College Planning and Retirement Planning — Where to Save & How to Give

Students are back in the classroom and some carry a lighter load as student loan forgiveness plans become a reality. While those positively impacted by the forgiveness plans celebrate, the students of the future still face high costs when heading to college.

Whether you’ve experienced it first hand or watched a loved one pay thousands each semester — you know the expense of a college education can follow a person for decades when relying on student loans. According to the Association of Public & Land-Grant Universities, 42% of students at four-year public universities completed a bachelor's degree debt free. But that leaves the majority, 58% of students, graduating with debt. 

This is just one statistic, of course, there are private universities and technical colleges not accounted for. Regardless, student loans are common for those coming out of any higher education setting. This leads many parents and grandparents to wonder how they can help their young loved ones ward off a bit of the burden from student loans.

If supporting an education financially is a goal of yours, it’s important to understand what paying for college looks like in 2022. Take the time to review your options while remaining focused on your future to maximize your investment.

Saving for College Expenses during retirement

Help Saving for College During Retirement

As a retiree (or soon-to-be), you know putting your money in the proper savings vehicle makes a difference. It’s important to choose an option that will allow your money to grow while remaining conscientious of any tax implications.

Saving with a 529 Plan: “A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. 529 plans, legally known as ‘qualified tuition plans,’ are sponsored by states, state agencies, or educational institutions.” 

There are two primary types of 529 plans. While there is a Prepaid Tuition Plan option, most opt to utilize the Education Savings Plan. The Education Savings Plan is an investment account you open with a designated beneficiary. When withdrawn, the funds are widely accepted to cover tuition, room and board, and some other fees such as books. While most have college in mind, funds are also accepted at private elementary schools and secondary schools. Up to $10,000 per year, per beneficiary can be applied to K-12 tuition at either a public or private school.

As the one funding the accounts, let’s not forget about the benefit to you. 529 Plans are state-issued, meaning you need to review your specific state’s offerings. For many, 529 Plan contributions are deductible from state income taxes. You can follow this link to learn more about Delaware’s 529 Education Savings Plan. 

There are other caveats to understand with a 529 Plan; an additional benefit is you are allowed to change the beneficiary at any time to a qualifying family member. But if funds are not used for education expenses, you will be assessed a 10% penalty as well as income taxes on any gains in the account at the time the amounts are withdrawn. 

Giving the gift of Money: 529 Plans are great for those with time on their side. If you’re looking to use other funds or want to provide support sooner rather than later, it’s important to remember the rules associated with gifts. If the gift of money falls under the IRS’s annual exclusion limit, you likely don’t have anything to worry about. The IRS states that for 2022, the annual exclusion is $16,000. To avoid the gift tax, you can make tuition payments directly to the university instead of writing a check to the student personally. 

Things to Think About While Helping Fund an Education in Retirement

Understand the Timelines:

If you’re more intimately involved in the college planning process, it’s important to understand the associated timelines. Discuss the expectations in advance and take the time to share the costs of college with the student, the impact of your gift, and the reality of student loans on their future. This is a wonderful time to teach, provide guidance, and make a real impact on their future. 

Applying for financial aid often happens during a student's senior year of high school. Look into local scholarships, financial aid options, and FAFSA timelines at the beginning of their senior year to not miss any important deadlines.

Remember you have a choice:

Some grandparents who have worked hard to build their retirement fund feel pressure to contribute to a grandchild's college education. Whether you have the funds available to contribute or not, remember you have a choice, and your decisions should remain aligned with your goals.

Leaving a legacy, donating to charity, funding other expenses of your own or loved ones — you have goals, and we understand financially supporting someone else's education may not be in your plan, and that’s ok.  

Take time to plan:

If you’re this far into the article, then this is nearly a moot point. We will always encourage you to do your research before simply writing a check to a child or grandchild. Understand their intentions, review your savings options, and consider the tax ramifications with a CPA before making any sizable gifts or contributions.

Learn More About Fitting College Planning into Your Retirement Plan 

Whether you’re a parent with kids heading to college with a retirement plan in the works, or you’re already retired and interested in helping a grandchild through school — we’re here to help. At Integrated Wealth Management, we want you to enjoy retirement life to the fullest while simultaneously reaching goals.

Let us help you create a plan that brings you confidence about your financial future. Start by scheduling an introductory meeting with a Wealth Advisor today.

About Integrated Wealth Management

Integrated Wealth Management is owned by Burt Hutchinson, CPA, CFP®. We’re a CPA-led organization, meaning we’re here to handle your complex tax scenarios and provide cost-saving insight related to your financial plan.  

We’re here to guide you through the 3 stages of retirement:

  1. Uncertainty Stage: When you are within 10 years of retirement and have questions about how to make it work

  2. Stability Stage: When you have reached the financial milestone to retire comfortably and confidently

  3. Reflection Stage: When you are looking to leave a legacy

We are also here to provide experienced, empathetic support during times of loss, such as the death of a life partner. You need confidence and a sense of security to enjoy retirement. As fiduciaries with a fee-only structure, we never receive commissions. Free of ulterior motives, you can be sure we’re focused on your goals.

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