Q&A Mary Lacey Gibson, CFP®

Certified Financial Planning™

I would like to setup an account for my grandchild for college. What are my options for this? Thank You?

Hello, There are three main college funding instruments set up specifically for saving money for a child’s college. These include the Educational IRA, Uniform Trust for Minors (UTMA) and 529 College Savings Plan.

In addition to these, an ordinary taxable savings account can be started and another less used Trust account the UGMA are available.
Each had pluses and minuses depending on a the family situation. Primary considerations when selecting a college saving account are: Who owns the account, taxation, investment choices and fees and how the account will affect college loan and grant applications.

A most important consideration is ownership of the account. The Educational IRA and UTMA are owned by the child. At age 18, the child has full rights to and ownership of the money in the account and can do with it what he or she wants. You may want it for college, but a child may have other ideas.

The 529 Plan is owned by the person that sets up the account, usually the parent or grandparent and the child is the beneficiary. If the child decides not to go to college, the owner can change the beneficiary to another recipient, even the owner. These accounts grow tax free and can be used without paying taxes for qualified educational expenses. What qualifies as an educational expense differs with each account. How the money can be invested also varies.

With the Educational IRA and UTMA, you set up the account and choose the investments, usually mutual funds.

529 Plans are offered by all 50 states with each state offering specific investments. You can invest in any of the states’ plans. Look at your home state plan first to see if there are any additional benefits for citizens of your state the plan offers. If not, then look for state plans that offer low fees, low cost mutual funds and age based investing.

When applying for student loans, all sources of income and assets can come into play. Each of these college savings accounts are looked at somewhat differently. So, depending on the family situation, one or a combination of these savings plans may be best.

This is a complex and sometimes confusing choice. The best resource available is a website: www.savingforcollege.com. You will find tutorials and information that can guide you through your decision.

If you are not interested in wading through the information yourself, then I suggest you contact a financial advisor that specializes in college funding. Search for one near you at the Financial Planning Association, www.fpa.net, the National Association of Personal Financial Advisors, www.NAPFA.org or the Garrett Planning Network, www.garrettplanningnetwork.com “find a planner” links.

And, finally, you can start saving for your grandchild’s college with items you purchase everyday by signing up with UPromise. Go to wwww.UPromise.com. This very legitimate company (the New York state 529 Plan is administered by Upromise) will contribute to a college fund for a child you designate from your purchases. It is a marketing site, you should realize, but worth checking out.

Which ever vehicle you decide upon, start as early as possible to give the money the longest time to grow. A very young child’s account may be invested more aggressively and over time and especially as the child nears college age, the investments should change from aggressive, to moderate, to conservative.

Mary Lacey Gibson, CFP® Personal Financial Planning and Advice
Small Business Coaching

I have received a substancial inheritance (six figures)that I will use mostly for retirement. I am in my forties. I have not had this kind of money before and do not know what is the best way to proceed. Do you have any suggestions on what to do to get started?

Thank you

Dear S,

I think I can safely say that you have already started the process of proceeding with your inheritance because you have set goal to use most of it for your retirement.

As a holistic financial planner, I start the process of determining the best plans for my clients with goal setting. In this way, we can see the big picture and find the pathways best suited to follow to achieve the goals.

You seem to be in the need of a fairly comprehensive financial plan. If you came to me as a client, based on your age, your retirement goal and you inheritance, I would recommend we see how the following issues integrate: retirement projections and goals, investment analysis and recommendations, tax planning, insurance and disability planning, estate planning,and
in some cases college funding assessment and small business issues. Your inheritance will impact most of these areas and should be addressed to help you create your personal lifestyle that your finances support.

Creating a financial plan, like working up a medical history and set of recommended treatments, takes skill and knowledge. If you have the time to learn, it is something you can do for yourself. On the other hand, it may be more prudent to develop a relationship with a financial professional to help guide you.

As almost anyone these days can call themselves a financial planner or financial adviser, I suggest you start your search by researching the major financial planning credentials offered. These include CFP:Certified Financial Planner, CPA/PFS: Certified
Public Accountant/Personal Financial Specialist and CFA: Chartered Financial Analyst. Each of these credentials is offered by a board of standards that have strict educational, testing and continuing educational requirements. All have strong ethics
requirements also. Next, work with a financial planner that works for a fee rather than sales commissions. Search the National Association of Personal Financial Advisers, http://www.napfa.org or Garrett Planning Network, ttp://www.garrettplanning.com for a fee-only financial planner near you.

Be prepared to do some homework, be open to new ideas, pay a reasonable fee for service and partner with a financial professional who really cares what happens to you. If you don’t feel comfortable with the first person you meet with, find another.

Your money will fuel your future lifestyle. Work with a responsible planner you can trust.

Mary

I have been considering a medical savings fund. Are these a good idea?

Dear S,

Thank You for your question.

From your question, I believe your are asking about Health Savings Accounts (HSA)established as a way to save for medical expenses, often tax free.

Your question is short and simple but requires a very complex answer. But, in general, if you qualify for a HSA, it can be very beneficial to you and your family. First, you must make sure your insurance plan is specifically deemed a qualified High Deductible Health Insurance Plan.

From a financial point of view, the primary benefit is that you become proactive in saving for medical expenses. Too often, people find themselves with no resources to pay even expected medical expenses without going into debt because they have not given them any thought. Opening a Health Savings Account causes you to be better prepared for both your expected and unexpected medical expenses. You tend to become more actively in charge of your health care.

There are significant tax benefits as well. Contributions to your HSA may be made with pre-tax money similar to a traditional IRA. Also, the growth of the investments in your HSA grow tax free and when used for qualified medical expenses are not taxed. The taxation rules of HSAs are somewhat complex and you should consult with your financial and/or tax advisor to determine if a Health Savings Account is right for you.

The definition of “qualified medical expenses” is very broad and includes many expenses not covered by regular health insurance. Some of these include dental care, physical therapy, alternative medical therapies, mental therapy, transportation and lodging which is health related, non-prescription medications and insurance premiums for Long Term Care Insurance. So,
another benefit of HSAs is that you stay more in control of your health care.

For more information on Health Savings Accounts, visit the US Treasury Department website:

www.treas.gov/offices/public-affairs/hsa/

Best always,

Mary Lacey Gibson