February 27, 2014: Cheryl Sherrard quoted in Charlotte Business Journal’s January 10th edition of the Financial Planning Special Report, END OF STATE TAX CREDIT BRINGS COLLEGE SAVINGS INTO FOCUS.
The Special Report focuses on North Carolina 529 Plans and the recent decision by the NC General Assembly to do away with the state tax deduction that families saving for college have enjoyed. You must be a Charlotte Business Journal online subscriber to read the full article. For those who are not subscribers, you can read an excerpt from the article below, containing Sherrard’s advice for college savings.
Cheryl Sherrard, director of planning for Clearview Wealth Management, says college costs are so unpredictable, families should combine a 529 plan with other approaches to fund higher education.
“Until the time your child makes a final decision about college, you don’t know what the costs are going to be, and that occurs the spring prior to fall semester,” Sherrard notes.
She counsels clients to set up a 529 to build up a baseline of savings for education, but she also encourages them to use a taxable brokerage account for supplemental savings earmarked for education.
Such an account doesn’t offer the same tax savings, but it can help families maintain some flexibility and get closer to their goal. If the money is not needed for school, it can be used for other purposes, such as retirement.
The once-popular Coverdell IRA has lost favor to 529s, Sherrard says. The rules on Coverdell accounts were tightened in 2011, reducing the amount parents or guardians could contribute to $500 a year from $2,000, and restricting the use of funds to college and not a private elementary and secondary school as before.
“The annual limit is so small for a Coverdell that it’s not a good option anymore,” she says.
Likewise, Sherrard says the once-popular Universal Transfer to Minor Accounts, which allowed parents and grandparents to give cash and securities to children, no longer offer significant tax benefits and can trigger a financial-aid disadvantage.
“The problem is if a parent hopes their child can get financial aid, those assets are considered the child’s and count against them heavily in the financial-aid process,” Sherrard says. “If clients come to us with UTMA accounts, we recommend spending those down for other educational costs.”