Valuable Gifts
for Your Favorite Graduate

Summer is officially here and students all over the country are enjoying a well-deserved classroom respite. Graduation commencements are finally happening again after mostly being canceled in 2020; and we are slowly getting back to celebrating these joyful life milestones. All those beginning and end-of-year school pictures on social media remind us just how quickly our kids and grandchildren have grown—even as the world seemed to pause during Covid-related shutdowns.

As parents, grandparents and other loved ones, we revel in the opportunity to share our best wishes for a bright and prosperous future!
Trying to figure out what to give your favorite graduate? There’s no shortage of gifting suggestions available; and while the much-coveted Grubhub gift card will surely be appreciated and put to good use, we have a few more impactful suggestions, ranging from providing invaluable financial literacy to helping to finance their education.

We all know that financing an education can be expensive and daunting.

CollegeBoard.org reports that for the 2020-21 academic year, the cost for an in-state student to attend a public college was nearly $11,000, including tuition and fees. Out-of-state students paid an average of around $27,000 for public institutions, and one year of private college tuition averaged nearly $38,000.

No matter what age your favorite graduate is—nursery or grad school—or where they are in their educational journey, one of the most valuable gifts you can offer is financial literacy and, if possible, financial support to help them manage the cost of financing an education. Let’s look at a few ways that you can help the students and graduates in your life!
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Pre-K, Kindergarten & Elementary School Graduates
and College Savings Plans

Between graduation celebrations and just coming off the heels of May 29 (National 5•29 Day), which is designed to promote awareness and participation in 529 plans, this is a timely opportunity to cover some of the basics and benefits of 529 Plans for college savings. Named after Section 529 of the IRS Tax Code, which was added in 1996, 529 Plans are tax-advantaged college savings plans or qualified tuition programs (QTP) established and maintained by a state (or an agency or instrumentality of a state) that allows a contributor to:
1. Prepay a beneficiary’s (the student) qualified higher education expenses at an eligible educational institution
*or*
2. Contribute to an account for paying those expenses

529 Key Benefits
You can open a 529 education savings plan for your child, grandchild a friend or even yourself. There are no income limits and you can contribute to a 529 Plan at any time, and these plans can provide contributors and students with several tax and financial aid advantages…

529 Plan Benefits for the Student:
• A 529 Plan may be used to pay for the college expenses and K-12 tuition of the beneficiary tax-free (including tuition at an elementary or secondary public, private or religious school).
• 529 education plan assets can now be used for up to $10,000/year in K-12 tuition expenses.
• Contributions to a 529 Plan are made from after-tax dollars, and earnings accumulate on a tax-deferred basis.
• Qualified distributions from a 529 Plan are entirely tax-free.

Tax Benefits for the Contributor:
• In 2021, individuals can contribute up to $15,000 per beneficiary ($30,000 for gifts from a married couple) without using up part of their lifetime gift tax exemption or having to pay gift taxes.
• 529 Plans also have a special five-year gift tax averaging rule, which lets an individual make a lump sum contribution of up to five times the annual gift tax exclusion per beneficiary and have it treated as though it were given over a five-year period. An individual can give up to $75,000 tax-free in a lump sum; $150,000 for gifts from a married couple.
• Many states offer state tax-deferred growth and tax-free withdrawals for qualified education expenses. They may also offer in-state tax benefits to those who contribute to their home state plan.
• Once assets are contributed to the 529 account, the assets are generally considered to be out of the account owner’s estate (even though you may still have control over the plan’s assets).
There are some important notes to keep in mind if you’re thinking about setting up a 529. Firstly, you want to make sure you choose the plan that is right for your beneficiary, you and your unique situation. These plans often have lifetime aggregate limits that range from $235,000 to $529,000, depending on the plan. Your personal wealth manager can help explain and weigh all those considerations to find the best match.

Your advisor can also help you open, maintain and monitor your 529 account and provide additional support:
• Identify the cost of education and estimate how much you will need
• Compare and contrast the features, investment options and costs of several 529 Plans
• Begin a strategy with appropriate investments for your situation, timing and risk tolerance
• Track your progress and monitor your investment performance
• Understand your options regarding investments and changing allocations
• Take distributions wisely
529 Education Plan Savings Fact Sheet - Pershing - How your monthly investment could grow[3356]
Overall, 529 Plans offer a prudent way to help build and fund an educational legacy while also taking advantage of tax and estate planning benefits—especially in light of new changes to financial aid eligibility rules coming down the road for the 2024-2025 academic year (learn more on these changes below).
 

High School Grads, FAFSA & Financial Aid

For those who have college-bound students in the family, you’ll be hearing a lot about FAFSA (Free Application for Federal Student Aid), the form you need to fill out to apply for federal student financial aid. It’s a necessity for most students if they’re seeking any form of federal financial aid—notably, most states, schools and many other private, scholarship-granting organizations also use FAFSA to award non-federal financial aid. Financial aid can be awarded as grants and scholarships (which don’t need to paid back), student loans (which will need to be repaid, plus interest) and/or work-study participation (generally meaning an on-campus job).

If you or your loved ones are attending college this fall, you likely already know about the June 30th FAFSA filing deadline: FAFSA forms must be submitted by 11:59 pm CT on June 30, 2021; and corrections or updates must be submitted by 11:59 pm CT on Sept. 11, 2021. With around 100 questions over eight pages, you’ll need some focused time and access to your tax-filing data to complete the application, although the electronic FAFSA process and IRS interface is much easier than it used to be in the old days when it was only in paper form.

It is also important to know—especially if your child is a few years away from college—that there are some FAFSA process-related revisions coming. Congress passed these changes in December 2020 but will not be effective until the 2024-25 academic year (originally, this was supposed to kick in for the 2023-24 year, but the Department of Education recently announced that it will need more time to enact the changes and may take a phased approach (Source: “Education Department Delays Simplification of the FAFSA”).
Here are some of the key changes:
• The new form will be shorter with only 36 questions.
• The “expected family contribution” will now be “student aid index,” a guideline for the level of help a student might receive and it may be calculated differently.
• It will no longer offer a break for having multiple students in college at the same time.
• It removes negative impact of “grandparent” 529 Plans on financial aid eligibility. Currently, student- and parent-owned 529 accounts are treated more favorably (reducing aid eligibility by a maximum 5.64% of the account value) than those owned by non-custodial parents or anyone else outside of the custodial household (treated as untaxed student income, potentially reducing aid eligibility by as much as 50% of the amount of cash support).
Maximizing Aid Eligibility

Top Ten FAFSA Tips to Maximize Your Eligibility
” explains, “Money in the student’s name is assessed at a flat 20%, while money in the parent’s name is assessed at a lower rate, no more than 5.64%. So, it is best to save money in the parent’s name, not the student’s name.”

College Ave notes several straight-forward tips to help parents reduce reportable assets to assist with aid calculations:
• Pay down debt.
• Accelerate expenses. If there’s a pricey home improvement project that you’ve been thinking about, now may be the time to do it.
• Increase retirement contributions, including topping off your Roth IRAs.
• Reduce income: Income from businesses can be excluded if under 100 employees; increase contributions to a retirement plan; avoid realizing capital gains; retirement distributions; avoid exercising stock options; if possible, defer bonuses.
Of course, you’ll want to work with your individual wealth manager and other trusted advisors to find solutions best-suited for your family’s goals.

And here are a few other tips to facilitate the process and maximize aid eligibility:
• Be first in line: FAFSA opens on October 1 each year and awards are given out on a first-come, first-served basis.
• The parent should contact the Financial Aid office of the likely colleges a student will choose to go to. While it requires persistence, you should be able to get additional information on grants and scholarships that are available.
• Financial aid packages can be appealed, especially if another college is providing a more generous package. This could help increase your financial award by a few thousand dollars.
• Contact the Guidance Counselor at the student’s high school to learn about available grants and scholarships.
• It may be worth more for the student to spend the summer writing essays and applying for scholarships than getting that part-time summer job.
• Ask your tax advisor about potential available tax credits.

College, Grad School & the Real World

For our older graduates, this is the perfect time to help them with the gift of financial literacy. It’s likely that they’ll be receiving generous gifts from family and friends. Providing some guidance on how to handle their new-found wealth can prove invaluable.

They’re going to want—and deserve—to celebrate and splurge (especially after scrimping though their college years). Of course, a little celebration is in order, they’ve worked hard and deserve to enjoy their accomplishments. If you’re giving a financial gift, it may be helpful to suggest using some of the money to enjoy themselves while putting some of it away for savings.
We recently shared this straightforward “adulting” guidance anyone can utilize as they plan for their financial future, and here are a few tips to help your favorite grad establish a sound financial foundation as they go out into the real world:
• Learn how to budget.
• Start paying off student loans.
• Begin building credit.
• Take advantage of all employer benefits.
• Understand the importance of different types of insurance, such as renters, life and disability Insurance (both which may be available through an employer).
• Start building an emergency fund.
• Start to think about retirement planning – while it may seem like it’s far away, starting to save early can help them to take advantage of compounding throughout their working years.
• Consider working with a fiduciary advisor to plan for the future.
Helping your graduates take these first steps toward a strong and holistic approach to financial health and money management skills will likely help them both now and long into the future—as they begin to make their way in the world, pursue new experiences and prepare for wherever their paths lead.

Congratulations to all of our graduates and their proud parents/grandparents!

This content is informational in nature and not intended as individualized financial, legal or tax advice. Wealth management and financial planning decisions are complex and fluid and should be structured around each client’s unique situation and needs. Parties should carefully consider all related benefits, risks and costs and speak to their trusted advisors before making any significant decisions.