July 2015

BY J. HAROLD WILLIAMS, CPA/PFS, CFP, President and Chief Executive Officer, Linscomb & Williams

Author Jared Kintz remarked on the high cost of college: “I wouldn’t advise making a four-year commitment to eventually land an $8.00/hour job. Skip college. Read Wikipedia for free instead.”

Regardless of your personal spot in the Houston medical community, you probably understand his point, but likely disagree with his conclusion. Most likely you have had some personal experience with expensive higher education costs, and may even still be retiring debt for your own higher education expenses, as medical education is not cheap. Even if you are fortunate enough to be past that point, you may be now beginning to think about this issue for your own children or grandchildren. The bad news? A quality college education is not getting cheaper. In fact those costs are generally escalating faster than inflation. The good news? Advance preparation for children and grandchildren can make a major difference.

In the current tax environment, we have two basic tools in Texas that anticipate these financial goals. We often find families we talk with are confused about the differences between these two tools. They really want to know, “What is right for our situation?” A quick refresher on the two available tools: Section 529 Savings plans are much like a 401k plan that accumulates money for education instead of retirement. You contribute money in a lump sum or periodically. It is invested in various investment vehicles like mutual funds. Hopefully, it grows in value. When the student named as the beneficiary reaches college, money is withdrawn to pay for qualified education expenses (basically books, tuition, Room & Board, and fees).