than other events like retirement. Graduating from college with huge amounts of student loan debt is a real fear for students, so ideally you’d like to start your planning during the child’s first year of life.
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There are so many college savings options – how do you pick the right one?
This truly depends on the individual’s needs and goals. I recommend to my clients at Merrill Lynch that they understand all of the various options and then make an informed decision that doesn’t trap them in a box and limit their child’s education options. Taxes are an important part of this analysis and can significantly detract from the overall returns if not chosen correctly.
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What is the difference between a Florida 529 Savings Plan and a Prepaid Plan?
The Florida 529 Savings Plan enables people of all income levels to utilize this tax advantaged savings vehicle. Money invested in the plan fluctuates based on investment choices selected by the account owner (normally one of the parents) on a tax-deferred basis. As long as the funds are used for qualified education expenses, they are completely tax free. The Prepaid Plan differs in that the funds paid into a prepaid plan are not at risk and don’t fluctuate with underlying investments. The state assumes the risks – taking market volatility out of the equation and guaranteeing a defined benefit. Every Florida Prepaid Plan is fully guaranteed by the State of Florida – you can never lose your investment.
Utilizing the Prepaid Plan enables an individual to prepay the future cost of college tuition and specified fees at a State University or Florida College. Oftentimes, the financial rewards of having a Prepaid Plan are secondary to the security they provide.
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Saving for the whole amount of college can seem overwhelming – are there effective college savings options for smaller budgets?
Savings can be made over a period of years or at one time using a lump-sum amount for either plan. This largely depends on the ability of the owner to contribute to the accounts. The Florida 529 Plan can be started for as little as $25 a month. After initial contributions total $250, the owner has complete discretion over the frequency and amount of future contributions. Prepaid Plan account owners can pay on a monthly or lump-sum basis.
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What are the benefits of a Florida Prepaid College Plan?
Tuition rates for public, 4-year universities have been increasing at an approximate 7.7% rate per year, according to the U.S. Department of Education’s College Costs and Transparency Center. Utilizing the Prepaid Plan enables an individual to prepay the future cost of college tuition and specified fees at a State University or Florida College. Oftentimes, the financial rewards of having a Prepaid Plan are secondary to the security they provide.
Mitch is a founding partner of the Strategic Wealth Group and is the resident director of the Naples, FL Merrill Lynch office. Mitch lives in Naples with his wife Andrea, a native Neapolitan, and their two children, Drew and Katherine.
