College Planning

Personal financial advisors who offer college-planning services work primarily with parents or guardians interested in establishing and growing savings accounts with funds specifically allocated to cover the cost of their children’s college education. There are a number of college savings options available. The best choices for each family will depend on a number of factors, one of the most significant of which is family income, as some of the tax-advantaged programs discussed here have income restrictions that don’t allow higher income families to participate.

A Qualified Tuition Program, also called a 529 plan, is operated by individual states or by eligible educational institutions. This plan offers a tax-advantaged way to save for college. Contributions to a 529 plan aren’t tax deductible, but the earnings on the investment are tax-free as long as the money is used for qualified educational expenses and the distributions from the plan are not greater than adjusted qualified education expenses. The Internal Revenue Service defines adjusted qualified education expenses as total qualified education expenses minus tax-free educational assistance. Such tax-free assistance includes the tax-free part of scholarships and fellowships, veterans’ educational assistance, Pell grants, and employer-provided educational assistance.

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Two types of 529 plans are prepaid tuition plans and college savings plans:

  • A prepaid tuition plan covers future tuition (and sometimes room and board) at participating colleges and universities.
  • A college savings plan is an investment account from which funds can be withdrawn to pay qualified education expenses to any educational institution deemed eligible by the IRS.

Every state operates at least one 529 plan, with varying requirements and benefits. A group of private colleges and universities also sponsors a pre-paid tuition plan.

Coverdell Education Savings Accounts (ESAs) are another tax-advantaged college savings plan option. These trust, or custodial accounts, are created for the sole purpose of paying the qualified education expenses of the designated beneficiary. Again, contributions aren’t tax deductible but the earnings are tax-free, as long as the beneficiary uses the money for qualified education expenses at an eligible institution. The maximum annual contribution to a Coverdell ESA, as of 2011, is $2,000. However, same-year contributions can be made to both a Qualified Tuition Program and a Coverdell ESA for the same beneficiary.

Other options for college planning include:

  • The Education Savings Bond Program lets owners of certain savings bonds cash them in and use the money for qualified education expenses without paying tax on the earnings of the saving bonds.
  • Early distributions can sometimes be taken from Individual Retirement Accounts (IRAs) for qualified education expenses without paying the ten percent early withdrawal penalty. The obvious disadvantage to this option is that it cuts into retirement savings.
  • Tax credits are sometimes available for educational expenses. A tax credit is an item that reduces the amount of tax owed, as opposed to a tax deduction, which only reduces the amount of taxable income. In 2010, the available tax credits were the American Opportunity Credit and the Lifetime Learning Credit.
  • Two types of custodial accounts are available: Uniform Gifts to Minors Act (UGMA) accounts and Uniform Transfers to Minors Act (UTMA) accounts. Monies put into these types of accounts belong to the beneficiary child, and are taxed at the child’s tax rate rather than the parents’ rate. The child takes control of the account when reaching legal age (usually age 18 or 21 depending on the account and state). The disadvantage, from a parent’s perspective, is that the child is under no obligation to use the money for college.

Education and Licensing of College Planning Specialists

College planning is generally just one part of a personal financial advisor’s job. Aquiring the body of knowledge necessary to become a personal financial advisor typically requires at least a bachelor’s degree. No specific major is required, but math, analytical, and interpersonal skills are important. Particularly relevant degree choices include finance, economics, business, accounting, mathematics, law, or financial planning.

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Personal financial advisors don’t necessarily need a license to offer financial or college planning services. However, appropriate licenses are necessary for advisors who directly buy or sell products such as bonds, stocks, mutual funds, or annuities. For example, the sale of annuities requires a state insurance license, and the sale of securities requires becoming a General Securities Representative by passing the Series 7 Exam created by the Financial Industry Regulatory Authority (FINRA).

Personal financial advisors who manage client assets and offer them specific advice and recommendations on the purchase and sale of securities and other investment vehicles must register their business with state Securities Commissions as a Registered Investment Advisor (RIA). Requirements vary by state, but this most often involves passing either the Series 65 Exam or the Series 7 in combination with the Series 66. Businesses that manage $100 million or more in client assets must register federally with the Securities and Exchange Commission.

Certifications Available to College Planning Specialists

Financial advisors who offer college planning services can become Certified College Planning Specialists (CCPSs) through the National Institute of Certified College Planners (NICCP). Earning this esteemed designation requires completing NICCP’s certification program, including passing comprehensive exams. The program consists of three modules that cover knowledge and resources specific to helping families pay for their children’s education. Maintaining the CCPS designation requires completing 24 hours of continuing education credit each year and abiding by the CCPS Code of Ethics.

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College planners who offer a full range of financial planning services can also become a Charter Financial Consultants (ChFCs) or Certified Financial Planners (CFPs).

Employment and Salary Expectations for College Planning Specialists

As of May 2010, about 63 percent of personal financial advisors offering college tuition planning services were employed in the finance and insurance industries, according to the Bureau of Labor Statistics. Employers included banks, financial investment firms, insurance carriers, and securities and commodity brokers. About 29 percent of personal financial advisors who specialize in college planning were self-employed. The BLS predicts that the employment of personal financial advisors will increase by 30 percent during the current ten-year period ending 2018.

As for the salary of personal financial advisors offering college tuition planning services, the BLS reports an annual mean salary of $91,220 and a median salary of $64,750. Fifty percent of financial advisors earned between $42,100 and $111,990.