What Is the State of Your College Savings Plan?
In this episode of The Bottom Line, Tim Schuster, a manager in EisnerAmper’s Private Business Services Group, discusses how starting a college savings account —sooner rather than later—can help alleviate “sticker shock” for your child’s college education. Tim talks about the different state-sponsored 529 plans, what you can use the money for, the tax benefits involved and more.
DAVE PLASKOW:Hello and welcome to “The Bottom Line.” This podcast examines the everyday business and finance issues faced by closely held and private businesses. We hope to provide you with news you can use in what we like to think of as a jargon free zone. I’m your host Dave Plaskow, and with us is Tim Schuster, a manager in EisnerAmper’s Private Business Services Group. In this episode we’ll discuss college savings accounts and what you should start doing sooner rather than later. Nice to see you Tim.
TIM SCHUSTER:Dave, it’s a pleasure as always.
DP:So I’m going to throw a couple of numbers at you.
TS: Please do.
DP:According to The Financial Times, there’s currently $1.4 trillion of U.S. student loan debt, so it’s one of the biggest bubbles out there, by the way. And the average amount of student debt per person is a staggering $34,000. And these numbers are only increasing. However, there are some effective college saving vehicles out there that can help. Tell us about these.
TS: Of course. I also want to start this by discussing a number as well and the number that comes to mind is 1 million. $1 million is the actual average amount that people with a college degree can earn over their lifetime verses those with just a high school diploma. So investing in yourself almost always is a good idea. As for those savings accounts, the most common one is the 529 plan. It is a state-sponsored investment vehicle. It can be used for tuition, room and board, and books and supplies. Also, anyone can contribute to a person’s plan, whether it’s a family or a friend.
DP:What’s the difference between the different state plans that are out there?
TS: The 529 plan is the most common state savings plan. Before investing in a state-driven 529 plan, it’s always best to consult with your advisor. You know, each state’s rule will vary on investment vehicles and also the limitations to the plans.
DP:Tell us about some of the tax benefits for both recipients and contributors.
TS: Contributions are not deductible, but the earnings are tax free so long as the funds are used for college. Some states will offer a deduction for contributions to the plan and I believe around 30 different states currently offer a favorable tax treatment, and also you don’t have to have the actual funds put into the plan which is in the state you reside. They can be put into any state that you want – whatever state you think has the best investment vehicles. Many of these plans are extraordinarily low maintenance compared to other investment vehicles.
DP:I’m assuming that you’d want to look closely at each state plan’s maintenance fees.
TS: Of course.
DP:Because that would be a big impact on what they cost.
TS: Absolutely. That’s why it’s always important to just consult with your advisor on this before you jump into something, because some states do charge a bigger fee than other states and, of course, you’re always going to want to go with whatever state has the highest percentage of return with the lowest fees. So your advisor would be best to talk to about this before you jump into a 529 vehicle.
DP:Can you use part of your retirement savings accounts for education?
TS: Absolutely, but remember: You can always borrow for college, but you can’t borrow for your retirement.
TS: Having said that, if you want to dip into your retirement account, the IRS does allow you to do this. Roth IRAs are the most favorable for using funds for higher education. You can pull money out to help pay the cost of college education, tax free. It’s important to note, too, for Roth IRAs – and really Roth IRAs are probably the best vehicle in order to do this – that they will be coming out tax free for this. You just don’t see that anywhere else, and a lot of people do not know that actually, that they could use a Roth IRA in order to pay for college education. But, as I said before, the takeaway from any sort of college savings advice is just to talk to your advisor about this first because you don’t want to hinder your retirement plan – and that could potentially happen.
DP:What if you child winds up not going to college?
TS: You can use that for a trade school or you can transfer to a relative to use. You do run the risk of a penalty for withdrawal for non-educational use. That’s the key – non-educational use. There is a penalty for that.
DP:That’s good to know. How can you help closely held business owners balance the costs of running their businesses and pay for a college education?
TS: Most family businesses use their business to help the family. So a lot of aging owners are trying to find ways to help either their children or grandchildren. With relatively low funds and maintenance, 529 plans are extraordinarily favorable for these business owners because they don’t have to spend a lot of time thinking about how to invest,which vehicle is best. It’s hard to concentrate on that and concentrate on making their business successful. The key though is to start the fund at a young age.
DP:Well, you know what time it is, Tim. Our listeners can’t get enough of them. Let’s hear your New Jersey Historical Society fun fact for today.
TS: So I think all New Jersey residents are aware that Rutgers is the birthplace of college football. I mean it’s actually on their stadium, so if you ever drive past it you’ll see it there. But I don’t know if you guys are aware of this: The first organized baseball game was actually played in Hoboken in 1846, which is pre-Civil War; and the first professional basketball game was played in Trenton, New Jersey,in 1896.
DP:Cool. I knew the one about baseball. I didn’t know the one about basketball.
TS: Our state is the best.
DP:Well, Tim, thanks for this valuable information.
TS: My pleasure.
DP:And thank you for listening to “The Bottom Line” as part of the EisnerAmper podcast series. If you have any questions or there’s a topic you’d like us to cover, email us at contact@EisnerAmper.com and visit EisnerAmper.com for more information on this and a host of other topics. Join us for our next EisnerAmper podcast when we get down to business.
Lindsey Gross of EisnerAmper’s Outsourced Finance and Accounting Group joins Tim Schuster from Private Business Services to discuss the differences between these two areas, client case studies that demonstrate those differences, and which types of client could benefit from each.
The Bottom Line looks at how you can use social media to grow your business and examine the different communication platforms available including Facebook, Twitter and LinkedIn. You really need to develop website content and push it on social media platforms.
Tim Schuster, a manager in EisnerAmper's Private Business Services Group, discusses new NJ legislative initiatives happening in Trenton that you should be aware of. The first is the New Jersey Family Leave Act and the second is the increase in NJ's minimum wage.
In this episode of The Bottom Line, EisnerAmper Private Business Manager Tim Schuster discusses developing a quarterly planning calendar, including budget, tax planning and speaking with your trusted advisor. Review these concepts monthly from an accounting perspective.
In the wake of the government shutdown, Tim Schuster offers tips on creating an emergency fund. To avoid living paycheck to paycheck, Tim suggests putting money into a separate savings account, as well as a portion of any windfalls. Emergency funds should include medical expenses.
Tim Schuster from EisnerAmper’s Private Business Services Group talks about the family issues and financial burdens for members of the sandwich generation - those individuals who are responsible for raising their children as well as caring for aging parents.
As New Jersey initiates paid employee sick leave The Bottom Line examines the requirements for business owners. Some reasons for which employees can use sick leave include an employee's own personal medical treatment or legal services, or that of a family member.
EisnerAmper’s Private Business Services Group Manager discusses the current unemployment rate and the booming economy despite current trade tariffs. To help attract employees, businesses are offering incentives such as assisting with student loans to attract millennials.
EisnerAmper’s Private Business Services Group partner discusses estate planning and the need to have a will - from an online provider or an estate planning professional - to help your heirs understand your estate asset wishes and the Tax Cuts and Jobs Act estate tax thresholds.
The Bottom Line looks at some of the common IRS scams out there and what you should do if you fall victim to one of these scammers, including email and personal data hacks, ID theft and fraudulent returns. Contact your accountant if you think you’re a victim of a scam
The landmark Supreme Court decision in the Wayfair case on e-commerce taxation allows states to collect sales tax on e-commerce companies, even without brick and mortar locations in that state, affecting all e-commerce companies such as Amazon. Accountant guidance is suggested.
This podcast discusses the New Jersey Department of Labor and the employee or independent contractor (freelance work) classification under new Tax Cuts. A DOL audit might look at your Facebook and LinkedIn, and can also change your employee or contractor classification.
This episode of The Bottom Line looks at New Jersey Governor Phil Murphy’s inaugural NJ budget. The discussion includes the Governor's proposed New Jersey's state tax on Uber and Airbnb, addressing tax loopholes for hedge funds and New Jersey tax's effect on the gig economy.
In this episode of The Bottom Line, Tim Schuster discusses some of the individual taxation questions bubbling up from clients in the wake of tax reform including adjusted gross income changes, private business taxation, QBI, and the importance of talking with your tax advisor.
This episode of “The Bottom Line” discusses new tax reform changes including C corp and individual taxpayer changes, NOLs, double taxation and bonus depreciation. Tim Schuster came up with a top seven list of business tax reform questions he's been receiving from clients.
In this episode of “The Bottom Line,” Tim Schuster talks about the benefits of retirement savings plans for small businesses, including SEP IRAs, SIMPLE IRAs, and Solo 401(k) plans, as well as eligibility and contribution limits set for small business contributions.
EisnerAmper’s examines the differences between different Health Spending Accounts including HSAs, HRAs and FSAs. It is recommended you speak with your tax advisor about qualified medical expenses and pending tax reform's affect on health spending accounts.
EisnerAmper's Tim Schuster looks at several categories of SBA loans for working capital. He covers the loan approval process, SBA 504, real estate exclusions and how business advisors can help you make the most of the Small Business Administration (SBA) loan process.
EisnerAmper’s Tim Schuster tackles the issue of succession planning - Companies should have something written down for succession planning purposes as well as take into consideration estate planning, wealth management and valuation when creating their transition plan.
EisnerAmper's private business manager, Tim Schuster discusses the need for proactive disaster planning for private businesses, as well as business interruption insurance in the event that your disaster planning fails. FEMA offers online disaster planning recovery courses.
In this episode, Our private business services advisor Tim breaks down what a closely held business is, the different business formats such as LLC LLP and S Corp, and how this impacts the role of business advisors so your accountant, banker and lawyer will all be on the same page.