Most wealthy parents are failing to use tax-efficient vehicles fully to cover their children's college costs, instead depending on current income and regular savings or investment accounts, a new survey has found.
Most wealthy parents are failing to use tax-efficient vehicles fully to cover their children's college costs, instead depending on current income and regular savings or investment accounts, a new survey has found.
According to a Legg Mason Inc. survey of 1,000 Americans with more than $250,000 in investible assets, about 85% of those with kids in college are paying for school out of their income, and 83% of those with children who aren't yet in college plan to do the same. In the survey, Legg Mason, which markets its own Section 529 college savings offering, allowed respondents to choose more than one funding strategy.
Less than half (46%) of wealthy Americans with kids in college are using regular savings or nonqualified-investment accounts to pay college costs, and 65% of people whose kids aren't yet college age plan to tap these accounts to pay for higher education, the survey found.
More than half (57%) of those with kids in college are using 529 plans, and 79% who have younger than college-age children are planning to use this type of vehicle to cover costs, according to the survey.
“We see all the signs of good intentions, but they lack a strategic funding plan,” said John Kenney, head of Legg Mason's global asset allocation group. “People underestimate the extent of the total expense of college, they start the planning process too late and they don't use the appropriate vehicles.”
About 67% of the respondents in the survey said they use financial advisers, and 69% of those said that they have discussed college funding with their adviser.
About a quarter said that they had to bring up the topic with their adviser first, Mr. Kenney said.
“These parents are losing the tax advantages and the compounding of that by paying out of current income, as opposed to out of a 529 account,” he said. “It would be nice for them to be able to harness that fully.”
About 17% of wealthy Americans are using student loans to cover current college costs, and 40% of respondents who have younger children plan to use loans when they send their kids to college.
Of those whose kids already graduated from college, 92% paid for school with income, 59% withdrew money from savings and 36% paid with 529 plans, according to the survey.
Most wealthy parents are failing to use tax-efficient vehicles fully to cover their children's college costs, instead depending on current income and regular savings or investment accounts, a new survey has found.
According to a Legg Mason Inc. survey of 1,000 Americans with more than $250,000 in investible assets, about 85% of those with kids in college are paying for school out of their income, and 83% of those with children who aren't yet in college plan to do the same. In the survey, Legg Mason, which markets its own Section 529 college savings offering, allowed respondents to choose more than one funding strategy.
Less than half (46%) of wealthy Americans with kids in college are using regular savings or nonqualified-investment accounts to pay college costs, and 65% of people whose kids aren't yet college age plan to tap these accounts to pay for higher education, the survey found.
More than half (57%) of those with kids in college are using 529 plans, and 79% who have younger than college-age children are planning to use this type of vehicle to cover costs, according to the survey.
“We see all the signs of good intentions, but they lack a strategic funding plan,” said John Kenney, head of Legg Mason's global asset allocation group. “People underestimate the extent of the total expense of college, they start the planning process too late and they don't use the appropriate vehicles.”
About 67% of the respondents in the survey said they use financial advisers, and 69% of those said that they have discussed college funding with their adviser.
About a quarter said that they had to bring up the topic with their adviser first, Mr. Kenney said.
“These parents are losing the tax advantages and the compounding of that by paying out of current income, as opposed to out of a 529 account,” he said. “It would be nice for them to be able to harness that fully.”
About 17% of wealthy Americans are using student loans to cover current college costs, and 40% of respondents who have younger children plan to use loans when they send their kids to college.
Of those whose kids already graduated from college, 92% paid for school with income, 59% withdrew money from savings and 36% paid with 529 plans, according to the survey.
