Tax benefits, ‘psychological power’ are draw of 529 plans, advisor says

my529 spoke with advisor Ryan Caldwell about how he uses 529 plans in his practice. Caldwell, a CFP®, is the CEO and Wealth Advisor at Wacker Wealth Partners in San Luis Obispo, California.

my529: What do you see as the benefits of 529 plans?

Caldwell: At face value, 529 plans are a very effective tool for tax-advantaged savings for college. But beyond that, there is a psychological power to them because it is an investment account specifically earmarked for a particular person’s education. This helps clients more clearly visualize the progress towards their goal to save for the education of a loved one and ultimately be more successful.

What do you look for in 529 plans?

Depending on the state of residence of the owner, we may prioritize the tax benefits of a particular plan when evaluating options. If that is not a consideration, then the next two most important factors are investment options and expenses. We want a plan that will allow us to build the portfolio we think best for the client. To do so, we want a wide array of high-quality, low-cost investment vehicles.

How do you use 529s in your practice?

We are very deliberate in identifying goals early on in our process with clients. If one of those goals is to provide for the education of a child or grandchild, we often recommend they do so in a 529, so that the funds are set aside from their other investment assets and are able to grow without the drag of taxes.

What does your typical client look like? What sort of clients are you servicing?

We are focused on serving the whole of a client’s financial life through extensive financial planning and investment management. We help our clients implement the solutions and strategies we recommend. This sort of comprehensive and high-touch service typically warrants a certain level of wealth and so our clients typically have a net worth of at least $1.5 million.

Do you find 529s easier to promote because you live in a “college town”?

It’s hard to tell. We do observe that clients who themselves have a college degree tend to expect their children to attend college and are therefore very accepting of saving for college via a 529 plan. We certainly have a higher percentage of college-educated citizens in our town, partly because of (Cal Poly), so perhaps there is an indirect relationship.

Do you find it useful to affiliate with local alumni groups to promote 529 plans? If so, how does that benefit your practice?

We haven’t ever partnered with alumni groups, but that is an interesting idea! We have partnered with local schools and parent groups to provide education around planning and saving for college. These seminars resulted in a handful of new clients for our firm, but have generated a lot of goodwill in the community and hopefully resulted in some families being more prepared to send their children to college.

How often do you recommend 529 savings plans in your practice?

As often as it’s appropriate for the client! If a client wants to save for the education of a loved one and has time on their side for the tax-free growth to work for them, then it’s a no-brainer.

What alternatives do you consider when saving for college? How do 529s fit into that? Or do they?

It’s pretty hard to beat the benefits of a 529. Other tools include the Coverdell Educational Savings Account and Roth IRAs. Given the low contribution limits on the ESA, they are often an ineffective tool for saving for such a large financial goal. Roth IRAs can be a useful tool if the parents will be over 59 ½ when their children attend school, but otherwise they are limited to withdrawing the contributions if they want to match the tax savings of the 529.

How do 529s fit into college planning with your clients? Do your clients, upon first discussion of 529s, see the same alternatives, strategies as you do?

It’s typical for a client to have heard of a 529 before, but few understand the benefits and rules around the plans and an even smaller subset are familiar with alternatives. This presents a great opportunity to help our clients learn about these tools and demonstrate just how powerful they are.

What would you recommend to other advisors who don’t often use 529s in their practice?

Get started! It’s easy to adopt them in to your services and clients love that they can get help from their advisor in accomplishing this important goal.

Do you think a broader demographic should use 529s?

Absolutely! I recommend 529 plans to anyone who will listen, regardless of their level of wealth. The only prerequisite is a desire and capacity to save for education along with time to allow the tax-free compounding to do its work!


About Ryan Caldwell

Ryan Caldwell is a Certified Financial Planner™ practitioner and a partner at Wacker Wealth Partners in San Luis Obispo, California, serving as CEO, Wealth Advisor, and member of the Investment Committee. He grew up in Paso Robles, graduated with a degree in biological sciences from Cal Poly in San Luis Obispo, and studied financial planning at UC Santa Cruz.

Ryan began his career in Santa Barbara and then held client services and management positions during a five-year tenure with Fisher Investments in the Bay Area before returning to the Central Coast in 2007 to join Wacker Wealth Partners. He was attracted by the firm’s team-oriented approach to providing individually tailored service to its clients. He has a particular passion for serving the community through providing financial literacy education and serves as a standing instructor of the United Way’s Money Talks financial literacy course for high school seniors. Ryan and his wife, Amanda, live in San Luis Obispo with their three children. Outside the office, he can be found enjoying the Central Coast’s trails and beaches with his family.