Welcome to Forum 360.

I'm Mark Welfley, and thank you for joining us for our global outlook with a local view.

Diapers, baby food, burp cloths and doctor visits.

Caring for a newborn requires lots of time, planning and attention.

Lurking somewhere in the parent's conscious, amongst their list of priorities and tasks is usually saving for their child's future education.

It can seem like daunting, a daunting endeavor.

Dollars today don't stretch as far as they used to, and tuition costs are rising and what if junior decides not to attend college?

What does the landscape of saving for an education look like?

What are the different programs and ways to save for an education?

And to break it all down for us, I'm joined today by A’Shira Nelson, CPA and Director of Quality Assurance and Training at Wellspring Family Office.

Welcome, A’Shira.

- Thanks for having me.

- You’re welcome.

So a little bit about your background.

How did you come to, to be in a position that you are such that you could advise us on some terrific savings opportunities?

- Okay, so a little bit about my background.

So as you stated, I am a CPA, I'm also a director at a family office located in northeast Ohio.

I've been in that position a little over four years, close to five years now.

But before that, I've always held public accounting roles.

So I've always been in the accounting field.

I also have a financial platform called Savvy Girl Money, where I teach financial literacy to my community.

I help them identify and achieve their financial goals.

I'm also an instructor at Cuyahoga Community College, also known as Tri-C, where I teach accounting and finance to entrepreneurs students.

And I'm also a host here on Forum 360, which I absolutely love.

So that's a little about me.

- Well, it's good to have you on the opposite side of the table.

- I know I was deciding to say, I have not been here in so long.

- So with regard to saving for an education is, are more and more parents saving?

Like, what's the trend up, down?

- I would say more parents are becoming more aware.

They're becoming more, “Oh, I heard about that online.” Just more.

I think the trend that more people are talking about it, but I don't.

I think we still have a long way to go before it's more consistent.

But I definitely think more parents are becoming more aware of the different options.

- Why aren't parents or grandparents... Becoming— They became more aware of it.

Why aren't they acting?

What's keeping them?

- I think they’re not taking that next step because of the current state of our economy.

They're just not seeing, like, where they can make it happen, where they could fit it in.

And I guess it's like another thing.

And that extra thing is probably causing more anxiety than anything.

They're just not sure how they can kind of fit it in and actually take action towards the next steps.

- Has the landscape for savings specifically for a child's future education, whatever that may be?

Has that changed over the last year, ten years, or is there a lot of shifting sands?

What's the story?

- I think it has changed.

I think it has become more flexible.

I think what okay, like ten years ago when we were talking about saving, we were talking about a traditional four year college.

Now we have many different options.

We have four year traditional college.

We have a community college.

We have scholarships.

We have apprenticeships.

Certifications.

We have so many different options.

So I think in the last ten years it's just became more flexible, more flexibility to the conversation then what we’re used to just a standard.

- Yeah.

Okay.

So perhaps parents are victimized by information overload.

So many opportunities.

- I think so, yeah.

- Yeah.

And the sense of just like, not knowing what their child is going to want to go into.

I suffer from that a little bit.

It's just trying to find a balance of will they want to go to a traditional four year school?

Would they want to get a certification?

Or what about a trade school?

So I think that also on top of a little information overload.

- Yeah, sure.

So let's get to it.

What type of programs are available for saving for a child's education?

And you can, you can widen the conversation if you wish to.

Just savings for a child's future.

- Okay - Maybe a house, but... - What are the programs and how do you get involved?

Just kind of take us into it.

- Yes.

I think the first one that comes into mind is a 529 plan, which allows parents, grandparents, or just honestly, any type of family member to save for a child's education expenses.

So a 529 plan, you can open up one within any state.

And then you have other plans, you have... A brokerage account where you can open up like a custodial brokerage account or savings account for your child.

But there's many different options.

You just gotta get educated as a parent and see what option is best for your child.

Because, honestly, you only know your child like, you know, and you want to base it off of, like, their interests.

Like, over the years would have they expressed they want to do.

Do they express they want to go to school for finance, accounting or what about cosmetology school?

Or it could be so many different things, but listen to your child as they are stating it and then base your plans off their interest.

I think that's important.

- Okay.

So the 529 plan.

Like how would that be different from a parent just taking say ten grand and putting it into a savings account.

Or a mutual fund.

Sorry.

- Okay.

Great idea.

I mean great point.

Great, great point.

I think that's like the, the best point to emphasize here is because with the 529 plan, you have to use the money.

There's like rules.

You have to use the income for qualified education expenses.

And I think that's the key thing here.

- Does that mean that the, the funds, the money that you make in the 529 are not taxable if you use them appropriately And that's the advantage?

- That is exactly the advantage.

So, the funds, so once you make the contribution to the account, the funds grow tax free and they are withdrawn from the account tax free if they're used for qualified education expenses.

So that's the key.

- So we have a 529.

I hear people talk about whole life policies.

- Yeah.

- And some of the income that derives from that.

- Yeah.

- Can you speak on that at all?

- Not really my area or my recommendation, honestly.

I try to stay away from the whole universe of— Like I try to stay away from the life insurance things.

I like to keep things separate when I'm talking about my finances and then my investments I have one pool or one train of thought.

Then life insurance is just that.

If it's for life insurance, I don't try to mix it with investing.

That's kind of my rules.

- That's interesting.

Beside a 529.

Can you tick off a couple of other - Yeah.

- Opportunities to think about?

- Yes.

So with the five— So you have your 529 plan which you can open up within your state or any other state.

Just depending, because there are different benefits.

So a 529 plan.

So I pay tribute to my, both of my daughters.

I have two girls, a 13 year old and a five year old.

So each month I make a contribution into their 529 plan.

But I also have a custodial brokerage account for them also where that fund is or that account, that investment account I contribute for, okay, just in case they decide to go, not to go to school.

Or they want to become an entrepreneur, or if they decide to, I don't, just honestly, I call it like their, their wildest dreams account in a way, because even though I'm saving for their future, I'm investing in index funds and mutual funds within that account, but it just provides more flexibility for my girls.

But I still contribute to the 529 plan.

So those are two different “me” saving for their future, but one I have to use for qualified education expenses or I'll be penalized.

But with the brokerage account, there's much more flexibility there.

Where if, let's just say they don't want to go to school, then they say, okay, out of school, I actually want to get a house or buy a new car.

Okay, well, let's look at your brokerage account that becomes available to you at 18 or 21.

So that's kind of how I'm not limiting their future, just providing more options, opportunities in their future.

- Okay, so the the brokerage, the custodial fund is also taxed when you take it out.

Okay, but gives you the flexibility.

Yeah.

- Yep yep.

- So the 529 if your daughter or daughter's decide not to go to college.

Can it be used for something else like buying a house or down payment on that or anything.

- No, no.

I cannot be used.

- It just sits there?

Can you transfer it to the other child?

- Absolutely.

So, - Okay.

I did, I was a little strategic.

I have my kids years apart.

So let's just say my 13 year old daughter decides not to go to a traditional four years school.

Let's say she just decides to get like a certification or go to a trade school.

It might not cost as much as the traditional four year college.

So then I can transfer that money to my five year old who will go to school many years after her.

So yes, you can transfer the money to another, another one of your children, your nieces, nephews, even a godchild you can transfer to.

So you do have the option to transfer that income, or any unused funds can be then transferred into a Roth IRA for that beneficiary.

But there are certain rules and limitations there.

You have to have the account open for at least like 15 years, and then you'll be able to transfer and use funds.

- Okay.

How about if, a student, a child wants to attend a private high school?

And the tuition is, I'll make up, $18,000.

Can you use the five or does it only for college or after graduation?

- They have expanded the qualified education expenses go towards.

You can even do for like private schools.

You can do it for different like summer camp programs also.

So they have expanded it.

It has come a very long way because it used to be more limited.

- Is there a list of things you can and can't do with 529 somewhere?

- It is.

- Or is it a grey area that needs interpretation?

I don't think it's a grey— Somewhat of a gray area, but there is also a list.

So qualified education expenses can include your room, your board.

So housing, it can even include like, the cost of, like your food in some cases.

So but if you just do like a simple, like, Google of, like, your 529 plan qualify education expense, you'll get, like, a good list.

- Okay.

Yeah.

So that was my question for you is, is where do people go to find out more information, resources to help in this education process that leads to hopefully pulling a trigger on an opportunity to invest?

- Yeah, I think the best place to look.

I recommend starting with your state, like your state funds.

So each state, majority of each state have their own 529 plans.

So I will start by googling your state plan.

So for example we're in Ohio.

So I Google Ohio 529 plans when I wanted to start one for my daughters.

And that's how I found, College Advantage.

And then I went to collegeadvantage.com and found out more information about how to start their accounts.

- If you're just joining us, thank you very much for watching and listening.

My name is Mark Welfley.

This is Forum 360.

I'm here with, A’Shira Nelson, CPA and director of quality assurance and training at Wellspring Family Office.

And we're talking about saving for a child's future education.

And, we're talking about the 529 program.

And I want to move on to, it's one thing to understand the 529 and see its benefits and perhaps its limitations.

But how do parents find money in, when times are tight?

And, you know, when you go through ups and downs.

So some years we have money and some years we don't.

What do you recommend in your classes and in your practice for how to save.

- That's a great question.

And I think where I like to start with my clients is starting with their budget.

Starting where, because you've got to understand their numbers, their lifestyle, what their goals are.

So starting with their budget, reviewing the money they have coming in, money they have going out.

And kind of when reviewing that, making sure there's no like judgment or because sometimes you can only start with $20, maybe 25 or 50.

And that's okay.

Letting them know that start where they can is very important.

Funny story, I save in 529 plan for one of my nieces.

She came along when I was like, okay, I already had my daughter, my first daughter, and I was like, I am tired of buying toys.

Like, we have so many toys in this family.

I don't want to see another toy.

And so I decided to open up one for her for her first birthday.

And I, at the time can only start with $25 and she is going on six now.

I have one up to $30, but I still only put $30 a month because I'm, funding my retirement.

My daughter's 529 and brokerage account.

So I'm like, okay, I want to make an impact, but I don't have, like a lot I can give.

But I know that this $30 a month can still have some type of impact.

I remember back in school I had a family member that covered my, my books in, like, different supplies.

And I'm like, okay, well, maybe I'll be able to do that.

Maybe I can cover her books for the four years by contributing at $30 a month.

So I have a smaller goal in mind, but I have a goal and I could still have a good impact.

- Okay.

- Yeah.

- Grandparents and relatives come to you in hopefully a perfect world and say, you know, I would really like to pay for my grandchild's education.

Do you take the money then and invest it or do you say wait when my child goes to school then, you know, then we'll send you the bill.

- Yeah.

- I mean, you understand what I’m saying.

Like, how do you communicate, manage a helpful relative or a grandparent that wants to be part of the solution?

- So I tell the parents because sometimes it's the parents that’s setting up the account, and then grandparents also want to get involved, or the parents are looking for a way to encourage their other family members to get involved.

So what they can do with the 529 plans is you can actually send your family members a link to make contributions to the plan.

So let's just say on their birthdays.

Now that I have my nieces set up, I can send out to other family and say, hey, if you're looking for an idea for her birthday, go ahead and put that $25 in her 529 plan.

And say it’s just a simple link.

You click it, you can make a quick contribution honestly in like two minutes.

- Does the 529 have a max contribution per year.

Like, say a Roth does?

- The 529 contribution doesn’t a have a max, But if you want to get a state deduction like a deduction on your state return, there is a max there where they say you could deduct on your state return up to $4,000 per child.

- I see.

- Yeah.

So, but you can play it as much as you want, but you won't be able to take the only up to $4,000 for the state deduction.

- Yeah, that’s a good question because that leads my, to my next question which is about tax consequences.

- Yeah.

- I liked your point earlier where you say if it's an insurance vehicle then use it for insurance.

Don't also use it for, to save.

And I guess my question with tax should be, should we just be worried about the right program or should we be— Should we also have an eye on the tax consequences of any investment?

- I tell my clients, don't do it just for the tax advantage or the tax benefit.

Do it because you have a goal of saving for your child or another family member.

But it is nice to know that there are some tax incentives along the way.

So if your’re hard, if youre budget allows for you to do that, I say go for it.

But since you're here, definitely be conscious of the different tax consequences that's out there and knowing that it might change to a different administration, so.

- Yeah.

Okay.

So I have a friend that decided to take a chunk of money and put it on a house and then rent the house and then take the proceeds, and over 8 or 10, 15 years, after the house has paid off and then after 18 years, or whatever that winds up to be, they would sell the house and use the proceeds to fund these kind of outlier opportunities for saving.

Do you see those out there, like do you recommend them or do you have to inspect them first to for I think, yeah, that sounds like a good idea.

Or how do you like, how do you evaluate?

- Oh, interesting.

I'm not against it.

I like the outliers, I love— I mean, you got to be creative also.

And I don't think you should put your eggs all in one basket, so I love that idea of what your friend is doing, would I still fund a 529 plan?

Probably so for my kid, but I would also get into something like that too.

It just depends on what your budget is.

But I do like that idea.

And I think with different things like that, especially when you're dealing with real estate, it could be a little tricky, but it can also be consistent income also.

So just like you make consistent income from other business or investments, I think real estate can be very beneficial.

Take the money that might be the excess from after paying the bills and put it into 529 and save.

And then I know this friend of mine is also hoping that their daughter will also attend the school that's on the campus of where this house is.

- Oh, yeah.

- So she’ll live there and then.

- Yes.

And then you can put the money.

Well, the house is already paid off.

But if she, if they set up like a rent, she can then take money out her 529 plan and pay rent for the house.

So and get the money back out of the 529 plan tax free, so.

- Any other outliers?

I know I'm putting you on the spot here.

- Let's see.

I mean, I definitely think you got to be creative.

So some things that I've done personally to make more funding available for me to be able to invest is early.

I mean, honestly, like ten years ago.

So I started Savvy Girl Money 11 years ago next month.

So in October when this will come out.

So ten years ago, I started a jewelry company just so I could have additional money to save and invest.

So I think you just have to be creative, especially when you have a goal.

I think you have to do whatever you have to do to accomplish that goal.

So I sold jewelry, your friend, he has the idea of a house.

So if somebody has to pick up extra shifts so a nurse can do this or an electrician, anybody, you could pick up an extra shift and say, okay, every time I pick up an extra shift on a Saturday, that money goes into my child’s 529 plan.

I think that's an amazing idea.

I did it with the jewelry business ten years ago, and I still look for extra ways to save and invest for, not only first funding my retirement, but I make sure I always put things into my child's 529 plan, so.

- Yeah, looking ahead.

Perception over reality.

My perception is that if a child knows that there's money, that kind of the end of the rainbow, they're, they live perhaps taking more chances.

They know that there's an opportunity to go to college, and so maybe they're preprogrammed to know that there will, they'll go to to some after high school education opportunity.

My question is, is that the reality?

Does a child more likely to use that money knowing that it's there more likely to go to a college or a trade school or wherever because the funds are there.

Or do you not see the the correlation?

- I think honestly, I feel like it increases the chances, but there is not a guarantee.

But I think for families who make college conversations like a normal part of their household, where they talk about how they want to college in their experiences, what that led to, the benefits, I think, of families because you make it a part of their normal household process and always get kids excited about the idea of college.

It then leads to a even greater chance.

And but they also have to bring the kids into the conversation about the 529 plan.

So not only encourage college, but make sure you're telling them about, oh my God, your 529 plan has went up 5% since last year.

With my 13 year old, I am showing her her 529 plan.

I'm showing her her brokerage account so that she not only knows that this money is here and we go on college tours.

So if I go to, let's just say a, I'm teaching a class at Tri-C.

I'm taking my 13 year old with me.

She has went to the Kent campus when I spoke there.

University of Akron.

So I'm showing her different colleges in a way to get her excited, not pushing it on her, but like, hey, look, with these opportunities they lead to look at these other beautiful colleges.

But I also want to show you the funds, the income I have available if you select this different option.

So I think it's important to make it a part of the household, different conversations so that they can get excited about it.

- Difficult question, but put your looking glasses on and again, take us ten years into the future.

What will the landscape of saving for an education look like?

Can you predict it?

If you can predict it?

Or is there anything you should do today to, you know, best situate yourself for what's going to happen in the future?

A lot of questions there, but can you sort that out for us.

- I think just seeing how far we have came in the last ten years and looking forward for the next two years, one thing we can guarantee is that the cost of college is going to increase.

So if you do want to encourage kids, your kids to go to school, I encourage you to start small and start making consistent monthly payments, because the cost of college is going to continue to rise.

But I also think, and that's typically for a traditional four year school.

But I do think that there is going to be more flexibilities and opportunities for trade schools.

And your child to get certification.

So what then in next ten years, more is going to, more opportunities are going to open up where they don't necessarily have to go.

But I'm going to continue to encourage my kids to go to the traditional four year school, but just let them also know that there is other opportunities, because I think there are those other opportunities, along with a four year college, are just going to open up more options for our kids.

- Yeah.

- Yeah.

I mean, there are certain kids that are not cut out for college and maybe not cut out for trade school, but need a skill, want a skill.

And yeah, hope is of course that the 529 is already of the new opportunities if there are will accommodate all different types of kids that now will be pursuing any path, even including maybe taking and trying to start your own business, and use that 529.

I mean, I guess you can’t use a 529 for that, but.

- Hopefully have a new administration and within these next years will give kids the opportunity because you are seeing an increase in entrepreneurship and the interest there.

And hopefully, we'll have to wait and see.

- Yeah.

- Yeah.

Thank you very much.

Saving for a child's education is more than just putting money away.

It's investing in their dreams and giving them more options for their future.

It's never too late to start.

But the important thing is to get started.

I would like to thank my guest A’Shira Nelson, CPA and director of Quality Assurance and Training at Wellspring Family Office, for the visit today and ask each of you to keep your eyes, ears and minds wide open.

Until next time on Forum 360.

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