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BMO Wealth Institute Inaugural Report: Top 5 Mistakes Parents Make When Saving for Their Child's Education

Mar 27 2013 12:00AM



CHICAGO, IL -- (Marketwire) -- 03/27/13 --

•Newly-launched BMO Wealth Institute helps Americans make better financial decisions •College tuition is growing at a faster pace than inflation -- averaging $16,510 for in-state public colleges and $27,600 for four-year private schools in terms of net price •Although 529 plans are the dominant college savings vehicle, Coverdell Education Savings Accounts and trust accounts offer other alternatives

With American high school seniors awaiting acceptance letters from colleges and universities, the BMO Wealth Institute today unveiled its inaugural report examining the common mistakes parents make when saving for their children's education, and highlighting the many benefits of 529 college education plans and other savings vehicles.

The most common mistakes include:

•Waiting too long •Not contributing consistently •Not taking advantage of 529 college education plans •Not being aware of all the college savings options available •Not managing the child's college decision

"We're committed to helping Americans step confidently into their future," said Stephen Williams, Vice President, U.S. Financial Planning Strategy, BMO Private Bank. "The goals of the BMO Wealth Institute are to assist clients in navigating the many challenges and opportunities associated with managing their finances and provide them with expert advice and guidance to tackle life's important milestones such as purchasing a house, saving for their child's college education, and preparing for retirement."

The BMO Wealth Institute provides insights and strategies around wealth planning and financial decisions. The Institute's team of wealth planning professionals has deep expertise around all aspects of wealth planning including retirement, estate, tax and insurance.

Popular 529 Education Plans Address Skyrocketing Tuition Costs

The BMO Wealth Institute's inaugural report, titled "Top Five Mistakes Parents Make Saving for Their Child's Education," reveals that parents and their college- or university-bound children face a double threat when paying for school:

•Tuition has been growing at a faster pace than inflation, with in-state students at public colleges paying $16,510 in net price on average and students at four-year private schools averaging $27,600 in net price for the current academic year. •The challenging job market is forcing many young people to return to school for a second degree which, in turn, incurs further costs and student debt.

"Parents have many competing financial priorities, so it may be difficult to accumulate education savings," said Mr. Williams. "But whether a parent decides to fund the entire cost of a child's education or part of it, it pays to maximize a 529 fund or other college savings vehicles."

The report outlines the important role of 529 college education plans. As the report explains, it is a smart way to maximize education savings because:

•It can be used for tuition, fees, room and board, textbooks, and necessary school supplies like computers. •Assets grow tax-deferred and can be withdrawn tax-free as long as the funds are used for qualified education expenses. •Parents or grandparents who own a 529 plan account maintain control of the assets, which can be beneficial for financial aid considerations and ensuring funds are used for college.

Other Savings Options to Consider

The report also examines several additional strategies beyond 529 plans that can assist parents and students to save for college education:

Coverdell Accounts: As with a 529, a Coverdell Education Savings Account (ESA) lets assets grow tax-deferred. Distributions are tax-free as long as they are for qualified education expenses. The ESA can be set up in a brokerage account with stocks, bonds, exchange traded funds and other investments. It allows unlimited changes to asset allocation, and funds can be used for K-12 education expenses. However, contributions for each beneficiary cannot exceed $2,000 per year per beneficiary under age 18, which may limit a parent's ability to save sufficient funds to cover several years of college expenses.

UGMA/UTMA Account: UGMA (Uniform Gift to Minors Act) and UTMA (Uniform Transfer to Minors Act) can contain stocks, bonds, mutual funds, and real estate. However, parents lose control when the child reaches the age of majority in their state, at which time the child can use the funds in any way. These accounts do not grow tax-free like 529 plans, yet money can be used for expenses other than college.

Trust Accounts: A 2503(c) Trust or a Crummey Trust -- both irrevocable -- are taxable accounts and typically more expensive to set up than a 529, yet they have unique benefits:

•A 2503(c) Trust is created to receive annual exclusion gifts for the benefit of a minor. At age 21, the beneficiary can withdraw assets from the trust. If the beneficiary chooses not to withdraw, the assets may be retained in trust until the beneficiary reaches another defined distribution date. •A Crummey Trust is established to receive annual $14,000 gifts. An annual withdrawal power applies whenever a gift is made to the trust. These trusts are more flexible than 2503(c) trusts because no withdrawal rights are required at age 21, trust distributions can be for any specified purpose and may be limited to just education expenses, and multiple beneficiaries can be named under a single trust document.

"Going to college or university is increasingly expensive if a child does not receive a scholarship, so it is incumbent on parents to examine all of the options available to save for a child's education," added Mr. Williams. "Proper planning involves starting early, contributing consistently, working as a family to choose an affordable school, and teaching kids about student debt."

Williams concluded by advising individuals who are interested in learning more about saving for education to visit their local BMO Harris Bank branch and meet with a financial advisor.

To view a copy of the full report, please visit:

About BMO Private Bank, a Part of BMO Financial Group

BMO Private Bank offers a comprehensive range of wealth management services that include investment advisory, trust, banking and financial planning to meet the financial needs of high net worth clients. Through integrated teams of experienced financial professionals, BMO Private Bank helps its clients realize their financial and lifestyle goals with solutions that are custom tailored and delivered with the highest level of personalized service.

BMO Private Bank is a brand name used in the United States by BMO Harris Bank N.A. Member FDIC. Not all products and services are available in every state and/or location.

Media Contacts:
Patrick O'Herlihy

Beth Copeland

Carey Allen

Source: Marketwire

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