River Hill Magazine: An Economic Blueprint for College Savings – Part II – To help you plan effectively and be well-prepared!

College Savings Blueprint

The beginning of a new school year is a good time to think about planning ahead for the costs of college for your children. Five key variables to consider in your analysis are: time horizon, cost assumptions, available resources, account structure, and investment strategy.

This article discusses the fourth variable, account structure, which should be considered when thinking about financially preparing for your children’s future.

Account structure identifies how and where the funds will be accumulated, i.e. what type of account is best for your particular situation. Should the funds be accumulated in the parents name, the child’s name, or a type of hybrid structure that could offer better tax advantages such as a Section 529 College Savings Plan or Section 529 College Investment Plan? When considering the type of account structure, one key factor is how much control over the funds you would like to retain, or give to your child. A second factor is which type of account structure offers the best strategy for minimizing tax consequences. It is important to emphasize that tax considerations are an important factor, but rarely the most important factor and should always be weighed against all other factors. Here is a summary of key considerations when thinking about education funding account ownership issues:


Advantages Disadvantages
¨     Qualifying for financial aid ¨     No tax advantages
¨     Parents maintain control ¨     Income taxed at parent’s rate
¨     Parents maintain ownership
¨     Flexibility – funds available for other needs


Advantages Disadvantages
¨     Easy to establish ¨     Does not avoid kiddie tax
¨     Parents maintain some control ¨     Qualifying for financial aid
¨     Child legally owns the assets
¨     Transfer of funds is irrevocable
¨     Child controls at age of majority


Section 529 College Savings and College Investment Plans typically contain a designated account owner and an account beneficiary. Some of the considerations listed above might also apply. Although a discussion of Section 529 Plans is unable to be included in the scope of this article due to space constraints, the table below lists some very important questions to ask when evaluating Section 529 Plans:



Contributions What is the limit on the maximum annual contribution per beneficiary?
Contributions What is the minimum lifetime contribution per beneficiary?
Flexibility Are the funds portable to 529 Plans in other states?
Flexibility Can the account owner and beneficiary be changed?
Flexibility Can a contingent beneficiary be designated?
Stability How long has a particular plan been in-force?
Stability Are plan assets backed by the state in the event of plan default?
Income Tax What is the maximum deferral period of the plan?
Income Tax Will state income tax deductions for contributions be allowed?
Estate Tax Are state gift-tax consequences incurred?
Investment Who is the Investment Adviser to the Plan?
Investment What annual fees are incurred for investment management?
Investment What asset allocation strategy will be used?


The final parameter to be considered in your college funding plan is the investment strategy. This could be a complex topic for a future article.

Christopher P. Parr, CFP®, is a River Hill resident and president of Parr Financial Solutions, Inc., a Columbia-based, independent, fee-only, wealth management firm. He can be reached at 410-740-9011 or online:

This article was written for the August 2015 issue of River Hill Magazine.

River Hill Magazine: An Economic Blueprint for College Savings – To help you plan effectively and be well-prepared!

The beginning of a new school year is a good time to think about planning ahead for the costs of college for your children. Five key variables to consider in your analysis are time horizon, cost assumptions, available resources, account structure, and investment strategy. This article addresses the first three of these variables.

College Savings Blueprint

Photo by Sophia Liu

Time Horizon

The first key variable, time horizon, can be broken down into two subcomponents. These are the number of years until college begins and the number of years in school. Additional consideration should be given to whether or not you plan to continue to add to college savings during the years the child is actually attends college. Alternatively you could plan to have college costs 100% funded by the time college starts, and therefore not have to contribute additional resources during the college years.

 Cost Assumptions

The second variable, cost assumptions, also has two subcomponents. The first would be the annual cost of college in today’s dollars for room, board and tuition. Further consideration can also be made for various types of colleges that your child plans to attend. In other words you could run multiple scenarios for each child depending on the type school ranging from commuting to a local community college up to attending an elite college like a Johns Hopkins or a Harvard.

 Available Resources

The third variable is funding. There are two funding factors to consider. The first is “what funds are available now that are specifically designated, or have flexibility to be used for college?” The second factor is potential sources of additional funding. Additional funding can come from a variety of resources including, but not limited to, surplus household cash flow, funds contributed by grandparents or other family members on behalf of your child, funds redirected from a child’s UGMA or UTMA custodial account, and even Section 529 Education Savings funds transferred from another family member. There are tricky issues to be carefully considered before redirecting or transferring any existing funds. Once the key variables have been identified, it is possible to run financial projections on what the approximate cost of college might reasonably be expected to be for each scenario you would like to consider.

 Account Structure and Investment Strategy

The final two variables involve how and where the education funds will be accumulated and the investment strategy. These variables will be addressed in a future column.

This is article appeared in the October 2014 issue of River Hill Magazine
Copyright © by PARR Financial Solutions, 2014.
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