Paving the road to higher education

Published 4:04 pm Friday, September 22, 2017

Published college costs can be intimidating, even to dedicated savers. Harvey Mudd College heads the total cost list at $69,717, while Columbia University charges the most for tuition alone: $55,161.1 Few students pay these totals. Scholarships and financial aid can cover some expenses, and state universities and colleges cost much less. Nevertheless, 61% of undergraduates leave school with debt – an average of $28,100.2

You might expect parents and grandparents would be saving large amounts in tax-advantaged college savings programs. However, Sallie Mae, the nation’s largest college student loan company, found that although 57% of parents are saving to fund a college education, only 37% do so in a tax-advantaged way.3

If you intend to help pave someone’s path to higher learning, you have several choices.

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Generous contribution limits and potential for tax-free qualified withdrawals make a 529 plan the choice for many families. A benefactor can gift up to five years of gift tax exclusions for a $70,000 one-time contribution ($140,000 for a joint contribution). States also may offer tax breaks on plan contributions.




This tax-advantaged account’s main drawback is its modest contribution limit – $2,000 per year. If your modified adjusted gross income is less than $110,000, you can use contributions to cover qualified higher education expenses or even elementary and secondary education expenses, a key difference from other education accounts.

Contributions grow tax-free and qualified withdrawals are free of tax at the federal level and often at the state level.

Any funds left in a Coverdell ESA must be distributed to the beneficiary when he or she reaches age 30, unless that person has special needs.


You also can make a contribution under the Uniform Gift to Minors Act or Uniform Transfer to Minors Act. The “gift to the minor” is irrevocable, and the assets become the property of the child once he or she reaches the age of majority (usually 18 or 21). Also, the child’s assets could work against financial aid calculations.


Other savings avenues are possible. If you qualify, you could open a Roth IRA (2017 contribution limit: $5,500; $6,500 if you’re 50 or older) with the idea of using some of your contributions (not your gains). You can extract your after-tax contributions at any time, for any purpose, while leaving your gains to grow tax-free to support your retirement. Or consider tax-efficient investments; your withdrawals won’t be tax-free, but they can be used for any purpose without any penalties to consider.


• Consider what you can afford to help a loved one secure a higher education

• Evaluate available education funding vehicles

• Coordinate with your planning professionals

Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 plans before investing. This and other information about 529 plans is available in the issuer’s official statement and should be read carefully before investing. Investors should consult a tax advisor about any state tax consequences of an investment in a 529 plan. Plans offered outside your resident state may not provide the same tax benefits as those offered within your state.

Material created by Raymond James for use by its advisors. The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete.

Raymond James is not affiliated with any other entity listed herein. © 2017 Raymond James Financial Services, Inc., member FINRA/SIPC. Securities offered through Raymond James Financial Services Advisors, Inc. 16-BDMKT-2319 BS 7/17

Stephen P. Poitevint is a Registered Principal and Financial Advisor of Raymond James Financial Services, Inc., member FINRA/SIPC, and is located at 908 Tallahassee Highway, Bainbridge, Georgia, and can be contacted at (229) 246-7208 or  Investment advisory services offered through Raymond James Financial Services Advisors, Inc.