Back-to-school season has advisors talking tuition strategies

investmentnews.com:

College students heading to campus over the next few weeks will soon be focusing on their reading assignments, essays and exams. Many of their parents, meanwhile, will be tasked with their own homework after dropping their budding scholars off at school – figuring out the most tax-efficient ways to pay the tuition.  

Hopefully, they have financial advisors who can teach them a lesson or two.

“As a financial advisor and father of a 1-year-old, I follow the same advice I give my clients – start saving for college immediately, even if your kids are still in diapers. Setting goals early as part of tax-intelligent planning helps you pursue financial goals like paying for college while striving to keep taxes as low as possible,” said Andrew Barnes, wealth advisor at Wymer Brownlee Wealth Strategies.

Ann Bjerke, head of advanced planning at UBS, advises her ultra-high-net-worth clients to take advantage of the unlimited gift tax exclusion to pay tuition directly to an educational institution. By doing so, she said, parents or grandparents can pay tuition directly and then use their annual gift tax exclusions in other ways.

For a forced savings strategy and to obtain some tax benefits, parents or grandparents can also fund 529 accounts. Donors can make annual exclusion gifts to these accounts, which can grow tax free, and ultimately be used to pay so-called qualified expenses, generally tuition, room and board, and books and supplies.

“This can be a great strategy for grandparents who may not be around to otherwise make direct payments to the educational institution once the child attends,” Bjerke said.

Shawn Stone, director of advisory services at Retirement Planners of America, is also a fan of 529 plans for tax-free growth,