Mt. Pleasant (989) 772-1209 | Midland (989) 631-9500
RFM Financial Solutions, LLC

All posts in Education Planning

Is your child hurtling toward college but you haven’t given more than a few anxious thoughts to how you’re going to pay for it? School is drawing closer and tuition projections seem to grow more outlandish by the year. Avoiding the issue won’t make it go away, and the sooner you tackle it, the better off you are. Read on for some tips.

Resist the urge to stand still: If you haven’t done anything yet, you think, why start now? Well, with compounding, a dollar saved today is much more valuable than a dollar saved 10 years from now. And even if you manage to save only a small amount between now and the time your child is ready for college, he or she is going to have to borrow that much less for tuition. The key is taking that first step. Read more

Written by: Jeremy Shafer

It’s that time of year again! Retail outlets load up on pencils and paper, backpacks, and every school supply under the sun.

It’s also a time to revisit a popular financial planning tool – college savings accounts.  With college costs climbing at an average annual rate of 6%, many parents and grandparents are asking what they can do now to prepare.  Here’s a quick primer.

What types of accounts are available?

There are a number of accounts that can be used to fund college expenses, including:

  • 529 College Savings Plan
  • 529 Prepaid Tuition Plan
  • Coverdell Education Savings Account
  • Roth IRA
  • Savings/Investments

Each type of account has benefits and drawbacks, so it’s important to determine which account would best fit your needs before committing to a plan.

What considerations should I take into account?

To help narrow your choices, consider your answer to these questions:

  • How many children will I be assisting with college expenses?
  • In how many years will the money be used for college?
  • What is the current cost at the type of college I’m considering (2-year public, 4-year public, 4-year private)?
  • How much of the total bill do I want to help with?
  • Is saving for retirement more important than saving for college?

With these answers in hand, you can take your search to the next level.  Consider discussing these questions with your tax/investment advisor:

  • How do I balance retirement and college savings?
  • What are the tax implications of the various plans?
  • How will financial aid applications be affected by my plan choice?
  • What option would best fit my needs?

If you’re looking to get started, or if you have an existing plan that you’d like to review, call or email today.

p.s. Did you know that one of the three plans offered by the state of Michigan ranks in the top 5 nationwide?

You might think that not saving at all is your worst colleg saving plan, however, the worst college savings plan is to reduce tax deductible contributions to a 401(k), whos deferred growth can compund over decades, in favor of contributing to a non-deductible or state tax-deductible-only colege savings plan.

The US News and World Report wrote a terrific article with a list of reminders and strategies to consider as the years go by and your children get older and closer to their higher education.  Did you know that for the 2012-2013 school year, the average cost for an in-state public college was $22,261.  This does not include housing, meals and various fees.  That is just for ONE year!

Click here for article.

Written by: Jeremy Shafer

Many articles today are questioning the value of a college degree, wondering whether the rising cost of a college education is worth it.  From the graphic below, we see that a higher percentage of college graduates are employed and earn higher average annual salaries.  This article from The Atlantic argues that the real college crisis isn’t rising cost, but rather the participation rate of today’s young people.  Not all degrees are created equal, but on average college seems well worth it.College Graph

A recent article from covers this topic.  Many peoplewonder what is the best way to give financial gifts or teach their children or grandchildren the right way of investing and saving.  Whether you are looking to teach them how to invest or save or you are wanting to assist them with college costs, there are many choices out there.  RFM Financial Solutions can also help assist you in financial gifts to minors as well as educate you on the best option for you and your family situation.

Click here to read the article by Christine Benz

Starting next year, you’ll no longer be able to buy paper savings bonds at banks and other financial institutions.

Paper savings bonds, which have been around since 1935, will be replaced by electronic bonds come January 1, the Treasury Department’s Bureau of Public Debt said Wednesday.

Treasury said the move will save taxpayers $70 million over the first five years.

“Savings bonds are very much a part of this country’s history and culture, and will remain a part of America’s future — but in electronic form,” Public Debt Commissioner Van Zeck said in a statement. “It’s time for us to take a 1935 model and make it a 21st century investment tool.”

What’s your savings bond worth?

In 2012, you will only be able to buy electronic savings bonds in Series EE and I through TreasuryDirect, a free online bond-buying portal that has been available since 2002.

There will be one exception, however: You’ll still be able to use your tax refund to buy Series I paper savings bonds.

The Treasury announced its “all-electronic initiative” last year, and has already ended the sale of paper bonds through traditional payroll plans. The department estimated that the all-electronic initiative, which eliminates costs associated with printing, mailing, storage, and fees paid to financial institutions for processing savings bond applications, could result in a total savings of $120 million over the next five years.

For those who hold paper savings bonds, don’t put them in the shredder. The bonds can still be redeemed at financial institutions. Paper bonds that have yet to reach their maturity date and have been lost, stolen or destroyed, may also be converted to electronic form.

Although there are some immutable concepts in the realm of money and investing, such as “buy low and sell high” and “start early,” the best vehicles for achieving various financial goals tend to ebb and flow over time. That’s definitely true when it comes to saving for children. While U.S. savings bonds might have been the de rigueur gift from grandma and grandpa 30 years ago, settling for their currently meager interest rates seems like a questionable bet right now. And even though UGMA/UTMA–Uniform Gift to Minors Act/Uniform Transfers to Minors Act–custodial accounts might have been one of the best options for college savings a few decades ago, the emergence of 529 plans makes these “kiddie trust” accounts much less compelling now.

If you’re saving on behalf of a child, the following options may not add up.

Life Insurance

     Buying life insurance for kids fails the sniff test on a couple of separate counts. First, the main reason anyone needs life insurance is to replace lost income–for example, new parents should buy such coverage to provide a financial safety net for their children in case anything should happen to them. But unless your child has a budding career as a model or actor, it’s unlikely that he or she is generating a meaningful level of income that you’d need to replace if something happened to your child. Moreover, while whole (or cash-value) life insurance policies are often pitched as savings vehicles, their long-term rates of return will pale alongside investment vehicles that aren’t as larded with commissions and expenses, such as 529 plans or mutual funds and ETFs.

UGMA/UTMA Accounts

     In the scheme of things, UGMA/UTMA accounts aren’t a disaster: It’s better to save for kids’ future than not do so, and these accounts give you the ability to save on behalf of a child without the cost and bother of setting up a trust. UGMA/UTMA accounts also give you wide discretion over the specific investments that you hold. However, if your aim is to build up a child’s college fund, these accounts can backfire for a couple of different reasons.
     First, your child will have discretion over any assets in a UGMA/UTMA account when he or she reaches the age of majority (18 or 21, depending on the state). Most parents assume that their children will do the right thing and use the money to pay for college as you intended them to, but you’re definitely ceding a level of control with these accounts. In addition, because the assets in a UGMA/UTMA account legally belong to the child, that can work against your child when it comes time to apply for financial aid.
     You can circumvent both the loss of control and financial-aid problems by saving for college within the confines of a 529 plan; the person who sets up the account retains control of the assets, and 529s are treated more favorably in financial-aid calculations than are UGMA/UTMA accounts. (If your child already has UGMA/UTMA assets, it’s possible to fund a 529 plan with that money, thereby obtaining more favorable treatment in financial-aid formulas. This article details the ins and outs of doing so.)

Savings Bonds
     For people who value safety, using U.S. savings bonds to save for college might appear to be an attractive option. The bonds are backed by the full faith and credit of the U.S. government (hold the political comments, please). In addition, interest on Series EE and I-bonds might be entirely or partially free of federal tax if the money is used to fund qualified college expenses at an eligible institution, provided your income falls below certain thresholds.
     The trouble is that yields are about as low as they can go–currently 0.60% for Series EE bonds and 0.74% for I-bonds, according to True, I-bonds’ yields are inflation-adjusted, and higher-yielding bonds may eventually become available, making I-bonds and EE bonds a more viable option for college savings. But for now, given that the inflation rate in college costs (roughly 8% per year currently) is far outstripping the general inflation rate, the math just doesn’t add up for these bonds as a viable college-savings vehicle.

Balanced Funds

     Using balanced funds to invest for your kids isn’t a disaster, particularly if you expect to tap the assets within the next five to 10 years to pay for college or some other expense. There’s something to be said for the “set it and forget it” appeal of funds that mix both stocks and bonds together, and recent Morningstar research shows that investors exhibit better timing decisions with balanced funds than they do stock funds. Moreover, there will certainly be times when bonds outperform stocks–the past decade is a prime case in point.
     But when saving for very young children for whom college may be 12 or 17 years in the future, it makes sense to take advantage of that very long time horizon by investing primarily in stocks at the outset, then gradually transitioning to heavier weightings in safe assets such as cash and bonds. If you don’t want to do the heavy lifting of asset allocation, nearly all 529 plans offer age-based options that gradually become more conservative as college draws near.

Source: Chrstine Benz