Editor’s Letter

By Paul Curley | paul.curley@strategic-i.com | April 21, 2017

What are the top-3 reasons to do the college financial planning business?

Paul Curley, CFA, Editor of the 529 Dash & 529 Insiders

This article provides an overview of three reasons why you should do the college financial planning business. Based on conversions I have had with advisers, many struggle with why to do the business and how to show the value they provide to the client in the college financial planning process. Therefore, this article provides a short overview of the top three reasons to do the business based on conversations with your counterparts that have been successful in growing their book of business.

First, college financial planning allows you to engage your client with estate planning and wealth transfers to the next generation. As is commonly mentioned through the financial planning industry, you don’t want to meet your client’s family for the first time at the funeral. Before then, you can help your client remove 5 years of giving from an estate in one contribution, which equates to $70,000 (5 years x $14,000 as of 2017) per individual filer and $140,000 per joint filing. While some doubters of the value of college financial planning may see college financial planning as small ticket business of $50 per month, accelerated gifting is one example of how the business can lead to sizable activity. Additionally, custodial 529 accounts allows the next generation to minimize the impact of probate court, and so you get to manage the assets from the grave which provides you and your client with value from a control perspective. Furthermore, college financial planning and 529s typically involve an accountowner in one generation and an account beneficiary in a following generation, which helps you to keep the account when the wealth does transfer by already starting the relationship process. Given the volume of wealth set to transfer to the next generation in the next few years, you should start building the bridge to the next generation today before it’s too late.

Second, you should be doing the business anyways. College financial planning consistently ranks as the top one or two priorities for most clients and especially younger parents. If you have been reading the News and Research sections of the 529 Dash e-newsletter, you will notice a regular flow of stories and sources confirming this to be true. Additionally with tuition inflation, the need to efficiently save and pay for higher education will not go away. As much as clients try to avoid the issue or argue that their child will get a scholarship, less than 2% of students get a full ride. Therefore, actively planning for the goal will protect your client from the rising cost of college, and you should be doing the business anyways.

Third, do not leave money on the table. For residents in over 30 states plus D.C., accountholders receive a state tax deduction or credit for contributions into a 529 plan in addition to other benefits. Four of those states as of publication of this article provide an unlimited deduction against taxable income for state tax returns including (in alphabetical order) Colorado, New Mexico, South Carolina and West Virginia. Also, while some states provide a tax deduction or credit only on contributions to their own state’s 529 plan(s), five states currently as of publication of this article provide “tax parity” which provides a tax deduction or credit on contributions to any state’s 529 plans (in alphabetical order): Arizona, Kansas, Missouri, Montana and Pennsylvania. As the majority of your clients systematically overlook the opportunity, get the free money for your clients.

Therefore, you should be doing the college financial planning business to engage the next generation, to do what you should be doing anyways for your client and to get the free money for your client. Therefore, justify your fees by having the financial planning conversion today, and create a better future for your clients.