Expand Your Practice With 529 College Savings Plans
For many advisors, college savings represents an untapped practice-building opportunity. Learn how successful advisors cultivate client interest, build a bigger client base and increase assets under management.
Step 1: Consider the ways that helping clients with a college savings strategy can also benefit your practice.
Advisor benefits include:
- Deeper client relationships. Investors consistently rank college savings as one of their most important objectives. Addressing this and other investment needs can help you fulfill client expectations for more comprehensive, personalized planning.
- Long-term, “sticky” assets. The average age of a CollegeAmerica® beneficiary is 11 years old. With more than half of college students age 22 or older, you could be managing your clients’ 529 assets for at least a dozen years.
- Sizable investments. Advisors often think 529 college savings plans only involve small account balances, but in reality high contribution limits coupled with tax benefits may make 529 plans a potentially attractive estate-planning vehicle for high-net-worth clients, such as grandparents.
- Administrative ease. Options such as age-based target date funds and payroll deduction for employer-sponsored plans clear administrative and logistical hurdles so it’s easy to set up new accounts.
The advantages of CollegeAmerica. The country’s largest plan features a number of meaningful benefits, including operating expenses that are among the lowest in the industry
Step 2: Lay out your strategy for growing your 529 business.
How to do it:
- Make 529 part of your routine. Discuss college planning with all new clients and integrate college savings and/or gifting into your year-end tax discussions.
- Engage emotions. Explain to clients how getting started early and reducing the student-loan burden can make a huge difference in the lives of their children or grandchildren.
- Tie in college savings with holiday gifting. As holidays approach, suggest that clients contribute a meaningful gift to a loved one’s 529 college savings account. Also, May 29 (5/29) is National 529 College Savings Day! Celebrate with an event on the importance of setting aside money for higher education.
- Bring the conversation outside the office. Give clients a college savings piggy bank after the birth of a child or grandchild. Suggest they earmark all deposits for a CollegeAmerica account.
- Meet with receptive audiences. Attend a PTA meeting or back-to- school event to provide informational material to parents, school board members and educational professionals.
- Build a network. Create a network of CPAs and estate attorneys to cover the full spectrum of 529 issues, including tax benefits and student loans. Also consider holding college planning client events for people in similar age groups (new parents, emptynesters/grandparents, estate planners).
- Prospect local businesses. Find local small-business owners through small business directories, the local chambers of commerce, through business license applications or just by driving around town
Step 3: Reach multi-generational prospects and promote the estate-planning benefits of 529 plans.
How to do it:
- Make college savings a family affair by reaching out to grandparents and other family members to contribute. Explain how they may also be able to take advantage of estate planning benefits associated with 529 savings plans:
- High gifting limits can help put money to work. Investments have the most potential to benefit the beneficiary when they have the longest possible investment timeframe. Thanks to CollegeAmerica’s high gifting limits, contributors are able to put sizable assets to work.
- Tax-free wealth transfers remove the tax burden, not the control. It’s possible to combine up to five years of contributions into one lump sum of up to $70,000 in one calendar year ($140,000 for married couples) without gift-tax consequences.(If the contributor dies within five years of making the election, the portion of that contribution allocable to the remaining years is included in the contributor’s estate for estate-tax purposes.) Thus, 529 college savings plans are a great option for transferring sizable sums out of an estate while retaining control of the assets.
- There’s no limit on the number of beneficiaries.The number of beneficiaries for whom they can make gifts is unlimited. Eligible contributions are deducted from their estate, but the account owner retains control of the assets as well as the withdrawals.
Step 4: Connect businesses with CollegeAmerica.
How to do it:
- Identify companies that are potential 529 clients.
- Consider small- and medium-sized companies, which are often overlooked but represent a meaningful opportunity. The automatic contributions for multiple employees can add up quickly.
- Explain how college savings plans are a win-win to employers and employees:
- A meaningful way to motivate/retain employees, with no start- up costs or recordkeeping expenses. American Funds maintains all the employee account records.
- No administrative burden. Employees manage their accounts directly with American Funds.
- No minimum participation. While widespread employee participation is welcome, a single shareholder is enough.
- No upfront sales charge for participants and low ongoing expenses with 529-E shares (available only in employer-sponsored programs).
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses, summary prospectuses and CollegeAmerica Program Description, which can be obtained from a financial professional and should be read carefully before investing. CollegeAmerica is distributed by American Funds Distributors, Inc. and sold through unaffiliated intermediaries.
This material is intended for use by financial professionals or in conjunction with the advice of a financial professional.
Depending on your state of residence, there may be an in-state plan that provides state tax and other state benefits, such as financial aid, scholarship funds and protection from creditors, not available through CollegeAmerica. Before investing in any state's 529 plan, investors should consult a tax advisor.
If withdrawals from 529 plans are used for purposes other than higher education, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax.
© Capital Group
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