Thoughts before Funding a 529 Plan

Roxanne Alexander

Roxanne Alexander, CAIA, CFP®, AIF®, ADPA® Senior Financial Advisor

The new tax law was amended to allow tax-free distributions of up to $10,000 per year from a 529 plan for elementary and high school costs starting in 2018. This is an added benefit and can be an advantageous tax break for parents starting to save for their young child’s education.

College costs have outpaced inflation. According to The College Board®, the average 2014-2015 tuition increase was 3.7 percent at private colleges and 2.9 percent at public universities. However, looking back at the last decade, the 10-year historical rate of increase has been approximately 5 percent.

529 Basics — Opening a regular savings account/custodial account for your child is an option, but this comes without the benefits of a 529 plan such as the tax-free growth on earnings if the funds are used for qualified college expenses. Deposits to a 529 plan up to $15,000 per individual per year ($30,000 for married couples filing jointly) will qualify for the annual gift tax exclusion (for 2018). You can also front-load your investment in a 529 plan with $75,000 ($150,000 if joint with your spouse) and use this toward your gift tax exemption for five years providing there have been no other gifts to that child — this is not possible for a regular savings/custodial account for your child (you would only be able to gift $30K jointly). By adding a large amount up front, you allow the lump sum to grow over a longer time horizon vs. making smaller contributions over time. Contributions to a 529 plan do not have to be reported on your federal tax return.

Contributions to a 529 plan are not tax deductible (although some states do offer tax benefits), but the earnings grow tax free and are not taxed if used to pay for education. Another advantage compared to a custodial account is control; the named beneficiary has no legal rights to the funds, so you can ensure the money will be used for education.

A 529 account owned by someone other than the parent (such as a grandparent) is not considered an asset for financial aid purposes. Also, the value of a 529 account is removed from your taxable estate, yet you retain full control over the account.

How to choose a 529 plan? Research the underlying expenses of the mutual funds and review the investment options available compared to other plans. The age-based models may be the easiest to manage as the plan shifts to more conservative investments as the student gets closer to college age. You can choose any state plan no matter where you live, but if you reside in a state that provides tax breaks for using your state plan, you would likely want to start there. For example, New York residents get tax benefits for using their state plan. Keep in mind that you have the ability to move your 529 to another provider, but only one rollover is permitted per twelve-month period.

How much to fund? The amount to contribute to a 529 plan depends on several assumptions such as whether your child will attend a public college or a private college, the returns during the investment time horizon, and future college inflation. Funding varies widely depending on what you would like to achieve and the assumptions involved — and of course there is no right answer. If the beneficiary does not go to college, you can transfer the 529 plan to a sibling in the future or to another family member such as a cousin or grandchild. If you don’t have any eligible family members, the worst-case scenario is that you would have to pay tax and a 10% penalty on the earnings to take the money out for another purpose. Withdrawals from a 529 plan that are not used for the beneficiary’s qualified education expenses are taxed and penalized (subject to a 10 percent federal penalty and taxed at the income tax rate of the person who receives the withdrawal). If the beneficiary gets a scholarship, then the penalty is waived.

Avoid overfunding the 529 if possible as “qualified education expenses” do not cover all expenses related to college. Qualified expenses include tuition, on-campus room and board, books and supplies, computers, and related equipment. It may also make sense to save otherwise for expenses such as travel, cars/transportation costs, insurance, sports or club dues, and off-campus housing, etc., which are not considered qualified expenses but can easily add up.

Considerations if you have more than one child — If you have several children, it may make sense to fully fund the first plan for the oldest child and if the funds are not used, they can be transferred to the next child in line. You probably want to avoid fully funding all the plans in the event one child does not end up going to college, gets a scholarship, or starts a business. Some schools and some trade schools/programs do not qualify for 529 funds (for example, if a grandchild wants to go to a specific acting or cooking school). You can find out if your school qualifies by using this link:

Feel free to contact Roxanne Alexander with any questions by phone 305.448.8882 ext. 236 or email:


What You Need to Know About CDs

Kristin Fang

Danqin (Kristin) Fang, CFA, CFP® Financial Advisor

What is a CD and what do CDs provide?

As explained by Investopedia, “A certificate of deposit (CD) is a savings certificate with a fixed maturity date and a specified fixed interest rate, and can be issued in any denomination aside from minimum investment requirements.” CD maturity terms vary from one month to five years or even ten years with different interest rates determined by both the market interest rate and the maturity terms. The longer the term is, the higher the rate is. Additionally, there is usually a $1,000 minimum required for most CDs available on the market, and a CD with a greater than $100,000 minimum is known as a jumbo CD, accompanied by a higher interest rate for the same specified term. All CDs are FDIC insured up to $250,000 per account registration.

What is the difference between a Brokered CD and a Bank CD?

CDs issued directly by depositary banks are called bank CDs, while CDs offered by brokerage institutions are called brokered CDs. The brokered CDs are bulks of CDs bought by the brokerage firms, such as Charles Schwab or Fidelity Investments, and then re-sold to investors after slicing and repacking. The advantage of owning brokered CDs is diversification because you can buy different bank CDs from one brokerage firm and see the values and due dates all listed on one aggregated brokerage statement. This also helps you to track all your CDs easily. However, the disadvantage is the additional risk associated with owning CDs from banks that go under. Also, when buying brokered CDs, it is prudent to net the brokerage fees, although de minims in most cases, off their higher nominal interest rates when comparing them to the interest rates offered by bank CDs.

What is an Early Withdrawal Penalty?

With CD investments, you are restricted from withdrawing your funds before the maturity date unless you pay a penalty. The penalty usually takes up a few months’ worth of interest, depending on the issuing institution. This allows you to redeem your CDs before their maturity and opens the door to a more sophisticated CD investing strategy to be introduced next. Sometimes paying the penalty has a better outcome.

Advanced CD Investing Strategy

Regardless of the investment time horizon for your cash, you buy a five-year CD. Should the interest rate increase the following year, you’d then weigh your early withdrawal penalty against your interest income earned in the first year. If paying the penalty is the better option, then withdraw your entire CD portfolio and buy into a new five-year CD that offers a higher interest rate either from the same bank or from a different provider. In order to make this strategy work, a careful investigation of the early withdrawal penalty rules is key. Based on my research experience, some banks charge a lower early withdrawal penalty than others, for example, 180 days’ worth of simple interest versus 540 days’ worth of simple interest for a five-year CD. Let’s look at an example here:

You have $100,000 to invest for one year and are comparing a one-year CD offering 1% APR and a five-year CD offering 3% APR from the same bank. The early withdrawal penalty is 180 days’ worth of simple interest on the five-year CD.

Scenario 1: If you choose to invest in the one-year CD, your interest income after one year will be approximately $1,000 (1% multiplied by $100,000, to simplify the math from daily compounding to a simple interest calculation).

Scenario 2: Instead, if you choose to invest in the five-year CD, after one year, your gross interest income before paying the penalty will be approximately $3,000 (3% multiplied by $100,000), but you will need to pay approximately $1,480 ($3,000 gross interest divided by 365 days and then multiplied by 180 days) in early withdrawal penalty, which is equivalent to 180 days’ worth of simple interest, in order to redeem your five-year CD before its maturity date. This will net you approximately $1,520 in interest income ($3,000 gross interest income minus the $1,480 early withdrawal penalty), which is $520 more in interest income compared to Scenario 1. Clearly, with the additional $520 net interest income pocketed in Scenario 2, you are better off to invest in the five-year CD and pay the penalty at withdrawal in one year.

Below is a chart summarizing both scenarios:

CD Blog Picture

Caveat of using this strategy:

Please keep in mind that the outcome of this strategy depends heavily on the interest rates offered and the early withdrawal penalty levied by each bank. A prudent approach is to run the math thoroughly before taking any action, because banks adjust their CD rates periodically. For questions, please feel free to contact us at Evensky & Katz / Foldes Financial Wealth Management.

Feel free to contact Danqin (Kristin) Fang with any questions by phone 305.448.8882 ext. 222 or email:

Homework for Kids… and for Adults

Brett Horowitz

Brett Horowitz, CFP®, AIF® Principal, Wealth Manager

With school years flying by for children, it’s a good time for parents and grandparents to begin thinking about planning for college expenses. It is especially important to begin saving for college as early as possible to allow for investment returns to compound over time. Whether you are the parent or grandparent of a child, future college expenses will likely be quite shocking when compared to past and current expenses. According to the College Board, for the 2015-2016 academic year, in-state tuition and fees increased 2.4% for public four-year institutions and 3.6% for private four-year institutions. Over the past 10 years tuition and fees for public four-year institutions have increased by 35%! Now that I have your attention, let’s focus on your homework.

  1. Help me open an account

One of the most advantageous ways to save for college is through a 529 College Savings Plan account.  These accounts can be set-up so that they are considered an asset of the parent or grandparent and grow tax-deferred. Even better, as an asset of the parent or grandparent, only 5.65% of the value counts against financial aid (this compares to 35% if the child has a UTMA/UGMA account). Investment options differ for each plan, including some that offer age-based plans that automatically reduce the equity allocation and increase the fixed income allocation as the child gets closer to school age. For instance, when the child is five years old the account may be invested 100% in a stock fund.  It will gradually get more conservative until it ultimately ends up 100% invested in bond and money market funds when the child turns 18. When the child reaches college age, withdrawals are tax-free if used for qualified education expenses.

  1. Choosing the right plan

Now that you have decided to put money aside for college expenses you want to select a 529 Plan account.  Sounds easy, right? Not exactly. Each state offers its own plan and many offer multiple plans ( lists 112 plans on their website). The good news is that your choice of a plan is not affected by your residence or the state in which you expect your child to attend college. You can be a California resident, invest in a Vermont plan and send your child to college in Nevada. However, before you go opening any old account, you may want to consider the following:

  • Is there a state resident benefit? Some states offer tax incentives such as credits on your state tax return or a match on your contributions to encourage you to use their plan.
  • Who is the program manager? What investment options are offered? What are the respective fees? Some plans use funds with higher than average fees or charge an annual account maintenance fee. Others have poor investment choices, such as the absence of an international stock allocation.
  • What are the minimum and maximum contributions allowed? If you don’t plan on making a sizeable contribution up-front, but instead intend to add money over time, it’s important to check the initial contribution limits. Conversely, if you are trying to set aside as much money as possible, you’ll need to know the maximum contribution limits.
  1. Making contributions

Speaking of contributions, annual gifting rules allow you to give any one person $14,000 ($28,000 if you elect to split the gift between you and your spouse). Thus, if you have ten grandchildren, you could open up ten accounts and deposit $14,000 ($28,000 if married) into each account for a total of $140,000 ($280,000 if you are married). You are allowed to make this annual contribution without using a portion of your gift and estate tax exclusion amounts. The IRS permits each individual to increase gifting into 529 Plans by front-loading five years of gifting for each child and contributing $70,000 ($14,000 per year x 5 years) at once. In such a situation, no further gifting to the same child is allowed without tax consequences for the next five year period. We would recommend that you check with your accountant prior to making any decisions regarding the amount you wish to contribute.

  1. The looking glass

You may be asking, “How do I know if my child or grandchild will go to college 10-20 years down the road? What if there is money left over at the end of college? What if I need the money back?” There’s good news for you. Most plans allow you to change the beneficiary on the account to another related family member. So, if your son decides to become an entrepreneur at the age of 18 and skip college, you can always transfer the assets into your daughter’s, cousin’s, or grandchild’s name. Likewise, if the child gets a scholarship to a prestigious college and only needs half the money, you can take a penalty-free withdrawal, use it for their graduate school expenses or you can always transfer the balance to another family member’s account. And since the account is in your name, you maintain control of the funds and can reclaim them any time you desire. There is a 10% penalty on the earnings (not the principal contributions) for non-qualified distributions, but this is waived if the beneficiary has died or become disabled. As a result, you can make contributions and remove these assets from your estate, and then take them back if needed – this is the only strategy that allows you to do this!

If you are considering putting money away for someone’s future education expenses, the flexibility of a 529 Savings Plan account makes a lot of sense. At Evensky & Katz/Foldes Financial, we continually review and research the plans available in order to assist our clients in making an appropriate choice. As always, if you or someone you know would like to contact us on this topic, we’d be happy to speak with them.

Feel free to contact Brett Horowitz with any questions by phone: 305.448.8882 ext.216 or email:

A Baby Changes Everything – Part 1


Anne Bednarz, CFP®, AIF® Financial Advisor

There is no greater joy than finding out that either you or a loved one is expecting to bring a new little baby into the world. It can bring a flood of emotions, from excitement to terror of not knowing what’s to come, but being prepared is a good first step.

I created a checklist to prepare new parents on the issues they will encounter along the way that may not be as obvious as cribs, car seats, and other items needed to care for a new baby. This is not an exhaustive checklist; everyone’s situation is different, but I hope to capture the general idea of things to consider prior to baby’s arrival. Feel free to use the checklist and make it your own along your expectant path. This checklist can also be used for families who adopt with a few minor edits. I have included an image of the checklist in the post, but there is a link for a printable version as well.


While most of this post is for someone who is already pregnant, I’ll digress momentarily — the first topic is for someone who’s planning to be pregnant in the near future.


The most recent edit I have made to our expecting checklist is the topic of short-term disability insurance. If you don’t have short-term disability prior to becoming pregnant, that does not mean that you are unable to purchase a policy; however, any disability or unpaid time from work would not be covered for the existing pregnancy, as it is considered a “pre-existing” condition. However, any subsequent pregnancy would be covered after your nine- to twelve-month window, depending on the policy.

Disclaimer: not all short-term disability policies cover pregnancy/maternity leave, and it would only apply to mothers who give birth; short-term disability policies will not cover leave for parents who adopt.


Expecting — Back to Already Being Pregnant.

I’m a planner by profession and highly encourage all expectant parents to review the checklist below.

  1. You have more time with fewer interruptions before the baby arrives, especially if this is your first child.
  2. The sooner you can get a plan, the better.Life Changing Event Checklist - Expecting A New Baby - Both PagesClick here to view the checklist in a printable format. 

    The checklist is generally self-explanatory; however, there are a few points that I want to address in a little more depth.

    Adequate Emergency Fund

    Depending on your employer and family situation, your emergency fund may differ from the general rules of thumb of enough to pay for either three or six months of expenses. It depends on your employer and how its maternity/paternity/family leave policy works.

    • Are you covered by short-term disability while at home with the baby?
      • What is the elimination period prior to benefits being paid?
      • How long will benefits last?
      • What percentage of your income will be paid?
    • For working parents…
      • Do you need to use paid-time-off (PTO), vacation, or sick days?
      • Will your time at home with your baby be unpaid family leave?

    Expected Increase of Expenses per Month — A Few Items

    • Medical expenses for prenatal care and labor/delivery.
      • You can discuss this with your doctor’s office and the care facilities to determine what type of payment options they have.
    • Diapers — start stockpiling in advance.
    • Formula/Breastfeeding Supplies
    • Child Care

    Childcare Options

    This is unique to each person and how you view child care or if it will be needed. I highly recommend that you starting looking into child care at least four to six months in advance of the baby’s arrival.

    Many facilities have a waiting list that can be several months long. This will be the place that your child spends the majority of his or her waking hours; you need to be comfortable with the facility and the type of care that is provided to your child.

    Make an appointment to meet with the right personnel for your initial meeting. Bring a list of questions or concerns you have regarding the care of your child and how different situations would be addressed. I also encourage you to stop by without an appointment to see how the facility operates daily.

    Licensed care facilities are monitored by the state to ensure they are in compliance with the rules and regulations of the state. In Texas, the Department of Family and Protective Services website is where violations are reported and monitored.

    General Guidelines

    Discuss with your employer, human resources department, or supervisor your upcoming arrival. It is better to give everyone adequate notice of the new baby, so plans can be made and other colleagues can be trained to cover your responsibilities while you are out with your baby. Know what the policy for maternity/paternal/family leave is and what is required of you prior to taking your leave. Also, if your employer falls under the Family Medical Leave Act, know what type of protection that provides you and your job.


    There are a number of things that should be planned for prior to your baby’s arrival; however, relax and enjoy this time too. Seek out others who have prepared for a new baby. Family and friends are always happy to give insight, sometimes more than is wanted, but know they are eager to help make the transition a little smoother. If you are not sure whom to ask, feel free to contact me; I have children myself and will be expanding my family by one more in February. I will have another post and checklist in a couple of weeks for what to do after baby’s arrival.

    If you have any questions/comments, please feel free to reach out to me at 806-747-7995 or

Just turned 30? Don’t place saving for retirement on the back burner


Katherine Sojo, CFP® Financial Advisor

You are in your 30s and it is just scary…

At this point in your life, you hopefully are a little more put together than you were in your 20s. Your career path is not as foggy and blurry as it was in your 20s and your bank account is not as lifeless as it used to be. Many people in their 30s begin to make major life decisions around this time, whether it is taking out a mortgage on your first home, planning a wedding or having children — all of which are excessively and unreasonably expensive! Your 30s bring along all those grown-up things you wished you were able to do at 13 when your parents would always say, “Enjoy your childhood; growing up is a trap!” The joke is on us now! Most people are not thinking about retirement when they are in their 30s, and it’s a pretty big mistake. It is important to start planning and saving as early as possible for this goal. Every cent you stash away now will grow in a tremendous way, all thanks to compounding interest.

It’s time to start asking some serious questions. For example, what type of lifestyle do you want to maintain during retirement? How much do you need to have at retirement to maintain that lifestyle? At what age do you want to retire? There are online tools available to consumers that offer free advice to help answer these questions, but these tools are generally not reliable. Harold Evensky, founder of Evensky & Katz / Foldes Financial Wealth Management, presented an academic study involving 36 online retirement tools and found that in the attempt to keep the tools simple, they actually destroyed the legitimacy of the conclusions. The tool we use is called MoneyGuide Pro, a robust program that requires time spent answering personal questions such as family longevity, personal health, 401k savings, Social Security, expenses and much more. Our tool gives us the capacity to help with major life choices such as buying versus renting, how much you should actually spend on that wedding, etc. These results are a road map and are not to be interpreted as an absolute answer, since many assumptions are used.

The next step is to decide which retirement vehicle will help you best accomplish your retirement goals. First look to your employer and make sure you are participating in your employer-provided 401k if one is available. If you have the financial ability to maximize your contributions, do it! The max contribution limit for 2016 is $18,000. If not, at least make sure you are contributing the amount necessary to receive the employer match. Think of the employer match as “free money.” It is also important to increase, gradually, your contribution percentage over time and eventually begin saving, as a good rule of thumb, between 10% and 15% of your salary.

After you have exhausted your employer-provided options or in the event your employer does not offer a retirement plan, begin saving outside of work in an Individual Retirement Account (IRA). There are two types of IRAs.

  1. Traditional IRA: This type of account generally uses pre-tax funds and allows a contribution limit of $5,500 for 2016. The contributions made to an IRA, depending on your current circumstances, may be fully deductible on your tax return. Additionally, these assets are tax-deferred until the time of distribution, typically after age 59½.
  2. Roth IRA: This type of account uses after-tax funds, which means you have already paid taxes on the money you are putting away but the earnings grow tax-free. The contribution limit for a Roth IRA is $5,500 for 2016. You are not required to cash out a Roth IRA at any time, unlike a traditional IRA from which you must begin distributions by age 70½.

Deciding between a Traditional IRA and a Roth IRA can be a bit tricky, but consider a couple of factors before making a decision. For instance, if you are in a low tax bracket, a Roth IRA is beneficial since you pay taxes on the funds now at a lower rate and the earnings are tax free. If you are currently in a high tax bracket, but expect to be in a lower tax bracket during retirement, then a Traditional IRA is beneficial since the money will be taxed at a lower rate at the time of distribution. Both the Traditional IRA and the Roth IRA have phase outs based on income limits, and depending on where you fall within these limits one may be better than the other. We work closely with our client’s CPA and have our own tax resources to help a client decide on the best option to meet their retirement needs.

Once the best retirement vehicle has been decided on, it’s time to begin thinking about investing your retirement money prudently and efficiently. This may be the right time to speak to a Certified Financial Planner in order to evaluate your risk tolerance levels and analyze your financial health. There is no rule of thumb for investing. Just because you fall into the same age group as others does not mean you should have the same investment allocation. Every person is different and some may prefer more risk (i.e., more potential growth). Others may not be able to tolerate market movement and would prefer a more conservative allocation (i.e., preserving capital and keeping up with inflation). Asset allocations are tailor-made to fit your time horizon, your investment profile and your risk tolerance levels.

Now is the time to learn about setting goals and investing in your financial future. Your 30s are the make it or break it years; let’s make sure you make it!

Feel free to contact Katherine Sojo with any questions by phone 305.448.8882 ext. 243 or email: 

Don’t hesitate: Invest in your child’s future today!


Katherine Sojo, CFP® Financial Advisor

Did you know that in 2015 it cost $25,400 for a student to attend college? According to the National Center for Education Statistics, this was the average annual cost including tuition, fees and room and board for a four-year university. College tuition is said to inflate approximately 6% per year; this means a college student who paid $25,400 for an academic year in 2015 would pay $45,400 in ten years for his or her first year of college for the same education. Unbelievable! How is a college student expected to come up with this kind of money? Sadly, colleges don’t care. It is up to you, as the parent, to make sure your 18-year-old heading off to college is doing so with a decent portion of his or her expenses covered.

Some people have the mindset of, “I worked hard my entire life and so should my children!” I agree 100%; hard work builds good character and appreciation. However, the amount of student loan debt college students are walking out with is outrageous and barely gives anyone a fighting chance. You are immediately drowning before you even land your first interview out of college. Based on information from the Consumer Financial Protection Bureau, the U.S. is carrying a whopping $1.2 trillion in federally-backed educational debt.  Why not give yourself and your child the peace of mind of not adding to this number, or at least not adding substantially, because you have successfully and tactically planned ahead? According to an educational clock developed for Marketwatch, the nation’s outstanding balance of student loans is growing by $2,700 every SECOND. Currently, 70% of college graduates carry student loan debt, and only 37% of borrowers are actually paying down their loans. If your child is part of the 70% of students with debt, you can absolutely believe it will be a burden to carry when attempting to purchase a home or finance a car, since any income they do have will largely be going toward student loan payments. It also hinders their ability to save appropriately toward a retirement plan. As a basic rule of thumb, if you are between the ages of 25 and 35 the savings rate toward retirement as a percentage of your gross income should be 10-13%. This savings rate becomes very difficult to achieve if you have a $300 monthly student loan payment.

The key is to start saving as early as possible toward your child’s education. Make saving for college a top priority. The best place to start is asking “How much can I reasonably save toward my child’s education without risking the success of my financial plan?” We have the planning tools to help our clients answer this question by incorporating the client’s resources, financial goals, and risk tolerance to generate a potential scenario for financial success. The goal is to assist your child through college and minimize the amount of student debt he or she takes on. There are several vehicles used to save for college, such as:

State Prepaid Tuition Plan: This plan is sponsored by the state you live in, and allows the purchase of college credits now for use when your child attends college. The owner does not share in the future risk of increased college tuition, but there is no growth component with this plan. This plan is designed to simply cover tuition expenses only. If the credits are used toward college expenses, there are no income tax consequences. This plan usually limits your child to attend in-state schools only. In the event your child decides to go out of state, or you decide to cancel the plan, you will generally receive what you paid initially minus administrative expenses.

College Savings Plans, commonly known as 529 Savings Plans: These plans allow you tax-deferred college savings for any eligible college in the country, and you can open one of these plans in any state regardless of where you reside in the U.S. If the funds are used for qualified education expenses (tuition, fees, books, room and board), they are tax free. This type of plan can be used to benefit anyone, a niece, nephew, friend, etc. The owner of the plan can change the beneficiary at any time, avoiding gift tax consequences as long as it is rolled over to a family member. Contributions can be made up to $14,000 a year per person to avoid any gift taxes or one can accelerate five years of gifting for a total of $70,000. Different from the State Prepaid Tuition Plan, a 529 plan can be invested in the market and has the potential of growing beyond the actual college costs. If you live in a state with state income tax, we recommend you look into your state’s 529 options since tax credits may be available. If you live in a state with no state income tax, we recommend the use of the Nevada Vanguard aggressive age-based 529 plan. Every couple of years our firm reviews all available plans to search for the one with the best combination of top investment options, lowest fees, and tax savings.

Coverdell Education Savings Account (ESA): This is a regular savings account that is setup to pay the education expenses of the designated beneficiary. This option actually qualifies for higher education, elementary, and/or secondary educational expenses as well. It is the only option out of the three listed that has this unique feature. Any distributions made for qualified education expenses are tax free. This savings vehicle must be established before the age of 18, and the total annual contribution cannot exceed $2,000 per beneficiary. This vehicle limits contributions up to the age of 18. There is also an income phase-out based on the taxpayer’s Modified Adjusted Gross Income (MAGI). For 2016 the MAGI for married couples is $190,000 to $220,000 and for others $95,000 to $110,000. The assets in a Coverdell ESA must be distributed by the time the beneficiary turns 30.

The takeaways are: first, determine how much you can reasonably save toward this goal. Second, make a plan to fund this goal, and last, choose the right savings vehicle for you and your child. You are helping your child leave college debt free or close to it and they can become financially independent sooner — all thanks to your smart planning!

Feel free to contact Katherine Sojo with any questions by phone 305.448.8882 ext. 243 or email: 

529 ABLE Plans


David L. Garcia, CPA, CFP®, ADPA® Principal, Wealth Manager

529 ABLE plans are accounts that can be used to provide for a disabled beneficiary and can be a low-cost alternative to a special needs trust. A 529 ABLE plan is similar to an education 529 plan in that earnings on the contributions are tax deferred and tax free when withdrawn to pay for qualified expenses for an eligible individual. These plans are still in the IRS/Treasury regulation stages and there is no set timeline as to when this plan type will be available. The Treasury Department needs to issue regulations to define the details of the account, which was supposed to take place during the second half of 2015. From there, each state must approve the program or arrange with another state to serve its residents. Officials in Nebraska, Virginia, and Florida say they plan to make 529 ABLE accounts available in the second half of 2016. The account owner will be able to choose from the plan’s investment options, which are expected to include money-market funds and stock and bond mutual funds.

Some advantages to these accounts are that qualifying expenses include a range of possibilities such as education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, among many other approved expenses. As you can see, this covers almost any expense related to the beneficiary.

A 529 ABLE plan will have no impact on Medicaid eligibility and is afforded asset protection against bankruptcy claims. They are also easier and less expensive to set up and maintain than a special needs trust. An individual with a disability can work and maintain a 529 ABLE plan as long as the individual meets the definition of disability and is engaged in substantial gainful activity.

There are some important disadvantages to these accounts, such as that a designated beneficiary is limited to having only one 529 ABLE plan. However, a tax law was recently passed so eligible 529 ABLE account holders will be free to select a plan sponsored by any state, rather than being restricted to their home state’s plan. Also, the annual contribution limit is $14K total, which is significantly less than what can be put in a trust. There are also tax penalties imposed on both non-qualifying account distributions and excess account contributions. If an excess contribution to a 529 ABLE account is not withdrawn, the account owner will be assessed a 6 percent excise tax, and SSI benefits are suspended whenever the 529 ABLE plan assets exceed $100,000. However, benefits will resume once plan assets fall back to $100,000 or less. Upon the death of the designated beneficiary, the state will have a creditor claim for the repayment of any net medical assistance received from Medicaid after the establishment of the account.

For those who can afford to fund a special needs trust, deciding whether to use a trust or a 529 ABLE plan or a combination of the two can be complicated. Special needs trusts have associated set-up and ongoing costs. They often don’t make sense unless there is a larger amount of funds to invest. With trusts, investment gains are taxable, but you can make unlimited contributions without affecting a beneficiary’s eligibility for government benefits.

It is advisable to discuss with your attorney and CPA which option may be a better choice for your unique situation.

Feel free to contact David L. Garcia with any questions by phone 305.448.8882 ext. 224 or email: