3 Ways Grandparents Can Help Pay for College

By Wall Street Journal
August 5, 2019
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Many grandparents are willing to help with college costs. One thing to keep in mind is that grandparent-owned 529s have a downside related to FAFSA, though there are workarounds.

There are several ways grandparents can help pay for a grandchild’s education without giving money directly to the student. Grandparents, parents, and students must understand each of the options before deciding which one may be appropriate for them.

For instance, they need to know whether the method they’re using jeopardizes a student’s prospects for need-based financial aid, or if it meshes well with the grandparents’ overall estate plan.

Here is a look at three ways grandparents can help fund a grandchild’s education, and the pros and cons of each:

1. Invest in a ‘529’ plan

Financial advisers often recommend the state-sponsored education-savings plans known as 529s to grandparents who want to help with college costs because of the many advantages this type of plan offers.

These plans, which invest mainly in mutual funds, offer tax-deferred growth on every dollar invested, and distributions are tax-free when used for qualified educational purposes. Grandparents can pick any state’s 529 plan, and some states even offer residents a tax deduction on contributions. These plans also are flexible in that any unused funds can be transferred to another grandchild or blood relative.

Grandparents can put as much as $15,000 a year ($30,000 if they are married) per grandchild in a 529 plan without triggering gift-tax consequences. Even better, they can “bunch” five years of annual $15,000 gifts into a 529 in one year without triggering a taxable event, a potentially attractive benefit for those seeking to reduce the size of their estates.

“To me, the 529 is the turnkey solution for college planning,” says Jeff Motske, certified financial planner and president of Trilogy Financial, a financial planning firm in Huntington Beach, Calif.

Grandparents have the option of owning the 529 themselves or contributing to a 529 plan owned by the parent for the benefit of the child. One advantage of owning the account is that you “can control where the money goes right up until the time it’s used,” says Jody D’Agostini, a certified financial planner with AXA Advisors’ Falcon Financial Group in Morristown, N.J. Grandparents can even use the funds for themselves, albeit with tax consequences, should a financial need arise, she says.

INVESTING IN FUNDS

There is, however, a downside to grandparent-owned 529 plans for families seeking need-based financial aid: Distributions count as student income on the Free Application for Federal

Student Aid, or FAFSA, and student income is weighted much more heavily than parental income in the aid formula.

There are some potential workarounds, however. One option is to switch ownership of the 529 to the parent around the time the grandchild expects to start college. Not every state’s 529 allows for a change in ownership, however, so this is something to explore before choosing a plan, Ms. D’Agostini says.

Another option is to wait until after Jan. 1 of the beneficiary’s sophomore year in college to take a distribution, says Mark Kantrowitz, publisher and vice president of research at Savingforcollege.com. Since the FAFSA now asks for income and tax information from two years back, there would be no FAFSA on which to report the distribution if the student plans to graduate in four years. (If the student expects to graduate in five years, the family should wait until Jan. 1 of his or her junior year to take a distribution, Mr. Kantrowitz says.)

The grandparent also could roll over up to a year’s worth of college expenses to a parent’s 529 plan after the FAFSA has been filed. Provided all of the funds are spent on qualified educational expenses, it won’t have to be reported on the next year’s FAFSA, Mr. Kantrowitz says.

Some grandparents may not want the responsibility of owning the account, preferring instead to contribute a certain amount each year to a 529 plan owned by the parent for the child’s benefit. This may be appealing to those who want to give small amounts of money each year—around $1,000 or less.

In this scenario, “your grandchild gets all the benefits without you having to worry about maintaining the account,” says Joseph Conroy, a certified financial planner and financial consultant with Synergy Financial Group, a wealth-management firm in Towson, Md.

The downside, of course, is the grandparent cedes control of the money to the parent.

2. Direct payment to an educational institution

Grandparents can write a tuition check for any amount directly to a qualifying college or graduate school without triggering gift-tax implications, says Eric Brotman, chief executive of BFG Financial Advisors, a financial planning and wealth-management firm in Timonium, Md.

Some grandparents like this option because they can pay the university directly and still give the grandchild an additional $15,000 tax-free.

Grandparents, however, can’t claim a charitable distribution for tuition they pay on a grandchild’s behalf. Also, this exemption to the IRS’s gift-tax rules applies only to tuition expenses and not to other college-related expenses such as books and supplies. Another consideration is that the money isn’t refundable if the student decides to switch schools, so it isn’t advisable for grandparents to prepay tuition for all four years. Also, grandparents should be aware that this type of payment could have an impact on the student’s eligibility for need-based financial aid.

3. Fixed-indexed universal-life insurance policy

Another, less-talked-about option for paying for college—albeit a controversial one—is using cash-value permanent life insurance.

One type that some advisers like is fixed-indexed universal-life insurance. Mike Windle, a partner, and financial adviser at C. Curtis Financial Group, a financial-planning firm in Plymouth, Mich., recommends this option because of the flexible premiums and upside potential without the downside risk.

To make this strategy work, the policy should be owned by the grandparent, with the grandchild as the insured, making the cost of insurance inexpensive, says Mr. Windle, who owns these types of policies and offers them to clients.

Having such a policy allows grandparents to contribute after-tax money in a lump sum—monthly, quarterly or annually. When the funds are used, they are considered a loan against the cash value of the policy. They are tax-free at distribution, and they don’t count as income or assets on the student’s FAFSA, Mr. Windle says.

He generally recommends fixed-indexed universal-life insurance policies to clients whose grandchildren are 8 years old or younger. The policies he recommends have no cost to the grandparent to withdraw funds (and withdrawals aren’t counted against the grandparent’s yearly gift-tax limit) if the loans from the policy occur in the 10th year of the policy or later, Mr. Windle says. If grandparents take a withdrawal before the 10th anniversary, it could cost them about 2% of the loan, depending on the insurance company, he says.

Though premium rates aren’t guaranteed, Mr. Windle says the additional cost for a child would be minimal and is likely to be offset in part by growth in the policy’s cash value.

Another benefit is that the money can be used for multiple purposes—it isn’t limited to education. And the policies have a death benefit if something happens to the child.

There are downsides to using life insurance as a vehicle for college savings, however, and not everyone thinks it is a good idea. An insurance policy can be pricier and the investment selections more limited than with some other options grandparents have for funding college, financial experts say.

Before purchasing a life insurance policy for college-savings purposes, grandparents should consider the type of insurance and return on investment, as well as applicable costs, to ensure it’s the best option for their situation.

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By Authority Magazine
April 8, 2022

By: Jason Hartman |

As a part of my series about The 5 Essentials of Smart Investing, I had the pleasure of interviewing Mike Broker.

Mike Broker is a leader in the financial planning and investing space and understands the need to work diligently in the moment to build something great for the future. He began his fiduciary focused and financial advisory career in the beginning stages of the Great Recession of 2008. Mike quickly gained great experience working with clients as they strived to recover and get ahead during a difficult time. He’s also the author of the book Fit Financial Approach. To write the book, Broker utilized his background as a Certified Personal Trainer to coach his clients and team members to great success, paving the way to grow quickly into the role of Chief Strategy Officer at Trilogy Financial. As an Investment Advisor Representative with Trilogy Capital, Inc., in which he holds his Series 65 Registration. He holds his Series 6, 7, 24, and 63 Registrations with LPL Financial and his Life and Health Insurance License. Mike leverages his expertise every day to help Trilogy clients build the path to saving, investing, and pursuing their dreams. It would be a great asset to share his five things essential to smart investing.

Thank you for doing this with us! Our readers would like to learn a bit more about you. Can you tell us the “backstory” about what brought you to the finance industry?

Hi! I’m happy to. With the last name Broker, it’s hard to say my path to finance wasn’t fate. My path to the financial planning industry actually started with a car accident when I was twelve years old. It was a bad accident that resulted in piecing my face back together and a bit of money for the trouble. Being a good steward of the funds awarded, my dad introduced me to his financial advisor, and I fell in love with the profession. All I wanted to do was help people live better, and at a very young age I realized that financial planners could do just that.

Can you share with our readers the most interesting or amusing story that occurred to you in your career so far? Can you share the lesson or take away you took out of that story?

I started in this business as a financial advisor who only wanted to help clients improve their lives; I didn’t want to lead anyone or manage people. As I was improving my skills and growing as a planner, I found that sharing what I had learned personally and professionally was a way that I could impact more and more Americans. I went from running a small team, to managing a larger team, to an office, to becoming an executive for a national firm — kicking and screaming the whole way. As a sole advisor, you can only comprehensively help 150 to 200 families before running out of time and capacity. In my current role, I have the opportunity to impact far more families nationwide. I’ve learned not to shy away from risk and challenges. Don’t let your prior judgments and expectations hold you back from trying something new. You never know — it could become your new passion, or an opportunity to create real change in your corner of the world.

Are you working on any exciting new projects now? How do you think that will help people?

At Trilogy Financial, we are working on helping everyday Americans feel confident about their future. We’re working to build a scalable, yet individualized approach to financial planning and coaching that may help people make critical financial decisions — ones most Americans feel ill-equipped to handle on their own. We are building a movement that should help those in our country who really need it and have been continually overlooked in financial planning. In an industry known for selling products and lacking integrity, we are working towards becoming a brand that Americans can turn to when they have questions and concerns about their money.

Ok. Thanks for all that. Let’s now jump to the main core of our interview. According to this report in Fortune, nearly two-thirds of Americans can’t pass a basic test of financial literacy. In your opinion or experience what is the cause of these unfortunate numbers?

Financial literacy is not a set of concepts you can tell someone, and they may remember for the rest of their lives. You cannot memorize a list of facts and regurgitate them on a test. Financial concepts are also intimidating for most Americans, and they can seem overwhelming and complex.

The truth is that financial literacy is a set of information that all works together, and it can be easy to learn if you’re willing to take it one step at a time and apply the knowledge gained as you learn.

Some of the basics are dollar-cost averaging, diversification, asset allocation, inflation, and compound interest. You can learn investment strategies, investment tools, financial products, taxes, and the like. You could also hire a financial advisor to educate you and use their extensive knowledge of all of these concepts to guide you in building a plan, just as you would hire a personal trainer to show you how to use the machines and utilize proper form while working toward good fitness.

If you had the power to make a change, what 3 things would you recommend to improve these numbers?

  1. I would add a personal finance curriculum in schools early and often. My wife works in education, supporting schools and districts with math curriculum and implementation. Kids learn math by building little by little, understanding and mastering the last skill before adding the next. They build this knowledge and skill over years before using math every day as an adult. In the majority of America, we don’t teach kids about personal finances. Many parents don’t feel confident enough to teach their kids what they know, so kids are left to trial and error.
  2. Consistent titles in the financial planning industry. I’d love to see some consistency and enforcement around the titles in financial planning. Someone who provides comprehensive financial planning, sells insurance, sells mortgages, and isn’t licensed could be called a financial advisor. I think the title of financial professional should be for those who are not licensed; “advisor” reserved for those who are licensed but do not do full planning; “financial planner” should be reserved for those who offer planning to clients.
  3. Amnesia from past public opinion. The financial planning industry has had a poor reputation for some time, and rightfully so because the American consumer often starts at a place of distrust with financial advisors. However, studies have shown that having a financial advisor helps Americans make better decisions with their money over time. I would love to see more people willing to seek out a planner’s advice when they have money issues or goals, rather than not engaging because they are afraid of being lied to or sold a product with no merit.

Ok, thank you! Now to the main question of our interview: You are a “finance insider.” If you had to advise your adult child about 5 non intuitive essentials for smart investing, what would you say? Can you please give a story or an example for each?

  1. Don’t watch the market day-to-day. Financial plans are built over a long time. The day-to-day market is unpredictable at best, and making emotional changes to your long-term plan based on short-term changes can be detrimental to your future.
  2. The news sells ads, not information. The news reports that the market drops far more than the market gains because people will stay glued to the television when the market is going down. They are not giving you all the facts; instead, they give you the information you need to stay tuned during the commercials. My advice: just turn it off.
  3. Ask yourself “when is the best time to plant a tree?” The best time to plant a tree was twenty years ago, because it would be big and fruitful today. If you didn’t do that, the second-best time to plant a tree is now! Get started as soon as you can, as the most valuable resource you have is time, no matter how old you are.
  4. Remain “risky” in retirement. A portion of your investments should be set aside to keep up with inflation. Many people think you should retire and move your investments to cash or bonds, and the problem is inflation could eat away at the value of those investments. Living a long time could strain a too-conservative plan.
  5. Boring wins. If you see someone telling you to get on the next get-rich-quick scheme or invest in something that will “hit it big,” run in the opposite direction as fast as you can. Planning is about habits and long-term discipline and getting rich quick happens to very few lucky people. If you’re reading this article, it’s probably not you. Investments that are tried and true can be risky, but you know the risk you are taking for the relative reward you could receive. Stick to investments that make sense to you, and stay away from the flashy, enticing ideas.

What are your thoughts about investing in cryptocurrency? Can you explain what you mean?

I’m not going to go in-depth on what cryptocurrencies are, but it’s important to understand that they are highly speculative and are subject to many unique types of risk. The technology behind it, blockchain technology, is rapidly evolving with the possibility of impacting businesses way beyond just digital currency. I suggest you do your own research on blockchains and their role in cryptocurrency systems.

What are your thoughts about day trading using apps like Robinhood? Can you explain what you mean?

Day trading is essentially gambling, as the short-term markets respond to emotions, news, fear and greed. No one knows what will happen, and even if you have the best resources in the industry, an unexpected world event can instantly unravel your plans. Markets over the long-term respond to fundamental economics and trends, so when planning for the future you want, you could produce results if you stick to your plan over a long period.

None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?

I am very fortunate to have the upbringing that I had. My dad taught me the importance of having a financial advisor and saving my money. He helped me open a Roth IRA to begin funding when I had my first job at 16 years old. Then, despite my being brand new when I became a financial advisor, he was my second client who trusted me from the beginning. Thankfully, it has worked out for us both, and I wouldn’t be where I am today without the start he provided.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

“Esse quam videri” is a Latin phrase that means “to be rather than to appear.” When I was coming up in the business and learning my way around financial planning, I was struggling with having clients trust my recommendations. I went into my manager’s office and complained, “I just want to be seen as someone they can trust!” His advice has been burned in my memory, and I have repeated it many times to those who look to me for advice — “If you want to be seen a certain way, don’t wish to be seen that way. Just BE it. If you want to be seen as trustworthy, work to become trustworthy. Make good recommendations. Become a better planner. Then, and only then, will you be seen as trustworthy because you will be.” Sage advice.

You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. 🙂

Health and wealth! Many Americans are unhealthy and unprepared for their financial future. If I could create a movement to impact people the most, it would be to have Americans take a Fit Financial Approach to life!

Thank you for the interview. We wish you continued success!

Securities offered through LPL Financial, member FINRA/SIPC. Investment Advice offered through Trilogy Capital, a registered investment advisor. Trilogy Financial and Trilogy Capital are separate entities from LPL Financial.

Thank you for the interview. We wish you continued success!

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By Forbes logo
December 28, 2018

If you didn’t grow up around people who invested, then chances are that you still may not know a whole lot about the process. It may seem like something you should do as an adult but otherwise difficult to wrap your head around. Particularly for young adults who entered the job market during the Great Recession, the idea of investing heavily in the stock market still carries a certain level of fear.

Yet, with the right knowledge and guidance, young investors are quite capable of successfully creating a portfolio that will deliver solid returns. To help you gain that crucial insight, 15 members of Forbes Finance Council share the most important things young investors should know about getting started with stocks…

Many view the stock market as a roller coaster, but they ride it the wrong way. Instead of a quick ride full of highs and lows, start the ride early, travel through the small bumps and know it will go back up in the decades between today and retirement. Remember, though, the key to financial success doesn’t depend on the market’s performance but on the sound financial decisions you make each day. -Jeff Motske CFP®, Trilogy Financial

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