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What Waymark Can Do for You in August, 2023

Back-to-school season got you thinking about how to best save for your child's college education? This month in our What Waymark Can Do for You video series, Brendan compares UTMA and 529 accounts and their potential benefits and drawbacks. Watch this four-minute video to learn about saving for college.

Hi, and welcome to another edition of What Can Waymark Do for You - August 2023 edition. So it's getting to be about that time that people are starting to think about going back to school and for some, it's time that some college tuition bills are coming due. So hopefully you've done some college planning at this point and saved a bunch of money. But if you haven’t, or your, kids are very young, this could be a time to start thinking about it.

So there are two major ways of saving for college. One is the use of UTMA accounts, and one is using 529 accounts, and each have their different pros and their different cons. Let's start with the UTMA account. So the UTMA account is a brokerage account that is owned by the child but managed by the person who gifts money into it. So there is someone that is overseeing the investments up until age 21, or the age of majority in your state. Sometimes that age of majority is younger than 21. But in Massachusetts, it’s 21. And at that point, the UTMA account becomes the sole property of the child to do whatever they want with it without any supervision over what they do with it.

Now the good thing about the UTMA account is that it's wide open - you can invest in just about anything. Additionally, you can also spend the money on just about everything, which is different than the 529. We'll talk about that in a moment. The bad things about it are that they are taxable, and one of the benefits is it's taxable to the kid. So it could be at a lower tax bracket than the person that gave the money to the account. And the other negative associated with it is that again, at the age of majority, it becomes the child's property, and they can do whatever the heck they want with it.

The 529, on the other hand, does have tax advantages. So if you put money in, in some states, there actually are some state tax deductions for that. And then the other piece of it is that if the money is used for a qualified education expense, then the money and the growth on that money is tax-free. So that's a huge benefit. The other benefit that just recently came to pass is that you can actually rollover up to $35,000 of unused 529 money that's been in the 529 for at least 15 years into a Roth IRA in the beneficiary's name. So that's a huge, huge benefit and a new one that just came out less than a year ago. The negatives associated with a 529 account are that in order to get that tax preference, you have to use the money that's in the 529 for education purposes. So if the child doesn't go to college, or you want to use it for the down payment on a house or a car or something that the child will need eventually, at some point in their life, you can't use the 529 money without potentially paying taxes and also a penalty for it.

So again, lots to take into consideration but that's why we're here. So definitely reach out to us if you have any questions about funding education. And that's all I had for today's What Can Waymark Do for You - August 2023. Thanks for listening, and we'll see you next time.

Brendan is the Managing Director for Waymark Wealth Management. He has extensive experience in comprehensive wealth management. His focus includes retirement planning, behavioral finance, investment portfolio construction, education funding, insurance & risk management, taxes, charitable giving, and estate planning. Brendan has an ability to take clients' complex visions and distill them down to simple action plans, helping them move from where they are today to where they want to be tomorrow.

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a registered investment advisor. Member FINRA/SIPC.

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The opinions voiced in this video are for general information only and are not intended to provide specific advice or recommendations for any individual.


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