Advisers guide parents to blend college-funding vehicles

To fund the college years, financial advisers are recommending a mix of tools, the most popular of which are Section 529 college savings plans and trust accounts, according to preliminary results of a new survey.
About 93% of advisers recommend that clients use tax-advantaged 529 plans, compared with 43% who suggest using trust accounts such as Uniform Gift to Minors and Uniform Transfers to Minors act accounts, and 37% who recommend using funds from Roth individual retirement accounts to pay for college, according to the Financial Research Corp. survey of 380 advisers.
“Advisers are recommending multiple vehicles for college savings, many telling clients to fund 529 plans and use other vehicles, too,” said Paul Curley, an FRC analyst.
The survey also showed that advisers aren’t making great use of the gifting benefit of 529 plans, he said. Only 20% of advisers use the gifting benefit of the plans more than 10% of the time, according to the survey.
Under tax rules, contributions to a 529 plan can count towards the $13,000 annual gift tax exclusion. Additionally, contributions between $13,000 and $65,000 for a beneficiary can be treated for gift tax purposes as being made over five calendar years.
“The gifting rule is a great idea that financial advisers can present to clients, but perhaps it is a feature not being presented enough,” Mr. Curley said.
Another recent study, this one a survey of parents, suggests that financial advisers aren’t widely recommending 529 plans.
A Fidelity Investments survey reported that only 38% of parents who consult with financial advisers said their advisers “proactively suggest the 529 plan” for their children.
The Fidelity survey of 2,383 families, which was released on Tuesday, also showed that advisers increasingly are providing a broad range of guidance about college funding, not just advice about college savings and distribution strategies. Other activities include the financial aid process, the grant process and researching schools, the report said.
“One statistic that hasn’t fluctuated in five years of tracking attitudes toward college savings is that 80% of parents believe that a college education is a minimum requirement for a decent job,” said Matt Golden, head of Fidelity’s adviser 529 business. “This is why more financial advisers are providing advice around financing that critical degree.”
Deborah Fox, a financial adviser who has long specialized in helping families save for college, said each family is different, but that recommending a mix of college savings tools is most common. “Typically we encourage investing in multiple funding vehicles, mainly to diversify and so parents have more control over their options,” she said.
For instance, the tax benefits of 529 plans have to be weighed against the fact that holders can make investment changes only once a year. That can be problematic in a volatile market, especially as a student comes closer to the college years, Ms. Fox said.