It’s common for TrueNorth’s clients to shift to saving for their grandchildren’s education as soon as they’ve paid for their children’s. “With Utah’s Mormon culture, the average age to get married is lower, so all these things begin earlier,” says Watkins, who married as a junior in college and had many friends become parents while still in college. Families aren’t just young in Utah—they’re big.
“In some cases, grandparents have 35 [529 plan] accounts for 35 different beneficiaries,” he says.
Fortunately, the state of Utah offers a choice of three levels of power of attorney for 529 plans, regardless of whether account holders reside in the state. TrueNorth uses level two, which enables it to read client reports (the level one provision) plus change clients’ investment options twice a year. So the grandparents with 35 accounts simply receive reports to sign and don’t have to take other action.
TrueNorth also uses level-two powers of attorney to create custom glide paths for clients. “We have our own custom glide paths within the custom models that are available at Utah 529 Educational Savings Plan,” says Watkins. “They allow for tremendous flexibility.” Utah’s level-three powers of attorney, for those wondering, allow advisors to help facilitate withdrawals.
Watkins thinks maintaining reasonable levels of equity is the only way to keep up with the high rate of college inflation. Families should carefully “dial it down,” he says, as college gets closer, and preferably not hold any equity in college accounts once a child enrolls. But if the markets are down, he may have clients continue to hold it. “The advantage of having power of attorney is we can drive this,” he says.
It also helps for families with reasonable resources to “have all their other financial ducks in a row,” he says, to provide flexibility during the college years so they can pay for it in various ways.
Watkins’ college-planning clients in Idaho differ from his Utah contingent. “I have numerous doctors who have master’s degrees or PhDs, then go back to medical school and have children all the while and debt increasing,” he says. “Then they’re out [of school and residency] and they’ve been poor for so long they want a real nice big house and nice cars.
“Finding the money to have adequate cash reserves, be properly insured for various risks, save for college and pay down their own college debt is difficult,” he says. What makes it even more challenging, he adds, is the lack of increase in wages for doctors.
Trade-offs are a big part of the discussions he has with clients. “My role is to be a teacher and leader and sometimes call them on the carpet,” he says, regarding what he refers to as their “pent-up consumerism.”
Most of his doctor clients have incomes far too high to qualify for financial aid regardless of how many children they have, says Watkins. So once he makes sure they have a firm foundation for themselves, he helps them start saving for college. He encourages them to save each year an amount that’s at least equal to the annual state income tax credit allowed for contributions to 529 accounts.
For parents filing joint tax returns, the deduction is $8,000 per family in Idaho and $3,800 per child in Utah. Watkins notes that six states—Arizona, Kansas, Maine, Missouri, Montana and Pennsylvania—are tax parity states, meaning residents may take the same deductions on home-state and out-of-state 529 plans.
He also encourages them to set these college savings on autopilot. “I have tried my whole career to automate
the prudence process,” he says. “They jump through the hoops, and we get them there.”