July 2019

This is a bankrate.com article, written by Amanda Dixon. You can read the original article on the bankrate.com site.

The 18-year clock starts ticking the moment your child is born.

A college degree, despite the rising cost of tuition, remains a major achievement in the modern economy. You are more likely to have a job and earn a decent salary the more education you receive.

Yet many families aren’t preparing. Just 56 percent of parents are actively saving for their child’s education, according to Sallie Mae, and hold an average of only $18,135. That wouldn’t cover one year of tuition, fees and room and board at an in-state public institution, according to College Board.

The outrageous price tag for higher education, coupled with a lack of parental savings and the economic benefit of actually going to college, has led to historic levels of student loans. Many graduates leave school with a yoke tied around their neck, pushing back their ability to buy a house and start a family.

Best tips to save for college

The following are several types of accounts people use to save for their children’s college education. By doing your homework — and possibly speaking with an adviser — you’ll have a better sense of where to park the money you’re setting aside for your child’s future.

1. Open a savings account.

Some parents prefer to save for their child’s education with some kind of transaction account, such as a savings account. According to Sallie Mae, college-saving parents have nearly $4,000 parked in these accounts. But you’ll need to be careful when keeping college savings in a traditional bank account.

“There is an asset protection allowance, or APA, that protects a portion of the parents’ assets, based on the age of the older parent,” when determining financial aid, says Mark Kantrowitz, publisher and vice president of research at SavingForCollege.com and an expert in student loans and financial aid.

What are the disadvantages?

Because financial aid is determined based on income and assets from prior years, students with sizable savings in their name could end up with a less generous package.

But even if the savings are in your name, you’re still losing out. The top five-year CDs on Bankrate offer a yield just over 3 percent, while the S&P 500 has delivered an average total return of 10.7 percent over the past five years, according to Morningstar.

You take on more risk by investing your money. But keeping college savings in a standard savings account or CD may not be helpful if you’re trying to quickly reach your savings goal.

2. Open a Roth IRA.

Parents can give a kid a financial head-start by opening a Roth IRA in the child’s name once he or she begins earning income.

While children over age 18 retain control of the account, restrictions on Roth IRA withdrawals keep investors from taking earnings out penalty-free until age 59 1/2. There are exceptions to this rule that allow early withdrawals due to certain circumstances (hardships such as a disability) or for specific types of spending (such as purchasing a first home or for qualified education expenses).

Are there any beneficiary restrictions?

A trust in the child’s name is another option for parents. However, these plans come with legal and administrative fees parents won’t face with a Roth IRA.

3. Look into 529 college plans

Operating in a fashion similar to a Roth IRA, 529 college savings plans allow parents to invest after-tax money into diversified, low-cost stock and bond funds and then withdraw the money tax-free for qualified education expenses.

Some age-based investment packages work like a target-date fund in your 401(k) – contributions are placed in stock-heavy investments when the child is young, then are automatically reallocated to a higher percentage of bonds and even cash as the child nears college age. Workers in some cases may have access to employer-sponsored 529 plans at work.

Are 529 plans tax-deductible?

These plans offer big tax advantages, says Craig Parkin, a regional managing director at TIAA-CREF, the investment organization that administers state-sponsored college savings plans in California, Kentucky and other states.

“The gains on the accounts are tax-deferred, and once the funds are used to pay for qualified tuition expenses, parents will never pay taxes on those funds,” he says.

Where can these funds be used?

Money in these accounts can be used for undergraduate or graduate studies at an accredited two- or four-year campus in the United States. Savings in a 529 plan belong to the parent, not the child.

“A 529 college savings plan is considered a parent’s asset because the parent is the account owner and they can change who the beneficiary is,” Parkin says.

What if your child chooses to not attend college?

While you are taking on an investment risk, such as the fund dropping in value just as your kid enters school, you’re also taking another gamble. What if your kid doesn’t want to actually go to college? What happens to the money then?

You do have some flexibility.

“If the child says they don’t want to go to college, the parents or whoever owns the account can change the beneficiary,” says Kelly Campbell, certified financial planner and founder of Campbell Wealth Management in Alexandria, Virginia. “That way, you know the money will be used for education.”

Under the new tax law, parents can use 529 plan funds to cover non-college expenses. Savings can be rolled over into an ABLE account that covers expenses for disabled children and young adults. They can also cover a portion of tuition each year (up to $10,000 per beneficiary) for K-12 students attending a private school.

Just keep in mind that some states haven’t made changes to their tax code. You could pay additional taxes and penalties at the state level even though withdrawals are tax-free at the federal level.

If you don’t actually use the money in a 529 plan for education, you’ll be subject to a similar penalty for early withdrawal from a 401(k). 529 college savings funds can only be withdrawn tax-free for qualified education expenses, including tuition, books, fees, supplies, and room and board. Money spent on unqualified expenses is subject to income tax and a 10 percent penalty on earnings.

Are there any investment restrictions?

There are also restrictions on how money in these plans can be invested. For instance, account owners can switch the investments in their plan only twice a year.

Three in 10 parents use a 529, according to Sallie Mae, with about $5,500 saved. Unfortunately, that’s not nearly enough. Financial advisers recommend saving $300 to $400 a month to cover two years of public college costs.

4. Opt for a Coverdell education savings account.

These accounts are alternatives to 529 plans. Both 529 plans and Coverdell ESAs allow families to make contributions using after-tax dollars and savings grow tax-free. And for both accounts, withdrawals are tax-free as long as the savings are used to cover certain costs.

One key difference is that Coverdell ESAs offer parents more flexibility in terms of what’s considered a qualified education expense. In addition to tuition for primary and secondary schools, savings from a Coverdell ESA can cover uniforms, tutoring programs and other K-12 expenses without triggering a penalty.

What are the disadvantages?

The biggest downside to Coverdell ESAs is the low contribution limit. Parents can only contribute up to $2,000 per beneficiary per year. Contribution limits for 529 plans vary by program and by state, but allow families to set aside hundreds of thousands of dollars for their children.

Contributions to a Coverdell ESA cannot be made for children over age 18, and all funds must be withdrawn by age 30.

5. Consider prepaid tuition plans

A prepaid tuition plan is an alternative to a 529 savings plan that may appeal to some parents. Designed for parents who are sure that their child will attend an in-state public university, this plan allows parents to simply pay for tuition credits in advance at a predetermined price.

What are the disadvantages?

Prepaid 529 plans retain the same tax, financial aid and parental protections as 529 college savings plans, but without being subject to swings in the stock market.

“The major limitation to a prepaid plan is that if the child decides to go to school out of state, they’ll get a return on their money, but they won’t get the full value of the plan,” says Parkin from TIAA-CREF. “For example, if someone bought one year of tuition at a Kentucky state school for $12,000 and now tuition is up to $20,000, they would get a full year of college. If they decide to go to school in, say, Ohio, they would get a return — probably $13,000 or $14,000 — but they wouldn’t get the full $20,000.”

Are there any beneficiary restrictions?

Like 529 college savings plans, prepaid plan holders can change beneficiaries at any time, but must pay a 10 percent penalty plus income tax on funds used for anything other than college tuition.

“You can have the prepaid plan to pay for tuition and a 529 college savings plan to pay for other expenses,” Parkin says.

6. Open an UGMA or UTMA account

If your child doesn’t plan to attend college and therefore isn’t at risk of losing financial aid, UGMA and UTMA custodial accounts offer standard tax breaks for children under 18.

UGMA stands for the Uniform Gift to Minors Act. UTMA stands for Uniform Transfer to Minors Act.

In these accounts, a portion of the gains is tax-free, part of it is taxed at the child’s income tax rate and the remainder is taxed at the parent’s income tax rate. Plus, there are no restrictions on how the funds may be used as long as they directly benefit the child.

What are the disadvantages?

The downside of UGMA and UTMA accounts is that parents have less control over how the child eventually spends the money, says Michael Kay, certified financial planner and president of Financial Life Focus, a financial planning firm in Livingston, New Jersey.

“If money is in a UTMA or a UGMA account, it becomes (the beneficiary’s) at the age of majority, which is 18 to 21, depending on the state,” he says. “There’s no legal way to prevent the child from using money that was intended for college or a house to go to Europe.”

7. Set up a trust

An educational trust is another option for parents trying to save for their child’s future. A trust can be set up when an individual wants to hold assets on behalf of another person with the intention of eventually handing them over. When an educational trust is created, the terms of the trust indicate that the trust funds should be used to pay for education expenses.

“A lot of times it’s controlling the money so that it can be used for higher education purposes, but also limiting the child’s access so that they don’t spend it irresponsibly,” says Kristian Finfrock, founder of Retirement Income Strategies in Madison, Wisconsin.

A trust can give a beneficiary (the person receiving the trust funds) more flexibility. In addition to paying for school, the trust could indicate that the funds can be used for other purposes. A trust can also be beneficial for individuals who want to transfer assets and minimize their estate tax burden.

What are the disadvantages?

Taxation rules vary depending on the kind of trust you’re setting up. Whoever is passing along their assets could possibly find themselves paying income taxes. Beneficiaries should prepare to pay income taxes on trust fund earnings.

8. Invest in treasury bonds

Savings bonds could be a solid option for parents opposed to taking risks when it comes to saving for their child’s college education. Investments are virtually secure since they’re backed by the federal government.

Interest on new Series EE Bonds and Series I Bonds is tax-free when it’s used to cover qualified education expenses (or the savings are transferred over to a 529 plan).

What are the disadvantages?

While there’s not much to lose by investing in Treasury bonds, there’s also not much to gain in the form of returns. That’s why Finfrock isn’t a fan of relying on savings bonds to cover college costs. What’s more, he says, not everyone qualifies for favorable tax treatment. Indeed, there are income limitations for high net worth individuals.

How much should you save for college each month?

The cost of college is steadily rising, but you might not need to save for the full amount. In order to make saving more manageable, some experts recommend saving only one-third of the expected costs. The remaining two-thirds can be paid over a lifetime through loans, grants and future income.

To determine the set amount, research projected costs of desired public or private school, look at current projections and divide by the number of months remaining until your child heads off to school. Incorporate the amount into your monthly budget.

When should you start saving for college?

As with any investment, the earlier you save, the more time your money has to grow. Some parents choose to start college accounts for their children before they’re born, or around their first birthday.

If you haven’t started saving and your child is nearing high school or later, there’s still value in opening an account. Vanguard reports that by choosing an account with tax benefits, you’ll still have time to take advantage of them — and “be in an even better position” than not saving at all.

Talk about an un-FORE-getable day! More than $63,000 in net proceeds was raised during the 2019 Affinity Plus Classic, an annual golf tournament benefitting the Affinity Plus Foundation. The event took place on June 18, 2019, at Prestwick Golf Club in Woodbury, Minnesota. More than 41 sponsors and 116 golfers took part in the event, including representatives from five other credit unions.

All funds raised at the Affinity Plus Classic go directly back to the community in the form of grants and scholarships.

It’s all about drive and determination. Affinity Plus Foundation scholarship recipient Arian of Harris, Minnesota, attended the event at Prestwick and shared his story with attendees. He’s pursuing a degree in particle physics at Anoka Ramsey Community College, with hopes of becoming a physicist. Arian says he’s grateful for the opportunities coming his way and is excited for his future.

“As a first generation [college] student, it helps me beyond words,” said Arian, expressing appreciation for the celebration orchestrated by his local branch “family” upon winning the scholarship award. “I am really thankful and humbled by Affinity [Plus] for giving me this opportunity.”

The Affinity Plus Foundation coordinates two scholarship programs each year:

The Annual Scholarship Program awards eight $5,000 scholarship to Affinity Plus members. The application period opens in the fall, accepts applications through Jan. 31, and awards scholarships in March.

The Campus Scholarship Program awards ten $3,000 scholarships to members who attend one of the six universities where we have a presence on or near campus (along with community & technical colleges). Applications are typically accepted August through October, with awards announced before year-end.

The Foundation also coordinates two grant programs throughout the year, supporting community organizations and initiatives, and local educators. More than $1 million in grants and scholarships has been awarded since its inception in 2000.

The Affinity Plus Foundation is a 501(c)(3) that works to engage, educate and empower individuals and communities in Minnesota.

Perhaps you’ve seen her smiling face at the St. Cloud branch. Perhaps she’s helped you with one of your recent transactions. Olivia Lynch, a Member Advisor at Affinity Plus Federal Credit Union in St. Cloud liked being a member so much, she decided to become an employee a little over a year ago. She describes life at Affinity Plus as selfless – a place where employees go above and beyond and care about member needs before their own. Read more about why Lynch made the switch, and what life has been like going from member to employee.

Why did you become an Affinity Plus Member? I chose to switch my banking to Affinity Plus after spending 5 years dreading going to my “big bank.” I didn’t like feeling pressured every time I stepped into the building. It was that pressure to open accounts that I didn’t need, having products I didn’t need shoved in my face, the whole place just felt uncomfortable and cold. When I walked into Affinity Plus for the first time, it felt so warm. People were laughing, the whole atmosphere felt so much more comfortable. Now working here, I know that we would never suggest anything that didn’t make financial sense for the member. I know it firsthand and I see my teammates working that way, too.

What’s an example of how you’re looking out for members? Our investment advisor Alex just told us a story about a member who came to him to chat about some accounts she had at a different credit union. This particular lady had huge accounts at this other financial and she was thinking about moving that money to Affinity Plus. After looking through the details of her account at the other credit union, he felt like she would get the most benefit from keeping her money where it was at. Her biggest complaint about the other financial was that she didn’t have anyone that she worked with over there. Since this particular credit union isn’t far from us, our financial advisor took this lady personally to the other credit union, explained who he was and that she truly would benefit more financially from staying where she is, and that she needs an advisor to work with. I’m sure the guy thought Alex was crazy, but it’s all about what is best for the member, even if we don’t acquire a large account. I know she feels supported by Affinity Plus and will grow what she does have with us.

From member, to employee. Tell us, what made you decide to make a career at Affinity Plus? After I switched my membership to Affinity Plus, I noticed immediately that the branch felt warm and inviting. People smiled, small talk was had, it was a different. I started to get to know the employees, I really enjoyed the conversations that we had and that they remembered that I had a daughter. Such genuinely kind people! I would chat with the managers from time to time, and I was encouraged to apply for a position. I let them know that I was already working full-time, but that I would think about it. That scenario happened a couple more times and I finally decided that teaching piano lessons full-time was fun, but working full- time without benefits wasn’t what my family needed. I let my St. Cloud Affinity Plus know that I put in an application, and the rest is history!

What were your first few days like? I loved getting to meet President and CEO, Dave Larson, during my week-long training! It was so nice to see the values of the company starting from the top. I knew that Caring, Excellence, and Integrity were Affinity Plus’ values and they really aligned with my personal values. Truly putting people first, genuinely caring about them, all of those things were so obviously important to the company. It made me so proud that I got to be a part of this place! There was a lot to learn, but Affinity Plus is great about making sure us employees feel supported.

What is your day-to-day like? I get to spend my days seeing lots of different people in so many different financial places! We run basic transactions, or chat about financial goals, we get to know our members kids names, and fur-baby names, I get to open new memberships and go over credit with people in our communities. Every day is a little bit different, and every day we get to have really neat interactions with people in our community. I have members who call me on a regular basis to look over their accounts, offer advice on debt management, and get encouragement when budgeting gets hard. I get to celebrate with them when they pay off loans that they have been struggling to whittle down for a long time. I had a conversation with a member and he let me know that his child, a super sweet kid who had seemed healthy, was diagnosed with diabetes and it took their family by surprise. They got a care package in the mail with a handwritten card. We definitely treat our members like family.

What do you love most about working at Affinity Plus? Affinity Plus has been my absolute favorite place to work. The vibe is so different. It’s so kind and so caring. We stay late and we don’t complain, because we care about the people who choose to do their banking here. We want to help them feel confident in their finances and enjoy coming to the branch or calling. It’s an honor to feel the passion of this place!

In one word, how would you describe life at Affinity Plus? One word to describe Affinity Plus: selfless. We care about others needs before our own – it makes me so proud!

If you could tell anyone why they should become an Affinity Plus member, what would you tell them? All of the benefits! The products are designed to help you save money, and we have free services for investing, and estate planning. There are so many ways we try to help! Your financial institution should care about your financial goals. We are here to educate and guide members to a place where they feel confident with their financial picture. There is never a hidden agenda! We are member owned and our decisions are made to try to benefit our membership community. It’s truly amazing!

Forbes Recognition

Forbes ranked Affinity Plus Federal Credit Union (Affinity Plus) as one of the top Minnesota Best-In-State Credit Unions. This is the second year in a row that Affinity Plus has made the national rankings.

Forbes partnered with market research firm Statista to survey more than 25,000 people across the U.S. about their banking relationships. The banks and credit unions were rated on overall recommendations and satisfaction, including:

• Trust
• Terms and conditions
• Branch services
• Digital services
• Financial advice

This is Forbes' second annual look at the Best-In-State Banks and Credit Unions.

StarTribune Recognition

In June, Star Tribune Media Co., Minnesota’s largest media company, announced the winners of its 10th annual “Top 150 Workplaces,” which included Affinity Plus for the second year in a row. This year, Affinity Plus ranked #12.

The newspaper’s annual Top Workplaces announcement recognizes Minnesota’s most-progressive companies, based on employee opinions measuring engagement, organizational health and satisfaction. The analysis included responses from employees at Minnesota public, private and nonprofit organizations.

To qualify for the Star Tribune Top Workplaces, a company must have more than 50 employees in Minnesota. Rankings were composite scores calculated on the basis of employee responses.

Do you feel as though your debt keeps piling up? From credit cards, online purchases, loans, student loans and more, it can seem as though it’s overwhelming and you might not know how to tackle it. We sat down with Jake Dixon, Solutions Consumer Quality Specialist at Affinity Plus Federal Credit Union, to give us his insight and tips on how to prioritize debt.

Have a plan for how you want to pay off the debt

There are many ways to determine how you should go about paying off your debt. Maybe you want to save as much money as possible and pay off the highest interest debt. Or maybe you start with the smallest balance and feel that sense of accomplishment as you pay off the first debt quickly. However your prioritize the debt, I recommend listing it in order of the priority you have decided and pay the minimum balances on all the debts other than the top one. For that debt, pay as much as you can with any extra money you have set aside to pay toward it. You would keep doing this month after month until that top debt is paid off. Once it is paid, take the payment you have been making on that debt and apply it to the next priority debt in conjunction with the minimum payment you have been making on it. Here is how that looks by prioritizing the debt from lowest balance to highest balance.

• List all your debts from lowest balance to highest balance.
• Payback Mom: $500 | Minimum monthly payment: $25
• Credit card: $1000 | Minimum monthly payment: $80
• Loan: $2000 | Minimum monthly payment: $125
• Student loan: $4000 | Minimum monthly payment: $60

Any money you have planned to pay extra on a debt for, take and add to the minimum balance of your lowest balance debt. Continue to make the minimum payments on the rest of the other debts.

• Payback Mom: $500 | Monthly payment: $100 ($25 min payment + $75 extra)
• Credit card: $1000 | Minimum monthly payment: $80
• Loan: $2000 | Minimum monthly payment: $125
• Student loan: $4000 | Minimum monthly payment: $60

Once you have paid off the lowest balance debt, take the payment you were making on that, and add it to the next lowest balance's payment.

• Payback Mom: $500 | Monthly payment: $100 ($25 min payment + $75 extra)
• Credit card: $1000 | Monthly payment: $180 ($80 + $100 extra)
• Loan: $2000 | Minimum monthly payment: $125
• Student loan: $4000 | Minimum monthly payment: $60

Don't forget your motivation and goals

The process of getting out of debt can take many years and can also require some sacrifices on how you spend your money. There is no doubt that in the midst of this journey, something will come along the way to try and derail your goal to be debt-free. It is important to remind yourself constantly why you are doing this. Is it to go on that dream trip? To buy that new car without taking out a loan? Or maybe it’s just living your life without the stress of having this debt hanging over your head. There is no wrong answer, but it’s key that you ask yourself, “what is more important?” when it comes to these decisions.

Have money saved for emergencies

You may ask, “what does saving money have to do with paying off debt?” If you are laser-focused on getting out of debt, nothing can knock you off that mission faster than an expense or emergency that wasn’t planned for. Not only may you need to use any extra money that would go toward the debt for this emergency, but it may require you to go into further debt to fix your car, pay that medical bill, or replace that furnace. Setting aside $1,000 at first and eventually having 3-6 months of expenses saved will help you pay for these unpleasant surprises, take the stress out of how you will pay it, and ultimately keep you on your mission to get rid of that debt.