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Redrick Terry: It is now time for 4 Your Money. We’re joined by James Nelson with Nelson Corp. Wealth Management. James, good morning!
James Nelson: Good morning!
Redrick Terry: Glad you’re here with us here. So glad you could be here today and we’re talking about college today. We all know, costs for college have just risen dramatically over the last several years. Uh, how much, exactly, has it risen?
James Nelson: Yeah. Well, first of all, what great timing to be talking about college with what we’ve seen in the news the last two weeks with, uh, this college scandal.
Redrick Terry: Mm-hmm (affirmative).
James Nelson: Um, you know, I promise today I won’t be making any recommendation to paying a half million dollar bribe to get your kid into school but, uh, yeah. College expenses have gone up, and I think we’ve got a chart here that kind of shows that. Um, over … starting my year rendering, since the year 2000 through the end of 2018, here, we’ve got some data and, uh, I’m just going to pick, uh, a couple of ‘um here to, to drill down on.
We’ve got this blue line here. That’s, uh, housing. Through this 18 year time frame, housings gone up right at about 60% and, uh, then we’ve got this solid red line here. That’s medical costs, uh, that … medical costs have risen about 90% in that same timeframe. And then, what we’re talking about today, that dotted line towards the top is college expenses, uh, up over 160% in the last 18 years and, uh, no sign of stopping.
So, yeah. The big question is how are people gonna to pay for it?
Redrick Terry: Yeah, I mean, we all know about it. Uh, I know a lot of people are dealing with this but just to see it, (laughs) right there, is uh, is pretty startling. So like you said, that is the big question. What can students do as far as saving methods and families that do that to offset some of these rising costs?
James Nelson: Sure, sure. So I’m going to talk about two. Clearly, these aren’t the only two but the first one’s a 529 Plan. I think that’s the most well-known, uh, at least people have heard of it. That’s a college savings account that is in, maybe, a parent or a grandparents name for the benefit of a child or grandchild. The idea here is to put money away, gross tax deferred, and comes out tax free assuming it’s used for qualified educational expenses. So that’s room and board, that’s tuition, that’s books, that’s a computer … things like that, qualified as, uh, qualified, uh, educational expenses.
The nice thing about the 529 Plan is whoever is making the contribution can, uh, also get a state deduction. So we’re talking about state 529 Plans. Iowa and Illinois have one. Uh, most states do have a state driven 529 Plan, so the person making those contributions can, uh, get a little bit of a state deduction and, and take advantage of that.
The other nice thing is, uh, 529 Plans just used to be for higher education. Now they can be used with this new tax law signed into law about year and half ago, can be used for any schooling expenses. So that’s elementary, middle school, high school and, uh, there’s several private schools in the quad-city area here maybe an option for some people.
The second account that I’m gonna talk about is a UTMA account. That’s stands for Uniformed Transfers to Minor Act. This isn’t college specific, but it is a vehicle that a lot of people use for college savings. So, it’s a taxable account in the, uh, uh, child or grandchild’s name. Uh, not any tax benefits for the contributions going in, but it’s taxed at the child’s rate which is probably zero, uh, or close to that.
So, anyway, those are two options. They’re not the only two but, uh, those are two, uh, options for people to consider.
Redrick Terry: Well, a lot of people looking at any options they can get. As you said, it is rising quite a bit and very often. So-
James Nelson: Yeah, absolutely.
Redrick Terry: Very important. James, thanks so much for joining us-
James Nelson: Thank you.
Redrick Terry: … this morning. We appreciate it and if you missed any of our discussion, as always we’ll make it available for you on our website that is ourquadcities.com.
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