Category: Education Planning

Coverdell, Custodial or 529? How to Choose

by Elizabeth Camp

The price of a college education has skyrocketed. The average annual cost of a four-year college, including tuition, fees and room and board, now runs $17,860 for a public school and $39,518 at a private school, according to the College Board.1 Luckily, parents have several tax-advantaged investment accounts to turn to when saving for their child’s education. Each has its merits and drawbacks.

 

529 College Savings Plans

529 plans let participants invest their contributions in portfolios of mutual funds or similar managed financial instruments. Contributions are made on an after-tax basis, but qualified withdrawals are federally tax free. Withdrawals may be exempt from state taxes as well. Although plans vary from state to state, many are national plans: No matter which state or school sponsors them, residents of any state can participate. Money in a 529 plan can be used for qualified undergraduate and graduate expenses at any accredited college or university. However, nonqualified withdrawals from a 529 plan may be subject to income taxes and a 10% additional federal tax.

 

Advantages:

•           There are generous annual and lifetime contribution limits.

•           No income eligibility limits apply.

•           Account control stays with donor, who may change beneficiaries.

 

Disadvantages:

•           Investment options vary widely from plan to plan.

•           State tax deductibility varies.

•           Withdrawals cannot be used for secondary education.

 

Coverdell Education Savings Accounts

Coverdells are qualified investment accounts that allow you to contribute up to $2,000 per year on an after-tax basis per beneficiary. Earnings in the account are not taxed, and as long as withdrawals are used for qualified education expenses, they are tax free. The designated beneficiary of a Coverdell account is free to take withdrawals at any time, but any amount in excess of his or her qualified education expenses will be taxable as income. A 10% additional federal tax may also apply.

 

Unlike 529 plans, Coverdells impose income eligibility limits on contributors. Single filers with modified adjusted gross incomes of more than $110,000 and joint filers with incomes of more than $220,000 (in 2013) cannot contribute.

 

Advantages:

•           A wide variety of investment options is available.

•           Withdrawals may be used to pay for an elementary, secondary or college education.

 

Disadvantages:

•           Low annual contribution limits apply.

•           Income eligibility limits apply.

•           Beneficiary controls assets.

•           Assets must be used before beneficiary reaches age 30.

 

UGMA/UTMA Accounts

Under The Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA), adults can establish and contribute to a custodial account in a minor’s name without having to establish a trust or name a legal guardian. These accounts, offer limited tax deductions: The first $1,000 of account earnings is tax free each year. Beyond that, earnings are taxed at either the minor’s or contributor’s rate, depending upon the child’s age and status.

 

Also keep in mind that the assets in these accounts belong to the child, not the contributor. When the child reaches legal adulthood at age 18 or 21, depending on the state, he or she is free to spend the money with no restrictions.

 

Advantages:

•           Contributions are tax deductible under gift tax rules.

•           There are no contribution limits.

 

Disadvantages:

•           Tax deductibility of account earnings is limited.

•           Child controls account when they reach legal age.

 

How you choose between the three types of account will depend on what you plan to use the funds for, how long you plan to save, your household income and other factors. And remember that it may not be a “one or the other” decision. It may make sense for you to contribute to more than one type of account. Morgan Stanley offers a variety of investment options for different college savings vehicles. I can work with you to find a solution that best suits your needs.

 

 

Footnotes/Disclaimers

 

1Source: The College Board, for the 2012/2013 academic year. Total cost includes tuition, fees and room and board.

 

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.camp@ms.com

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“MorganStanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of MorganStanley.  The information and data in the article or publication has been obtained from sources outside of MorganStanleyand MorganStanleymakes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of MorganStanley. Neither the information provided nor any opinion expressed constitutes a solicitation by MorganStanleywith respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration- htttp://www.morganstanleyfa.com/camp Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2013 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 667573      05/13

 

 

Today’s College Degree: Investment is Still Good

by Elizabeth Camp

Young people starting out in any industry can expect to face a difficult job market, particularly in today’s economic environment. However, a recent study by the Pew Charitable Trust shows that following the last recession, college graduates fared far better than high school graduates, experiencing less unemployment and more stable salaries. While the study does not factor in the cost of attending college, it does indicate that although the job market is difficult for young people, a college degree can greatly enhance their outlook.1

 

Another recent study by the Lumina Foundation and GeorgetownUniversityreports that since the recovery began, the economy has added two million jobs for workers with a bachelor’s degree, while nearly 6 million high school diploma-only jobs have been lost. The results reported indicate that, following the recession, the divide between college-educated workers and those with a high school degree has never been greater. Statistics from the study reveal that the unemployment rate for college graduates is 4.5%, while those with a high school diploma are experiencing a 24% unemployment rate.2

 

A Long-Term Investment in Future Earning Potential

Determining the long-term earning potential of a college degree and the premium it generally offers over a high school diploma is a calculation that should take into account lost earnings while in college, the actual cost of college and debt repayment. The PewResearchCenter’s study offers a current analysis based on Census Bureau data, which estimates that an adult with a bachelor’s degree will earn an average of $1.42 million over a 40-year career, while a high school graduate will earn $770,000. Once the cost of college and lost income is factored in, the study projects an average earnings premium of $550,000 for those with a college degree.1

 

A sizeable earnings premium coupled with a significantly lower unemployment rate for college graduates offers a strong case for the long-term benefits of a college degree. Additionally, the study indicates that individuals who have a college degree are more likely to receive substantial increases in salary and progress further in their chosen career compared with those who hold only a high school degree.

 

Tax-Wise College Saving Options

There are many savings vehicles available that can be used to help offset the spiraling cost of a college education and provide important tax benefits such as:

 

529 Savings Plans: Earnings on savings can be withdrawn tax free for qualified higher education expenses. Contributions can be made by anyone, including grandparents, other relatives or friends. Annual contribution limits may apply depending on the plan, with total contribution limits per child generally maxing out at $300,000.3

Coverdell Education Savings Account: Contributions of up to $2,000 per child per year can be made until the child reaches age 18. Distributions are withdrawn tax free for any qualified education expenses including private school and equipment such as computers beginning with grades K-12 and post-secondary. Eligibility is based on MAGI (modified adjusted gross income) not earned income so if the parent’s income level is too high to qualify, a student can contribute to his or her own account.

Roth IRAs: Can be used to pay for qualified higher educational expenses (post-secondary) incurred by yourself, your spouse, your children or your grandchildren. Original contributions plus earnings can be withdrawn tax free and without penalty. If the funds are not needed for college expenses, the Roth assets can maintain tax-free growth potential for retirement.

It is important to note that some savings options can impact financial aid packages, while others will not. Please contact me if you would like to discuss your particular college savings needs and goals in greater detail.

 

1Source: Pew Charitable Trust Report, “How Much Protection Does a College Degree Afford,” www.pewtrusts.org, January 8, 2013.

2Source: Georgetown University Center on Education and the Workforce, http://www.luminafoundation.org, August 15, 2012.

3Source: www.savingforcollege.com.

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.camp@ms.com

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Tax laws are complex and subject to change.  Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are encouraged to consult their tax and legal advisors regarding any potential tax and related consequences of any investments made under such account.

 

Investments in a 529 Plan are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so an individual may lose money.  Investors should review a Program Disclosure Statement, which contains more information on investment options, risks factors, fees and expenses and possible tax consequences.  Investors should read the Program Disclosure Statement carefully before investing.

Earnings on non-qualified distributions will be subject to income tax and a 10% federal income tax penalty   State taxes may be applicable.  Before investing, consider whether tax or other benefits or investments are only available in your home state 529 college savings plan.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration – http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2013 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 650825 [04/13]

 

 

Children & Money: Lessons in Self-Control

by Elizabeth Camp

We all know that money doesn’t grow on trees, but do your children really know how to manage it? Making the connection between saving first and spending later makes possible a lifetime of responsible money management. You can emphasize this connection by following a plan of age-appropriate techniques designed to emphasize the importance of controlling impulsive behavior.

Why Starting Early Is Important

Before teaching children about money, it is important to help youngsters control their impulses, potentially as early as age three. According to a study presented to the National Academy of Sciences in January 2011, a child’s self-control, as evidenced by traits such as conscientiousness and persistence in striving for goals, are strong predictors of success, including wealth, later in life.1 Children who scored lower on self-control were more likely to experience problems with saving, home ownership, credit and money management.

Depending on the age of your children, consider whether the following suggestions are compatible with your views about children, self-control and money.

Ages 2 to 8

  • Buy a piggy bank where your children can deposit money that they earn from chores or receive as gifts. A visual chart showing how much they save over time can be a motivator to save more.2
  • Provide an incentive to reach a savings goal. For example, when your children save $25, consider adding a few more dollars or letting them buy a treat under your supervision.
  • Make children wait until after meals to eat treats or until an occasion such as a birthday to receive a special toy. The practice of delayed gratification can help build self-control at home, according to Mary Alvord, a clinical psychologist and author of Resilience Builder Program for Children and Adolescents.3

Ages 9 to 12

  • Consider whether you want to start an allowance. Tying an allowance to chores is a matter of debate, with some parents believing that children should not be paid for helping around the house. An allowance is a family decision that reflects your values about money.
  • If you pay an allowance, require your children to put a portion of it into a savings account and use the remainder for personal items, gifts and entertainment.

Ages 13 to 18

  • Even if your family has means, consider letting your teen-aged child have a part-time or summer job to earn their own money. Require them to set aside a portion of their earnings for personal or college expenses.
  • Establish clear rules for curfews and completion of homework before screen time. These practices will help older children control themselves without your intervention, according to Ms. Alvord.
  • In a few years, your teenager will be approached by credit card companies looking for college-age customers. Now is the time to review the importance of paying a balance in full every month and reserving credit for items of value.

Ages 19 and Older

  • If your family pays tuition and other college costs, require your college student to pay at least a portion of personal expenses.
  • If your adult child cannot find work and ends up living with you, resist the temptation to start paying your adult child’s bills or student loan debt.

Let me work with you to identify opportunities to reinforce the connection between saving and responsible spending. Because starting early and presenting a consistent message will enable your children to develop sound habits that last a lifetime.

Source/Disclaimer

1Source: Proceedings of the National Academy of Sciences, “A Gradient of Childhood Self-Control Predicts Health, Wealth and Public Safety,” January 24, 2011.

2Source: Jump$tart! Financial Smarts for Students, “How to Raise a MoneySmart Child: A Parent’s Guide,” http://jumpstart.org/assets/files/MoneySmart%20Child.pdf, retrieved on April 9, 2012.

3Source: npr.org, “For Kids, Self-Control Factors into Future Success,” February 24, 2011.

 

 

If you’d like to learn more, please contact Elizabeth Camp – https://www.morganstanleyfa.com/camp

 

Article by McGraw Hill and provided courtesy of Morgan Stanley Smith Barney Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“MSSB”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of MSSB.  The information and data in the article or publication has been obtained from sources outside of MSSB and MSSB makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of MSSB. Neither the information provided nor any opinion expressed constitutes a solicitation by MSSB with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

The publisher was compensated by MSSB for this featured article.

 

This article is directed to residents in the states where Elizabeth Camp is registered: http://www.morganstanleyfa.com/camp

 

 

Investments and services offered through Morgan Stanley Smith Barney LLC, member SIPC.

 

CRC 523222 [07/12]

 

 

More Than Education Planning

by Elizabeth Camp

Enter the 529 plan, a powerful investment vehicle that has altered education planning in much the same way that the 401(k) altered retirement planning. A unique combination of features—high contribution limits, professional asset management, account holder control of assets, flexibility in transferring the money, and perhaps most important, generous tax advantages—has solidified the 529 plan’s position as a leader in the education planning world.

Yet, there is one more benefit of 529 plans that is increasingly coming to the fore in the planning arsenal of affluent families: their ability to act as an effective estate planning tool. Indeed, the special gifting features of 529 plans make them attractive to a growing number of high net worth parents, grandparents and others looking to transfer large sums out of their estates while helping to offset soaring college costs.

Estate Planning Today—Current Tax Considerations

To help better appreciate the special tax and estate benefits that 529 plans have to offer, you first need to review the current estate and gift tax landscape—a landscape with an uncertain future.3

Here is a brief rundown on the current tax rules that apply to assets held in an estate. Keep in mind that your estate is made up of all types of property—including real estate, personal property, cash, investment accounts, annuities and retirement plan assets.

  • Federal estate tax: For 2013, any estate valued at more than $5.25 million ($10.5 million for married couples) will trigger the federal estate tax. The top federal tax rate that can apply is 40%. 
  • State estate tax: Many states also impose some form of estate and/or inheritance tax. State estate taxes are similar to the federal estate tax. Regardless of their relationship to you, your beneficiaries do not pay this tax—your estate does. 
  • Gift tax: To help lower your estate’s value, you and your spouse can each make $14,000 gifts to as many people as you like free of gift taxes in the 2013 tax year (this amount is indexed to inflation and may increase in future years). If you give away more than $14,000 per year ($28,000 if your spouse joins in the gift) to any one person or noncharitable institution, you will have to file a gift tax return at tax time. The amount of the federal gift tax will be deducted from your lifetime gift tax credit. Any remaining credit can be used in future years. 
  • Generation-skipping tax: If you want to leave money to your grandchildren or others more than one generation younger than you, and your gift exceeds the $14,000 annual gifting threshold ($28,000 for married couples), in addition to the gift tax, you may also be exposed to the generation-skipping tax, which tops out at 40% on the federal level in 2013.

Callout/Infobox: To simplify the gifting of assets during an individual’s life, for 2013, the exemption threshold, which is $5.25 million per individual and $10.5 million per couple, will apply to all three—estate, gift and generation-skipping—taxes.

Special Gifting Features of 529 Plans—Why 529 Plans Are Unique

Since contributions to 529 plans are considered gifts, they qualify for the $14,000 per year ($28,000 per couple) gift tax exclusion, and any money gifted to a 529 plan is no longer considered part of the donor’s taxable estate.

Also, under special rules unique to 529 plans, donors looking to remove large sums of money from their taxable estates can make five years’ worth of $14,000 gifts in one year—that’s $70,000 per individual donor or $140,000 per couple. Provided they complete the required paperwork with the IRS (i.e., stipulating their intention to spread the lump-sum gift evenly over the five-year period) and refrain from making any further contributions to that account for the next five years, they will owe no gift tax on the contribution. Further, they can repeat the process every five years and owe no gift tax, provided they follow the IRS guidelines.

This one, very powerful feature of 529 plans allows parents, grandparents or others with considerable assets to accomplish two critical goals: to reduce the size of their taxable estates during their lifetimes and to potentially contribute hundreds of thousands of dollars toward college costs to one or more children.

One Important Note

There is one important rule that you will want to keep in mind if you and/or your spouse decide to make use of the lump-sum contribution strategy to 529 plans to transfer wealth: according to IRS rules, if the donor dies before the end of the five-year period, the transferred amount remaining after the year of death would be considered part of the donor’s estate for federal tax purposes.

Here’s a hypothetical example:

Jim and Mary Jones made a joint five-year, lump-sum contribution of $140,000 to a 529 plan for the benefit of a grandchild. Sadly, in the second of the five years, Jim dies. In this case, $28,000 of Jim’s contributions (for years one and two) are considered out of his estate and free and clear of federal estate tax. However, his contributions earmarked for the next three years—$42,000—would be considered part of his taxable estate. For Mary’s part, since she is still alive and well, her contributions are still considered to be removed from the couple’s estate.

 

Asset Control—An Uncommon Advantage in the Estate Planning World

Beyond the tax advantages, perhaps one of the most attractive features of 529 plans is that the contributor who opens the account generally maintains exclusive control over the assets and their disposition. With few exceptions, the named beneficiary has no rights to the funds. The donor alone decides if and when withdrawals are taken and for what purposes.

Compare this level of control with, for instance, a Uniform Transfers to Minors Act (UTMA) account or a Uniform Gifts to Minors Act (UGMA) account. Gifts made to either of these types of custodial accounts are considered irrevocable; once the child reaches legal age, he or she gains full control over the assets. In addition, since custodial accounts belong to the child, account assets may decrease the amount of financial aid a child can receive.

Keep in mind that with this heightened level of control comes the need for responsible use of account assets. For instance, most 529 plans allow the donor to reclaim the funds for themselves, no questions asked. However, the earnings portion of a so-called “nonqualified” withdrawal will be subject to income tax and an additional 10% penalty tax.

Grandparent Ownership—Weighing the Pros and Cons

Many grandparents who want to help out with their grandchildren’s college costs may be perfectly content to make contributions to a 529 plan their own children have already established for their grandkids. As long as the plan is structured to accept “third party” contributions, that option may represent the best approach for many who are looking for a simple way to remove assets from their estates.

For others who like the idea of retaining control over their transferred wealth, opening their own 529 plan accounts may present a worthwhile alternative. There are, of course, pros and cons associated with grandparents taking the reins on a 529 plan. Here are just a few as outlined by the College Board:

 

Pros

Cons

Tax-deferred growth is good for the beneficiary. The money in a 529 plan grows tax-deferred, so there is no need to report investment income on the child’s income tax return. Parental vs. grandparent account? If the parents of a grandchild are also using a 529 plan, whose account is tapped first? You will need to have that discussion to ensure that no one faces an unexpected tax bill. You may even consider transferring ownership of your 529 account to the parents of your grandchild at some point in the future, and leaving it up to them to make decisions regarding the use of the account.
No adverse effect on child’s eligibility for financial aid. Grandparent-owned 529 plans typically have no negative effect on the student’s eligibility to receive federal financial aid. By contrast, when a parent is the account holder, plan assets are considered when assessing a child’s financial aid eligibility. Potential Medicaid obstacle. If you were ever to seek Medicaid assistance for the payment of medical and long-term care expenses, the state in which you live is likely to view any 529 accounts under your ownership as available assets that must first be spent on your care before Medicaid payments can begin.
Good use for retirement plan RMDs. Those taking required minimum distributions from an IRA who have no spending needs beyond what they receive from other income sources, may consider using the IRA money to fund 529 accounts. The IRA distributions are still subject to income tax, but once in the 529 plan, the money will grow tax free and remain outside of an estate as long as it is eventually used for qualified higher education expenses. Lost step-up benefit. If you were to die, investments included in your estate receive a tax basis step-up to current value. When these assets are sold by your heirs, they will not be subject to capital gains tax on any appreciation previous to your death. Since 529 accounts are excluded from your estate, there is no step-up in tax basis. In most instances, this won’t make any difference as the distributions from the 529 plan will be entirely tax free when used to pay for qualified education expenses.

 

For grandparents considering a 529 wealth transfer strategy, these are just a few of the issues that need to be addressed. Visit the College Board’s Web site for a more complete discussion of the topic. And of course, seek trusted financial and legal counsel before making any decisions.

Please contact me to learn more about transferring wealth with 529 plans and for assistance reviewing and reformulating your estate planning strategy.

 

Footnotes/Disclaimers

 

 

1Source: Is College Worth It? College Presidents, Public Assess Value, Quality and Mission of Higher Education, Pew Research Center, Social & Demographic Trends, May 2011.

2Source: Trends in College Pricing, The College Board, 2012.

 

 

 

If you’d like to learn more, please contact Elizabeth Camp – http://www.morganstanleyfa.com/camp

 

Before investing, consider whether tax or other benefits are only available for investments in your home state 529 college savings plan.

Investors should carefully read the Program Disclosure Statement which contains more information on investment options, risk factors, fees and expenses, and possible tax consequences, before purchasing a 529 Plan.  You can obtain a copy of the Program Disclosure Statement from the 529 plan sponsor or your Financial Advisor.

Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors do not provide tax or legal advice. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer.  Individuals should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.

 

Article by McGraw Hill and provided courtesy of Morgan Stanley Smith Barney Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC. The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration – http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth is not registered or excluded or exempt from registration.

 

c 2013 Morgan Stanley Smith Barney LLC.  Member SIPC.

 

CRC 692428 [07/13]

 

 

Getting Your Children Involved in Saving for College

by Elizabeth Camp

Most articles about college planning focus on advice for parents or other adults who expect to pay the cost for a younger person’s education. But what about the beneficiary who plans to attend college?

Although most young people don’t have the assets for college savings that their elders do, being part of the planning process can be educational, offering financial lessons for the future. Children can earn money, learn about sources of financial aid, research potential colleges, and take other steps that may relieve their parents of some of the responsibility of college planning. In addition, some experts believe that if children are actively involved in planning for their future, they may be more committed when entering college and ultimately have a more successful experience than they would have otherwise.

Starting Early

According to the U.S. Department of Education, the best time to introduce children to college planning is when they are in the sixth, seventh, or eighth grade. You may want to initiate discussions about college and explain the importance of developing good study habits and getting involved in extracurricular activities — to instill the idea that your family supports higher education.

You may also want to encourage your children to begin thinking about the career they would like to pursue, which is likely to influence their choice of college, as well as to establish a savings account that could be earmarked for education expenses. In addition, you can teach basic lessons about compounding, investing, and other money management issues.

When students are in the latter part of middle school, they can also start planning to make the most of high school experiences with an eye toward college. Remind your budding scholar that success in high school depends on skills and attitudes that are developed in middle school or earlier. For example, time management skills developed in middle school may eventually help a high school student manage schoolwork, a job, sports, and other interests. And when the time comes to pick classes for the first year of high school, a good mix of college prep courses may be important.

 

Budgeting Basics
You can help your child plan for college by assisting him or her with developing a realistic budget. The chart below details enrollment-weighted averages and is intended to illustrate the costs that a student is likely to pay in various situations.1
Tuition
and
Fees
Books
and
Supplies
Room
and
Board
Trans-
portation
Other
Expenses
Total
Expenses**
Two-Year Public
Resident $3,131 $1,229 $7,419 * $2,157 $13,936
Commuter $3,131 $1,229 * $1,648 $2,157 $8,165
Four-Year Public
In-State $8,655 $1,200 $9,205 $1,110 $2,091 $22,261
Out-of-State $21,706 $1,200 $9,205 $1,110 $2,091 $35,312
Four-Year Private
Resident $29,056 $1,244 $10,462 * $1,570 $42.332
Commuter $29,056 $1,244 * $957 $1,570 $32,827
1Source: Trends in College Pricing Annual Survey, the College Board, 2012-2013 academic year.*Not applicable.**Based on estimated average student expenses. Average total expenses include room and board costs for commuter students, which are average estimated living expenses for students living off-campus but not with parents.

 

A Higher Gear in High School

Many high school students are mature enough to plan for college at a deeper level. Appropriate planning may include the following:

Matching personal aptitudes with vocational interests — High school guidance counselors can help students learn about careers that utilize skills in math, science, language arts, social studies, and other areas of interest, as well as postsecondary courses of study in these areas.

Maintaining high academic standards — Colleges prefer applicants that have exceeded basic requirements and taken more challenging courses in language arts, math, science, social studies, foreign languages, and other areas. Many high schools permit qualified students to earn college credits by taking Advanced Placement courses. Excelling in these classes may demonstrate motivation and reduce the number of academic requirements after a student enters college.

Learning about college costs — Students may gain a deeper appreciation of their family’s financial sacrifices when they realize how expensive college is. They can learn about college costs from the College Board at www.collegeboard.com, the U.S. Department of Education at www.ed.gov, and high school guidance offices.

Researching scholarships — There are numerous Web sites with information about sources of financial aid. For example, www.fastweb.com and www.finaid.org contain search engines with data about thousands of scholarships with varying eligibility criteria. In addition, www.fafsa.ed.gov provides an overview of federal student aid programs, including Pell Grants, campus-based aid programs, Stafford Loans, PLUS Loans, and others. Also, local libraries and high school guidance offices may have information about state-sponsored aid programs and scholarships sponsored by local organizations.

Earning money — High school students can set aside a portion of their wages from part-time or summer jobs for higher education expenses. Also, students may be able to obtain jobs that build on career interests as a way of solidifying their future plans.

Getting organized — College planning encompasses numerous details, including visiting institutions that a student may want to attend, applying for financial aid, obtaining transcripts and letters of recommendation, and meeting deadlines. A high school student can take responsibility for making sure that important matters are tended to ahead of time. For example, if a student has a school vacation coming up, he or she could help organize a family trip to visit colleges of interest or spend some time completing college applications.

You and your prospective student may be able to think of more ideas that could add value to your family’s efforts to save for a college education. Getting your budding scholar involved in the process — financially and otherwise — could ultimately be a pivotal lesson in responsibility that impacts his or her later success in life.

 

A Family Affair
Young people can assume varying levels of responsibility for college planning depending on their age and interests. Consider the following if you are looking to get a middle or high school student involved.
6th to 8th Grades

  • Continue good study habits
  • Enhance computer and Internet skills
  • Participate in arts activities or sports
  • Start saving money

9th to 10th Grades

  • Enroll in college-preparatory classes
  • Establish high academic standards
  • Research careers that match personal aptitudes
  • Learn about college costs
  • Identify prospective colleges
  • Research financial aid
  • Set aside money from babysitting, yard work, or other odd jobs for college expenses

11th to 12th Grades

  • Get a part-time job and continue saving for college
  • Visit colleges of potential interest
  • Take the Scholastic Aptitude Test
  • Enroll in Advanced Placement classes, if available
  • Apply to colleges and for financial aid

 

Points to Remember

  1. Although young people may not have access to the same level of assets that their parents do, there are many ways they can help their families plan for college — maintain good study habits, take college preparatory classes, and set aside money from part-time jobs for college expenses.
  2. Many experts recommend introducing children to college planning when they are in the sixth, seventh, or eighth grade, depending on the child’s maturity level and interests. Children at this age can be encouraged to maintain good grades, enhance computer skills, and think about potential careers.
  3. High school students can explore college planning at a deeper level, including using the Internet to research college costs and sources of financial aid. Websites such as www.ed.gov, www.collegeboard.com, www.fastweb.com, www.finaid.org, and www.fafsa.ed.gov provide considerable information in these areas.
  4. Since attending and financing college requires planning and attention to detail, high school students can help their parents develop a plan to make sure things get done on time. For example, the plan could encompass visiting prospective colleges, completing applications and other paperwork, applying for financial aid, and other tasks.
  5. Parents and students can work together to develop a budget for college expenses. Average costs for various types of two-year and four-year colleges are available at www.collegeboard.com.

 

If you would like to learn more, please write care of Elizabeth Camp at 954-762-3045.

 

Article by McGraw Hill and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration www.morganstanleyfa.com/camp Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

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