Education Planning Archives

Keeping Things Rolling

March 8, 2023

As a mom of young children and a CERTIFIED FINANCIAL PLANNER™, a thought that’s always at the front of my mind is how to best set my children up for their futures, especially in regards to their education. Before my kids were walking, they all had a savings account. Personally, my husband and I selected 529 college savings accounts. A 529 plan boasts plenty of advantages: tax free growth, tax-free withdraws for qualifying educational expenses, and high contributions limits just to name a few.

The one catch is the term qualifying educational expenses. If you’re a fellow parent, you know that no two children are the same and trying to assume the educational path of a babbling toddler can be tricky. If you do decide to invest for your child in a 529 plan and your child ends up only needing part or none of the funds you’ve saved, you are left with few options on how use these funds without being subject to a 10% penalty and paying taxes on the earnings. Luckily, recent legislation under the SECURE Act 2.0 may have provided parents a backup plan for leftover 529 funds by way of a rollover into a Roth IRA. Of course, this won’t come without a hefty list of stipulations to do so.

When this rule within the SECURE Act 2.0 goes into effect in 2024, unused funds have the option to be rolled into a Roth as long as: the 529 plan has been opened at least 15 years, the Roth IRA receiving the funds is in the same name as the 529 beneficiary, and the beneficiary has earned income at least equal to the amount being transferred. The Act goes on to state that the current lifetime transfer limit is set at $35,000, the annual transfer limit is the annual Roth IRA contribution limit, and only contributions and earnings made more than five years ago can be transferred.

If that sounds like a lot of hoops to jump through, it’s probably because it is. But a few extra hoops could result in setting your child up for success far beyond their (potential) college years. Similar to a 529 plan, all growth within a Roth IRA is tax-free for qualified distributions. With a 529 rollover into a Roth IRA, the funds for one child could essentially receive tax free growth for decades.

Here’s an example: Bob and Sue have a child, Grace, in 2023. They open a 529 savings account and begin to contribute monthly. They stick to their goals and in 2041 when Grace reaches age 18 they have saved $200,000. Grace receives a scholarship to cover her first two years’ worth of tuition. Bob and Sue realize they are going to have an overfunded 529 plan. Grace had a part time job at 18 and continued it throughout her college career. Because of this, Bob and Sue are able to rollover the maximum Roth contribution amount of $6,500 each year that Grace has earned income from the overfunded 529 into a Roth IRA for Grace. Within six years, Bob and Sue have reach the maximum 529 to Roth rollover amount of $35,000 for Grace. If Grace doesn’t touch this account until she reached age 59 ½ and receives a 5% annualized return, her Roth IRA, started from funds when she was just a baby, would be worth approximately $190,000 and without ever paying taxes on the growth. This won’t fund Grace’s retirement, but definitely is a great gift started by her parents almost 60 years prior!

With that being said, does legislation mean that everyone should run to put funds into 529’s with the thought of rolling them into Roth IRAs in fifteen years? No, probably not. Is there potential value to be added under this new regulation? Absolutely. The reality is that both 529s and Roth IRAs could have a place in your child’s financial future. Navigating education funding and planning for the next generation should be handled on personalized level, not a one size fits all box. Work with a CFP® professional to learn what options work best for you and your family.

Published in the Victoria Advocate

Sara Potts is a CFP® Professional and Operations Manager with KMH Wealth Management, LLC

Up in the Air – One-Time Student Loan Forgiveness Program

January 11, 2023

In March of 2020, I was in my final semester of graduate school, preparing for midterms and anticipating what I had hoped to be a relaxing spring break. At this point, there were only small rumblings about the Coronavirus disease. I left campus for spring break, eager to return in a week to finish my graduate courses, walk the stage in May, and receive my diploma. My spring break was extended for a week, then my classes transitioned to fully remote, and I never returned to university again.

As a result of the COVID-19 pandemic and the undoubtedly strange, unpredictable times it brought, President Trump ordered that federal student loans were to be placed in forbearance as of March 2020. Meaning, federal student loan borrowers were permitted to skip payments, and the interest rates on the loans were adjusted to zero percent. More recently, President Biden announced a federal student loan forgiveness program that allows individuals up to $10,000 in forgiveness on federally owned student debt (up to $20,000 for those with a Pell Grant), provided individuals meet the income requirements. Consequentially, lawsuits have been filed that threaten to block the forgiveness program, and as a result, the White House has further extended the loan payment pause. Meanwhile, the lawsuits head to the Supreme Court.

The Biden Administration is set to duke out the legality of the student loan forgiveness program in court in early 2023. Over the last three years, many borrowers have halted payments on their student loans and have become acclimated to not making the payment, while a reality check looms on the horizon. Loan repayment is scheduled to resume this year. It has been announced that borrowers can expect to resume payments 60 days after a Supreme Court ruling or June 30, 2023 – whichever comes first.

During the forbearance period, borrowers can choose to make voluntary payments towards their student loan balance in an effort to directly reduce the principal and take advantage of zero percent interest. A lower principal balance means less interest will accrue, providing significant cost savings and the ability to pay off the student loan faster. If borrowers have not been making payments on their student loans during the forbearance period, it is not too late to start fitting it back into the budget to avoid financial stress later.

Borrowers can also review their repayment plan options. Federal student loans have several options for income-driven repayment (IDR) plans. IDR plans fix monthly student payments at an amount that is intended to be affordable based on borrowers income and family size. This repayment option typically requires borrowers to pay 10% of their discretionary income each month towards their loan. Discretionary income is the amount left over after paying for vital life needs, such as housing and groceries. In the details of President Biden’s loan forgiveness program (not so headline-worthy when directly compared to loan forgiveness) is the proposed changes to the IDR calculation that could potentially reduce repayment terms and lower the 10% discretionary income threshold; however, final regulations that provide thorough details on the IDR calculation have yet to be released.

COVID-19 brought uncertain times for those with student debt. It still remains unclear how President Biden’s loan forgiveness plan will impact borrowers’ wallets, as the proposal remains in legal limbo. Borrowers should remain diligent by staying up-to-date on developments, budgeting for resuming payments, and reviewing their repayment options, like IDR plans.

Published in the Victoria Advocate

Carlee H. Gibbs, CPA is a staff accountant for Keller & Associates CPAs, PLLC.

Veterans Benefits

November 9, 2022

With Veterans Day approaching, I’m reminded of the incredible commitment and sacrifice that our veterans give for our freedom. I am proud of my late father, a proud Marine, as well as my brother who served in the Air National Guard. These heroes, among many others, continue to provide our country freedom and security.

There are thankfully many financial, educational and health care related resources available to the armed forces for those who are eligible and apply. I was the fortunate beneficiary of my father’s service in college through the Hazlewood Act. Although we could have benefited further by discovering information earlier on in my college journey, it was a great benefit that I was able to enjoy for my final few years in college. My hope is that this information can help someone else realize their eligibility, and not repeat our delay to get the most out of the program.

The Hazlewood Act is a benefit specific to the State of Texas that benefits veterans, their spouses and dependent children. Through this statute, up to 150 hours of tuition at public institutions of higher education in Texas are exempt from charge, including most fees. It’s an incredible benefit that can amount to significant savings! A Texas Veterans Commission department specialist can help you determine if you qualify, guide you on paperwork, and determine what requirements you need to fulfil to qualify. It is also important to note that if a dependent is claiming benefits, then they must use them before they turn 25 to remain eligible. With Texas being poised to surpass California as the most veteran-populated state, these benefits can potentially help many deserving families reach their educational endeavors. Additional Veterans Administration (VA) education benefits may be available to a service member’s child(ren) or spouse if they have a service-connected disability or died in the line of duty.

The VA also provides great health care benefits. With VA health care, you have coverage for regular checkups and appointments with specialists. This can be an invaluable benefit prior to reaching Medicare age, and also works as a supplemental plan once you begin Medicare.

Another important program is VA disability benefits. The VA may pay for medical care, equipment, and even provide a monthly tax-free payment to veterans who become ill or injured while serving in the military. There are even benefits such as housing grants to buy or modify a home for service members with disabilities.

There are many more benefits available to veterans. If you are a veteran, it is important that you consult with a specialist to see what you might be entitled to. You can reach VA Benefits Administration at (800) 827-1000, and you can obtain more information on the Hazlewood Act at (512) 463-3168. My family made use of the specialists at these departments extensively as we went through the process of applying for the Hazlewood Act, and I would encourage you to do the same if you are eligible for any benefits. Thank you to all veterans for your service!

Published in the Victoria Advocate

David Faskas is a CFA and CFP® professional with KMH Wealth Management, LLC. He specializes in investments and portfolio management. He is the Chief Investment Officer, Chief Financial Planning Officer, and a managing member of the firm.

Don’t Fear the FAFSA

October 10, 2021

The start of October brings cooler temperatures, visits to the local pumpkin patch, scary movies, and all-you-can-eat candy on Halloween. October also marks a spooky but important date for those planning to attend college for the 2021-2022 school year: the opening of the Free Application for Federal Student Aid (FAFSA).

Do you have a college student or a high school senior in your household, or are you a college student yourself? If so, October 1st marked an important date for those who are planning to attend college or are currently enrolled in college. The FAFSA application for the 2021-2022 school year officially opened up to applicants at the start of October. Students should prepare or begin to prepare to file their FAFSA form as soon as possible. The FAFSA is an online application that allows students to request federal student aid, such as grants, loans, and work-study programs. Students should apply as early as possible in order to be considered for grants and loans, as some school and state funds are limited and often awarded on a first-come, first-served basis. Even if you don’t believe you will qualify for federal aid, you should still file a FAFSA application because you may be eligible for loans that are not based on income. Also, some schools require students to file a FAFSA application for merit aid.

It was not too long ago that I was a student myself and filed my FAFSA applications. It can be quite the blood-curdling task, but don’t let the process scare you! Start by gathering the required information and documents now, so that you are prepared. If you haven’t already, you will need to create a Federal Student Aid (FSA) account at fafsa.gov. If you are a dependent on another person’s tax return, your guardian will also be required to create an account as well. You will need your social security number and your 2019 tax records, such as your federal income tax return and W-2s. If you filed your 2019 federal income tax return, you may be eligible to import your tax information into your FAFSA application by utilizing the IRS Data Retrieval Tool, which proved to be the easiest option when I filed my applications. If applicable, you will also need bank statements and records of investments and untaxed income, such as child support or welfare benefits received. Parents of dependent students will also need to submit the information mentioned above.

As you can see, submitting the FAFSA application requires a great deal of information regarding your personal and family financials. This can be overwhelming, but if you begin to gather the necessary documents now, the task won’t be so haunting. In my experience, you can also reach out to your college with questions, they were always more than happy to help me with the FAFSA application process.

Remember: you can’t trick or treat ‘til your FAFSA application is complete! Don’t let October pass by without filing or starting the process of filing yours or your dependent student’s FAFSA application.

Published in the Victoria Advocate

Carlee H. Gibbs, CPA is a staff accountant for Keller & Associates CPAs, PLLC.

College Planning Accounts

May 23, 2021

My wife and I are expecting our first child. With all of the excitement and planning of setting up the nursery and getting the crib and diapers, one equally important piece of planning is beginning the baby’s college savings. There are several different options when saving for college, so we wanted to make sure that we decided on the right option for us and our child. We discussed different options, advantages, and disadvantages on our evening walks together to decide the best option for us. With the average price of college already at $25,000+ per year and rising, we feel it is important to get started as soon as we can.

529 Plans: One of the most common types of saving accounts for college is the 529 plan. This account has the tax advantage that all earnings are tax-exempt if the funds are used for qualified education expenses. Those qualified expenses include tuition, room, board, computers, and up to $10,000 in K-12 tuition. They can also be used for student loan payments and apprenticeship programs. A 529 plan works great if you plan for your child to attend postsecondary schooling or plan to use the funds for K-12 tuition. The funds can even be transferred to another qualifying family member such as a sibling or cousin if they aren’t used by the intended child. A potential drawback of the 529 plan is that earnings could be taxable and have a 10% penalty applied if withdrawals are not used for qualified education expenses. Another advantage is only 5.64% of parent-owned accounts are counted as assets of the student, so this account type may be more beneficial to help the student in qualifying for financial aid. If pursuing a 529 plan, it is just as important not to overfund as it is underfund to avoid the 10% penalty. However, with planning, the 529 plan can be an excellent tool for education funding.

UTMA Accounts: Another popular option is the Uniform Transfer to Minors (UTMA) account. If you don’t like the potential penalty in a 529 plan account and want more flexibility on how the funds can be spent without worrying about that penalty, this can be another great option. An UTMA account allows you to save money in an account in your child’s name, with the funds controlled by a custodian and used for their benefit while they are a minor. Once they reach the age of majority, between 18 and 21 (age 21 for UTMA’s in Texas), the funds are then transferred to the child to use at their discretion. One obvious drawback of this type of account is that a child might not use those funds responsibly at such a young age. Another concern is that for financial aid, this type of account is treated as the child’s funds, which is not as beneficial as a 529 plan where only 5.64% of the account is counted. Finally, this type of account is not tax deferred, so tax is paid on earnings as they are incurred. Earnings beyond $2,200 per year are also taxed at the parent’s tax rates through the “kiddie tax”. Smaller UTMA balances may not generate enough earnings to owe any tax, but as the balance grows and earnings increase beyond the $2,200 each year, some tax may be owed on the earnings.

Both 529 Plans and UTMA accounts are good options to use to save for a child’s college. The average tuition is currently over $25,000 per year for an in-state student attending a public 4-year institution, which amounts to over $100,000 for a 4-year degree. With education costs rising at nearly 8% per year, it is important to start planning early for college savings. Reach out to a CERTIFIED FINANCIAL PLANNER™ Professional to help reach your education funding goals.

Published in the Victoria Advocate

David Faskas is a CFA and CFP® Professional with KMH Wealth Management, LLC. He specializes in investments and portfolio management. He is the Chief Investment Officer, Chief Financial Planning Officer, and a managing member of the firm.

Women and Challenging Financial Issues

October 24, 2020

As a woman I sometimes find myself not wanting to bother with financial planning, insurance, and tax returns, just to name a few financial issues. I am married to a CPA, CFP® professional so this makes it is easy for me to not get in the weeds on these matters.

However, I know I need to be as intelligent as I can be for many reasons. Many, many years ago I felt I had no clue what insurance policies we had, what they covered, what they paid out if and when. I even paid the bills but did not know any specifics. So my husband and I sat down and I forced myself to educate myself about our insurance. You hope you wake up to another day, but if something had happened to my husband I had to have the knowledge to carry on and the insurance would have been a major start. Do you have the right insurance for your needs?

We have an older daughter and triplets who are four years younger. They are all ‘adulting’ now, but when they were born we knew they would be in college at the same time so we needed to plan ahead. We immediately started saving for their college educations and calculated this into our annual budget. Three graduated from college with no debt and some money left over and the fourth went out-of-state so her out-of-state tuition ate through all of her savings. But she had no debt. So from sound college planning our children and us dodged the college debt bullet. Where are your college savings?

As baby boomers, we are entering “twilight years.” We stay active and healthy, but we have wills, power of attorneys, and directives to physicians and have made sure the beneficiaries are noted on our portfolio and bank accounts. I have to be prepared, as well as my husband if something were to happen to one or both of us. Like most, we have property and interests that we have the responsibility to maintain. We also want no surprises for our children such as no will that would require time and effort in the probate process, and potentially have our assets distributed in a way that we did not approve of. They live all over the country and do not have time for our financial negligence. Do you have a will and estate documents?

So, as a woman, as much as I would prefer to keep my head in the sand, I have financially enlightened myself. This makes me prepared for most things life throws my way so I can carry on. I hope women take charge of their finances, call a CERTIFIED FINANCIAL PLANNER™ Professional since October is Financial Planning Month, and understand what it would take for them to carry on.

Published in the Victoria Advocate

Phyllis Keller is the Chief Information Officer for KMH Wealth Management, LLC and Keller & Associates CPAs PLLC. She graduated from Texas A&M University, has an MBA from the University of Houston Victoria and has been with the firms over 15 years.

Tackling Student Loan Debt

October 11, 2020

In 2019, the national student loan debt stacked up to $1.4 trillion making it the second-largest category of household debt trailing only home loans. While most grads have high expectations for life postgraduation, many receive less than hoped for starting salaries and student loan debt is just part of the deal.

Keeping Things Rolling

Up in the Air – One-Time Student Loan Forgiveness Program

Veterans Benefits

Don’t Fear the FAFSA

College Planning Accounts

Women and Challenging Financial Issues

Tackling Student Loan Debt

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