Securing Educational Futures

PUBLISHED FEBRUARY 2025

In the ever-evolving landscape of wealth management, one area that continues to demand attention is planning for the cost of a college education. For affluent families, the challenge is more than how to pay for the cost of a good education; it revolves around the nuances of the process. It involves implementing funding in a way that maximizes tax advantages and minimizes the impact on wealth across generations. 

Families need strategic teams that explore and implement strategies for them. Their team needs to provide value using tax-advantaged multigenerational planning and tax-advantaged accounts. Families need simple, low-risk options as well. This article provides these details and actionable insights.  

Tax-Advantaged Multigenerational Planning

One of the more common strategies used by families is tax-advantaged multigenerational planning. This approach allows one generation, often grandparents, to pay tuition directly for another generation, often grandchildren, without incurring gift tax. While it sounds simple, it takes coordination. 

Implementing a multigenerational educational plan can be very impactful. Not only does it provide immediate financial support for the grandchildren’s education, it also reduces the grandparents’ estate and increases free cash flow for the middle generation. By paying tuition directly, Generation One can leverage the annual gift tax exclusion, Generation Two can increase their savings and balance sheet and Generation Three can obtain an education that may have otherwise been out of reach.  

Tax-Advantaged Accounts

Another powerful tool in the wealth management queue is the benefits of tax-advantaged accounts. Again, Generation One and/or Generation Two can make significant contributions to tax-advantaged accounts for the benefit of future generations. Not only can these contributions have tax-deductible benefits, but 529 plans specifically offer tax-free growth and tax-free withdrawals for qualified educational expenses. The combination of these two benefits makes the 529 plan an attractive option for long-term education funding. 

Tax-Advantaged Low-Risk Investment Options

Considering recent post-election changes, tax-advantaged, low-risk investment options have become increasingly appealing. As we move forward in 2025, the yield curve (the interest rates being paid on short-to-long maturity bonds) is normalizing. With longer-term rates now higher than short-term rates, something we haven’t seen since 2010, an opportunity is emerging for investors who prefer to avoid the volatility of the stock market. For example, one such investment option that could be considered would be zero-coupon U.S. government bonds. 

Backed by the U.S. government, these bonds are purchased at a discount and mature at face value. As this article is being written, investing approximately $400 now in a bond that matures in 18-20 years (2043-2045) will provide $1,000 when a child reaches college age. Moreover, the interest on U.S. government bonds is not taxable at the state and local levels, providing additional tax savings.

Education Funding with a Strategic Team 

Navigating the complexities of higher education funding requires a strategic approach. Often, successful families are busy—they are running businesses, traveling, and focused on kids and grandkids. They generally are not focused on changes in education and tax landscapes.

Combining the knowledge around your personal finances, the educational desires of your multigenerational family, and the in-depth knowledge of your CPA, a strategic team can go beyond traditional advising and can provide end-to-end design, implementation, and management of complex wealth strategies.

Serving as partners in your financial journey, your strategic team can facilitate the creation of blueprints for financial success. Your education strategy should acknowledge current financial realities, proactively adjust to our changing world, and build toward a more secure future for generations to come. 

Conclusion

In today’s dynamic financial environment, affluent families face unique challenges in planning for higher education. It’s not merely about covering the cost of tuition; the key to successful higher education planning lies in staying informed and engaging a proactive Team. By focusing on innovative approaches, families can navigate the complexities of education funding, ensuring their financial targets are met without compromising long-term wealth preservation.  

The information provided in this article is for educational purposes only and should not be construed as financial advice. Please consult with your CPA and a financial advisor for personalized advice tailored to your individual circumstances.