– 529 Primer
– Financial Aid Fundamentals
– Article Round-Up
– Research: Survey Stats on the Go
– Data: 529 Market Sizing
– Last Week’s Most Read Article
– 529 Conference 2016 Update
– ABLE Act Column
– Top New Resources

Hope you enjoyed the Fourth of July Weekend. In celebration of Independence Day and to help you create financial freedom for your clients, the 529 Dash will feature one or two new articles on college financial planning per week for the next six months. To ensure coverage of all parts of college financial planning, the articles will cover all phases of saving, paying and repaying money for higher education. The two categories of articles will be “529 Essentials” and “Industry Updates” to align with the structure of our 529 Conference 2016 in Orlando from September 12-14, 2016. As with the conference, “529 Essentials” section of the 529 Dash will focus on product training and fundamentals, while the “Industry Update” section will focus on legislative, tax, product, marketing and distribution updates and trends across the industry. This week, we start the training with articles on Financial Aid Fundamentals and a 529 Primer. Despite the short work week from the Fourth of July weekend, hopefully you have extra time this week with the closure of the Game of Thrones season. Enjoy, and feedback welcome.

529 Dash, Required Reading for Your 529 Education: The goal of the 529 Dash is to address the specific needs and concerns of advisers, accountants and estate planners who sell and service families and institutions in the college financial planning process by providing industry relevant news, product training and best practices. Building upon the product training and trends will be our editorial insight, market data and research. Also, the 529 Dash will provide opportunities for you to learn from and network with your peers based on real life case studies and forums such as the Strategic Insight 529 Dash LinkedIn Group. By reviewing these success stories on college financial planning from your peers of advisers, accountants and estate planners, the barriers to supporting your clients and building your book of business will be reduced.

Please Read, Engage and Share.

Paul Curley, CFA
Editor-in-Chief of 529 Dash
Director of College Savings Research
pcurley@sionline.com
Twitter: @PaulCurleyBC
LinkedIn: Strategic Insight 529 Dash LinkedIn Group

What: A 529 Plan is a tax advantaged education savings plan operated by a state or educational institution designed to help families of all income levels set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Code which created these types of after-tax savings plans in 1996, and any U.S. Citizen or resident alien is eligible to open an account.
Why: 529s are currently helping over 7 million families earmark over $250 billion in savings in over 12 million accounts for future higher education expenses to minimize debt, improve college affordability and build financial stability over the long-term and across generations. Also, advisors have noted that 529s provide them with a marker of their value provided to clients, as parents and grandparents may not open them on their own. Based on Strategic Insight’s 529 Consumer Survey in 2016, only 68% of American parents save for college and only 32% save efficiently with a 529 plan. Therefore, advisors have an opportunity to add value through efficient college financial planning for their clients.
Tax: In addition to the value of saving for a dedicated goal in an earmarked account that clients can track, many parents and advisors use 529 plans due to state tax incentives and contributions growing tax-free, and the ability to make tax-free distributions when used for tuition, room and board (if registered as at least a half-time student) and other qualified higher education expenses at eligible schools. Otherwise, the gains portion of the distributions are subject to a 10% penalty and taxes. There are exceptions to the penalty, and those will be covered in next week’s 529 Dash. As for the list of roughly 7,000 eligible institutions, it includes colleges, universities and vocational schools in the United States and aboard that are eligible to receive funds from a federal student aid program. While the vast majority of 529 plans are not restricted to in-state residents and users of 529 college savings plans are not limited to in-state colleges, you should read the plan disclosure statement before investing in a 529 prepaid plan for any residency related requirements residency. Lastly, distributions can typically be paid to the student, parent or college depending on the specific 529 plan.
Benefits: 529 plans are flexible, and do not have age or income restrictions on who can invest in them. Additionally, anyone can contribute to a 529 plan, and so the account can grow by crowdsourcing from friends and family members. In contrast, Coverdell Education Savings Accounts generally limit contributions when the account beneficiary is 18 years old or older, and require that all assets get distributed from the account by age 30.
— Financial Aid: 529s also provide beneficial financial aid treatment. 529s held in a parent’s name are treated as a parental asset which reduces the expected family contribution at a rate of up to 5.64%, compared to 20% of assets held in the name of the student. Also, withdrawals from a 529 do not impact financial aid as they are not counted as income.
— Portability: Also, 529 plans are portable in that you can change the designed beneficiary to another family member without tax consequences.
— Gifting, Estate Planning & Family Dynamics: Another benefit is that assets are removed from a contributor’s taxable estate. While some plans have a claw back provision if a contributor passes away in less than 5-years, beneficial estate planning treatment does provide value to some 529 users. A part of this estate planning functionality is that the accountholder gets to maintain control of the account, and can change the ownership of the account from one grandchild to another family member at any time. In contrast, the grandparent gives up control of account with most types of trust accounts. In order to accelerate the estate planning benefit of 529s, the  annual contribution limit is $14,000 as of 2016, or the accountowner can make a 5 year gift in one year up to $70,000 individually or $140,000 per couple to each child’s 529 plan without triggering federal gift-tax consequences. While this is a significant amount of assets, no other gifts are allowed to be made to the same beneficiary during 5-years. Lastly, 529s provide high lifetime contribution limits, as the accountholder can contribute up to high maximum set by state which is generally over $200,000 per accountowner beneficiary relationship. Lastly, accountowners are allowed 2 investment changes per calendar year for the same beneficiary within the same 529 plan, 1 change in 529 plan for the same beneficiary per 12 months and unlimited changes in beneficiary to another family member of the previous beneficiary. 529s help families earmark savings specifically for college in a tax, financial aid and estate planning efficient manner. Next Week, we will cover qualified distributions, beneficiary changes and rollovers.

The value of higher education continues to rise based on current and projected wages, salaries, employment benefits, unemployement levels and job versatility.  In order to pay for high education, the three sources of college affordability are paying from current income, paying from savings and borrowing student loans. Due to the high rate of tuition inflation, more and more families are unable to pay from current income and the average family is not saving enough to pay from savings. Therefore, more and more families are relying on student loans to fund higher education expenses. In order to apply for federal student loans, parents need to fill out the Free Application for Federal Student Aid (FAFSA) by the U.S. Department of Education. The basic formula that the FAFSA is looking to calculate is Cost of Attendance (COA) – Expected Family Contribution (EFC) = Financial Aid.
— Cost of Attendance (COA): Based on the cumulative cost of going to college including tuition and fees, on campus room and board, books and other costs.
—- Expected Family Contribution (EFC): The number generated by FAFSA based on assets and income of parents and the student. The value remains approximately the same from school to school, and includes work-study earnings.
— Financial Aid: This number consists of both gift aid such as grants and self-help aid such as federal loans, private loans and on-campus work study.
While colleges and universities are not required to cover the complete financial aid need in its financial aid package, the majority of the student loan packages are typically student loans which need to be paid back as opposed to grants or scholarships which typically do not need to be paid back. Also, please note that while this article focuses on the FAFSA, some colleges and private scholarship programs may also require additional forms and applications such as the CSS Financial Aid PROFILE.
Overview of FAFSA: The most important components of the FAFSA calculation are assets and income of parents and the student. For students, 50% of income above protected amount of $6,260 are included in the calculation, as well as 20% of assets in bank accounts, CDs, UGMAs/UTMA’s and other savings vehicles. For parents, 22%-47% of Adjusted Gross Income above the protected amount are included, as well as 5.64% (or less) of non-retirement assets above protected amount, including 529s, investments and savings. One additional component is grandparents, aunts, uncles and other family members. While 0% of income and assets are included in the FAFSA calculation, withdrawals for college by grandparents and other family members may be considered student income and must be reported on the following year’s financial aid forms. Such income can reduce the amount of aid by up to 50%. Also, distributions from parent’s retirement accounts are treated the same at up to 50% of the value in the following year’s financial aid form.
Therefore, 529s provide beneficial financial aid treatment as they are treated as a parental asset when held by the parent, which only impacts the expected family contribution at a rate of up to 5.64%, compared to 20% of assets held in the name of the student. Also, withdrawals from a 529 do not impact financial aid as they are not counted as income.
Next, we will cover alternative funding options, and how different investment vehicles impact FAFSA.

Here is what you need to know from stories released this week.

– Brett Tushingham, CCO and CFP®, Tushingham Wealth Strategies, LLC, “College Corner – Can my child claim the American Opportunity Tax Credit?” Editor’s Take: The need to balance asset accumulation and tax credits allow advisors to add value.
– College Investor, “How to save for college for multiple children” Editor’s Take: Balance the mental and mathematical aspects of college financial planning.
– Resource Planning Group, “Flexibility of 529 college savings plans often argue for aggressive funding” Editor’s Take: Advisory Firm’s perspective on how 529s help them work with their target market.
– Money, “Here’s How Much You Could Save by Refinancing Your Student Loans” Editor’s Take: 5 private refinancing firms to benchmark available rates and terms against.

Here is what you need to know from data and research released this week. 

– 83% of Americans say college is unaffordable for them. Editor’s Take: Advisors have an opportunity to provide value through planning for 83% of Americans.
– 75% of employers surveyed think employees with student loans contribution less to their 401(k)s. Editor’s Take: Raise priority of college financial planning, as failure to plan negatively impacts retirement savings and other goals.

This section provides the latest market sizing data of the 529 industry overall, and provides a breakout by 529 savings plans and 529 prepaid plans.

Quarterly 529 Market Sizing Data
– 12.8 million accounts invested in $258 billion assets in 529 savings and prepaid plans as March 2016
– 11.7 million accounts invested in $235 billion assets in 529 savings plans as of March 2016
– 1.1 million accounts invested in $23 billion assets in 529 prepaid plans as of March 2016

Value of Storytelling in College Financial Planning

This article highlights how 529s helped children and parents efficiently save and pay for college, and avoid student loan debt. Despite the focus in the media on student loans, the solution for college affordability is efficiently saving and paying for college in terms of tax, financial aid and estate planning. The positive outcome from successful college financial planning for the client is two-fold in that the student avoids or minimizes student loan debt and builds long-term financial strength by minimizing overall debt, by saving for retirement earlier and by buying a home earlier. Therefore while income based repayment (IBR) and student loan consolidation may solve the immediate need of new clients and therefore allow you to add value and grow your book of business, you will be able to keep current clients by helping them save and pay for college without loans as opposed to losing them when the college bills come due. Provide value to your current and target clients today through efficient cash flow management in college financial planning, and watch your client base grow in the short and long term.

The 529 Conference 2016 will take place from September 12-14, 2016 at the JW Marriott Grande Lakes in Orlando. Updates to the agenda will be announced in this section. Register today.

This section will cover this week’s top legislative updates, product developments, news and resources relating to 529A ABLE Accounts. ABLE Accounts are tax-advantaged savings accounts for individuals with disabilities and their families. Income earned by the accounts will not be taxed when used for qualified expenses. For training on the product’s fundamentals and trends, register for the upcoming ABLE Afternoon Summit on September 14, 2016.

In addition to programs offered by Ohio (STABLE Account) and Tennessee (ABLE TN), two additional program became available this past week:
– Nebraska’s Enable Savings Plan launched nationwide on June 30, 2016.
– Florida’s ABLE United Program became available to Florida residents on July 1, 2016.

Article Round-Up:
– Investmentnews, “Advisers to start recommending ABLE plans to clients”

This section spotlights the top new resources released this last week. Also, we include a list of key regulatory websites below as they provide fundamental product training for new students of the 529 industry, while also providing a reference section for the long-time market participants. This week we highlight the following new tools:
– FINRA, “Summer Study: Understanding 529 College Savings Plans”
– Morningstar, “529 College-Savings Plan Landscape, 2016 Update”

Regulatory & Legislative Resources:
– SEC – U.S. Securities and Exchange Commission
– IRS – Internal Revenue Service
– FINRA – Financial Industry Regulatory Authority
– MSRB – Municipal Securities Rulemaking Board
– FAFSA – Free Application for Federal Student Aid
– IFAP – Information for Financial Aid Professionals

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