Why Should Education Planning Be Included In A Financial Plan?

Why Should Education Planning Be Included In A Financial Plan?

As a profoundly caring father of three girls myself, and the founder of Humanity Wealth, I firmly believe that everyone is entitled to quality education and financial literacy. If you are a soon-to-be parent, current parent, step-parent, guardian, grandparent, or godparent, you more than likely want to have funds to help your youngsters obtain a better quality of life, commonly obtained through higher education. 

If you have an existing financial plan, education planning should be included, if applicable. If you don’t have a financial plan yet, reach out for a complimentary consultation. We even have an exciting $50-a-month subscription-based financial planning pricing available to all because we genuinely care about your financial success. 

We serve as financial advisors without a minimum asset requirement that does things differently! — Harry Sherdil

The Importance of Education Planning Within a Financial Plan

As college attendees trend upward, college savings plans are considered an essential investment vehicle. Therefore, more people take advantage of the tax benefits accompanying these college savings accounts. 

In 2022, the average U.S. college graduate salary is $55,260 versus the average high school diploma salary of $43,654. We are not dictating that everyone should go to college—that’s not our business. However, we know how important it is to financial planning, which is why we are here for you.

An independent financial advisor in Newark, CA, at Humanity Wealth can help you decide which college savings plan is right for you.

What Does Education Planning Involve?

Future planning concept, puzzle parts labeled Education & FutureIf you have not started education planning yet, you may have lacked the funds or don’t know how to go about it. There is no shame, whatever the reason. The fact that you are doing something about it now means everything, and your kids will thank you for it someday!

Remember, education planning is not just for the kiddos. Educational planning requires crafting an investment strategy that addresses the educational needs of all of your family members. Even you or your partner might have the potential desire to further your/their education.

To begin education planning thoughtfully, consider these simple questions:

  • How much time is there until the start date?
  • Is it a public or private institution that will be attended?
  • Might your family member qualify for financial aid or scholarship (for children, this is TBD)?
  • What funds do you have available to allocate towards the plan now?
  • Where can you invest or keep the education planning funds?

At Humanity Wealth, our affordable financial planning in the Bay Area can help you answer these questions and map out a solid plan of action. You should be able to set up a college savings strategy that is right for you and yours.

How Do I Invest in Education Planning?

How Do I Invest in Education Planning?Start As Soon As Possible

The sooner you start saving, the better to take advantage of the power of compounding interest. Delaying just two years can potentially cost you thousands. So, the longer you put it off, the more impactful the cost of education can become.

Stay Disciplined

How many people do you know that can afford the cost of tuition alone for over a few years, not including books and boarding? For most, the answer is not many. That’s why many people choose to build a college fund through an automatic monthly investment plan.

Explore Funding Options

  • A 529 College Savings Plan (a savings plan trust) is a wonderful way to save for higher education down the road because, when compared to a Roth IRA, there can be higher contributions, and earnings can grow tax-deferred. To top it off, you are not taxed on withdrawals if funds are used for qualified education expenses like tuition, books, housing, and supplies.

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. 

Withdrawals used for qualified expenses are federally tax-free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing. Investing in a 529 plan does not guarantee the goal of paying for a college education will be achieved.

  • Educational IRAs, more commonly referred to as Coverdell Education Savings Accounts, allow you to save for your children’s college education while you get a tax break. 
  • Variable Universal Life Insurance: As mentioned in our life insurance article, cash value accumulated in a variable universal life insurance policy can be withdrawn tax-free for many purposes, like education. 

However, VUL insurance is complex, as it bears a higher risk of loss with higher fees. You can earn more, but you can lose more. Cash-value policies have fees built into the premiums (which may rise), plus there are high surrender charges. 

Read: Why Insurance Should Be Part of Your Financial Plan

  • Uniform Gift to Minors Act Account allows adults to transfer assets to minors and are taxed at a lower child’s rate. 
  • Prepaid Tuition Plans are generally prepaid plans for students attending state schools in Florida, Maryland, Massachusetts, Michigan, Mississippi, Nevada, Pennsylvania, Texas, and Washington. If you live in one of these states, your beneficiary must attend an in-state college or university, and you can’t use the money to pay for any other expenses.
  • Education Tax Credits include The Hope Credit, which allows eligible students who have not yet finished four years of college to qualify for a $2,500 income tax credit. This credit is a nonrefundable tax credit that can only reduce a taxpayer’s liability to zero; any amount that remains from the credit is automatically forfeited by the taxpayer. To qualify, taxpayers are subject to eligibility requirements such as the income thresholds of the household and the enrollment status of the student. 

Similarly, the Lifetime Learning Credit (LLC) is a tax credit used to offset the cost of tuition and related expenses. It can help eligible students pay for undergraduate, graduate and professional degree courses and courses taken to get or improve job skills. There is no limit on the number of years you can claim the credit. The credit is worth up to $2,000 per tax return. 

The LLC is a nonrefundable credit, which means it can only reduce a person’s tax liability to zero and no part of the credit can be issued as a refund. There are income limitations for this tax credit.

  • Bank Accounts and CDs are generally FDIC insured and offer a lower return potential versus other investment vehicles. These are helpful for those with short-term goals.

Which Education Savings Plan Is Best for Me? 

The answer to this question depends on you and your family. It will be most helpful to meet with Humanity Wealth Advisors, who can carefully go over your financial goals and financial situation to recommend an appropriate plan. 

Our mission is to help you pursue your biggest financial ambitions by giving you resources and financial education. 

Again, you or even your teenagers can sign up for our subscription-based financial planning service, which is cheaper than a YouTube TV! Or opt-in for another option. We cater to everyone, unlike most firms out there. 

We look forward to meeting you soon—schedule a call.

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This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.

More about the author: Harry Sherdil

As a fiduciary financial advisor at an independent firm, Harry strives to offer the same resources, tools, and research as bigger firms while serving new and existing clients' best interests.