Tim Duncan, College Savings, and “The Big Fundamental”

By Drew Hefflefinger, CFP®

Nicknamed “The Big Fundamental”, Tim Duncan’s 19-year NBA career recent came to a close at the end of the 2016 season. He will go down as one of the best to ever play the game of basketball. A career that rewarded him with five championships and three finals MVPs, his career is nothing short of first ballot Hall of Fame. With little flash and unassuming athleticism, Duncan earned the nickname “The Big Fundamental” by being a fairly boring player. In 1999 Sports Illustrated even called him a, “quiet, boring MVP”!

Duncan, unlike many NBA players, actually graduated from college before entering the NBA. Unless your son or daughter is destined for a full scholarship, either academic or athletic, it would be prudent to consider a college savings strategy. To be financially successful, whether it is the purchase of a new home, college, or retirement, involves saving and saving efficiently. This is done through effective planning, strategy, and self-discipline – many of the qualities that turned Duncan into a modern day legend.

Step one is to measure and breakdown the goal. To do so it is important to diagnose what the family intends to accomplish and understand market trends. Have an honest conversation, how much do you want to contribute to your children’s college expenses? All four years, or just two? In-state, or private institution? This is important because often times there are competing goals like retirement. Next is to understand the market. College tuition has far outpaced general inflation over the last thirty years and it not expected to slow down. This is important when estimating the cost of the goal in future dollars, especially if you have younger children.

Next, the family needs to break the goal down into more manageable pieces. By assuming a reasonable return on investment, the savings goal, and the age of your son or daughter, a skilled financial practitioner (cough, cough) can help determine what the required monthly savings will be. If the goal is too big, consider resetting expectations before moving forward.

Step two is tax efficiency – “it is not what you make, it is what you keep”. Being efficient in this category is a science and an art. By utilizing one or a combination of the following accounts parents can be more effective by paying less tax to Uncle Sam. A common strategy is to use a 529 College Savings Plan as the core savings vehicle and then transfer savings to an ‘overflow account’ once the 529 Plan has reached its self-imposed threshold.

Core Solution: 529 College Savings Plan

A 529 Plan allows family (aunts, uncles, and grandparents included) to make contributions on an after-tax basis. Once the funds are in the account the funds can be invested and grow tax-free. Once your son or daughter is ready to use the funds they can be withdrawn tax-free as long as the expense is a qualified higher education expense as defined by our friends at the IRS. Qualified expenses include tuition, room and board, and books, but does not include pizza, beer and spring break. The 529 Plan is a highly effective savings vehicle and is often the core of many families’ college saving strategies.

A sign of caution, and why ‘overflow’ accounts are typically recommended, is when the account is not used for qualified higher education expenses. A non-qualified withdrawal leads to accrued earnings being taxed with an additional 10% penalty. Parents want to be strategic and not overfund the account as it will lead to negative tax outcomes. It is important to review the strategy on an annual basis, especially when your children reach high school.

Overflow Solution: Custodial Roth IRA

A Custodial Roth IRA is a retirement account that enables parents to open an account of behalf of their minor children. The account enables parents and their children to make contributions and save for college, retirement or both. The big kicker is the child has to have some form of earned income. Should your son or daughter have a job it is possible to make a contribution to their Roth IRA to the lesser of $5,500 per year or 100% of earned income. Should the account be used for college expenses, the expenses must be qualified and withdrawals are limited to principal, the student cannot remove any appreciation without incurring tax and a 10% penalty. Should savings not be used for college then the account can serve as a great jump start to a young professional’s retirement savings.

Overflow Solution: Parent’s Roth IRA

A more common ‘overflow’ strategy is a Roth IRA owned and maintained by the parents. Contributions offer similar flexibility as the Custodial Roth IRA but the parents keep the money if it is not used for qualified higher education expenses. This surplus can then be allocated to the parents own retirement goals.

Step three is investment strategy. Here the focus is management of portfolio risk. Since the number of years before these savings will be used is relatively short, it is prudent to keep a close eye on the amount of risk in the portfolio. The last thing a parent wants is for the stock market to take a plunge when a tuition check is due next month. By having a more conservative investment strategy in the years before their first semester a parent is locking in gains and lessening the likelihood of a difficult conversation with their college-bound children.

Fundamentals. By simply following the outline above parents can place themselves in an excellent position to achieve their college funding goals. The content above is not flashy, and there are no best kept secrets, just effective planning, strategy, and self-discipline. Congratulations, Tim.


Drew-HefflefingerDrew Hefflefinger is a CERTIFIED FINANCIAL PLANNER™ at Engage in Wealth in Denver, Colorado. Drew specializes in working with legal professionals by helping them protect and grow wealth while achieving life goals. Drew can be contacted at drew@engageinwealth.com.


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