Your clients, James & Bethany Hill, would now like you to complete their financial plan by working on a long-term education funding strategy for their daughter, Sarah. For now, they plan on Sarah attending Texas Tech University.
You recall that it was Bethany’s aunt who passed away recently and left her a life insurance benefit that’s now worth $102,228. Bethany wants to use up to 50% of this money to fund Sarah’s college education. As you recall, James & Bethany already contribute $250/month to Sarah’s college fund, and the balance in that account is currently $3,000.
The Hill’s want to understand the different education account options they have and what the pros and cons are of those accounts.
They want to help Sarah as much as they can now, but they don’t want to reduce their emergency fund or retirement goal. They figure that it’s much better not to promise more than they can afford and, if all goes well, they can always help with additional education funding later.
Before you start working on Sarah’s education funding, you need to investigate and evaluate 529 Plans. You will be able to use this information in making some of your final recommendations.
1. 529 Plan Evaluation
Considering the criteria below, share the top three plans you found and recommend one 529 state plan that you feel is the most appropriate for the Hill family and explain why you would choose this (as opposed to others you investigate). Write a summary of your recommendations and include it in the recommendations to the clients. Gather your data from www.savingforcollege.com and other non-biased sources. Be sure to reference all sites where your information is drawn from, and do not “cut and paste” without a citation.
Consider the following criteria when selecting plans you plan to recommend:
o How often can the plan sponsor make changes to allocations vs. investor? If the plan changes their allocation is the investor “stuck” in that investment for a while?
o Determine relative performance of the models over time and potential volatility comparisons.
o Do the plans provide details regarding the allocations & specific funds that compose the age-based portfolios?
o Who determines the age-based allocations?
o Who backs the plan (is it a state committee or have they delegated that to a plan provider?)
o How easy is it for the sponsor to move or change providers?
o Is the website user friendly?
o What kind of offerings do they have? Age-based only vs. selecting your own investment options?
o What are the management fees, account fees and underlying fund expenses?
o What are the contribution limits?
o Are there state tax benefits?
o Do the plans allow out-of-state investors?
o Is the prospectus clear, is it easy to understand what’s going on with the fund?
o Costs- Providing other criteria is met, the lower the better
o Underlying Investments- Easy to understand?
o Is the Plan Suitable for a Particular Client who lives in a Particular State?
o Who determines the investment selections?
o *The highlighted items are the items that I believe are most relevant to your analysis.