Education Analysis - RightCapital Help Center

As tuition costs continue to rise across the US, some clients may find themselves wondering if they'll be able to fully fund the education goals within their plans. RightCapital's Education Funding Analysis allows you to do just that, pulling in education costs for all members of the client household and allowing you to individual tailor an education funding strategy for each one.

The Education Funding Analysis can be found within the Education tab of each and every client plan:

Before we get started, an important note...

The cash flow details used within the Education Analysis will be based on the original Proposed Plan in the Retirement Analysis module. Any changes made to the proposed plan within the Action Items will impact the Education Analysis.

"Student" Tabs

Within this module, a tab will be displayed for any individual (client, co-client, child, grandchild, or other family member) that has an education goal entered via the Profile > Goals tab. Within each of these "student" tabs, you will find the projected education costs in future dollars for that individual, along with clean visuals showcasing the percentage of those costs that are currently funded:

The bar chart on the left will highlight the annual education costs for each student. As a reminder, education costs increase on an annual basis using your Education Cost Inflation rate. The pie chart to the right highlights the overall goal coverage percentage, as well as any funding shortfall.

Pro-Tip: Multiple Education Goals

If there are multiple education goals entered for a single individual, each of those goals will be included in the analysis for that student. For example, a pre-college goal from age 14-17, followed by a college goal from age 18-21:

Projected Education Costs

The charts within the Education Analysis will illustrate the education costs reflected in the Goals section of the Profile, within any Pre-college or College Goal data cards:

Both of these data cards can be added by navigating to Profile > Goals, clicking Add Goal, and hovering your mouse over Education. Please click on the dropdowns below for more information on...

College Goal Data Entry

Pre-College Goal Data Entry

Projected Goal Coverage

You may see that a percentage of a student's education goal is already being funded (shown in blue), even prior to dialing in a funding strategy using the Action Items. This may occur if there are existing 529 assets within the plan, including:

529 accounts, entered within the Profile > Net Worth section.
529 savings, entered within the Profile > Savings section.

Note on UTMA, UGMA, and Coverdell ESA

Please note that the 529 account bucket in RightCapital encompasses all education savings accounts, including UTMA, UGMA, and Coverdell ESA. These account types are seen as 529s by the Education Analysis.

529 accounts and savings with a specific student assigned as the beneficiary will be reserved for that individual's education goals. These assets will only be used for another student's education if there are assets remaining once the beneficiary's education goals are completed.

529 savings that are entered with an unassigned beneficiary will start being used right away for all education goals, regardless of the student. If there are two or more students in school at the same time, funding will be split evenly across each student's annual costs.

Please note that when using 529 accounts to fund pre-college goals, annual distributions will be capped at $10,000 per the SECURE Act. The "Use 529 accounts to fund Pre-College Education goals" setting in the Gear Icon > Settings > Methodology tab will determine whether or not 529s are used to fund pre-college goals.

Action Items

The Action Items are your opportunity to dial in an education funding proposal. These variables are specific to each student, and allow you to make adjustments to education costs, 529 contributions, funding sources, and more.

Education Goals

In the left-hand column, you will first see each education goal for that individual listed in order. The Annual education cost, Scholarship/other, and Student borrowing values will be pulled in from the data cards in the Profile > Goals tab. You can manipulate these variables to demonstrate the impact of varying tuition costs, scholarships / financial aid, and student borrowing on a student's overall cost analysis:

Note on Scholarship / Student Borrowing:

Please be aware that the Scholarship/other and Student borrowing fields will reduce the annual amount of that student's education goal, not the total projected education cost. As you make changes to these variables, you can see the impact on the Annual net cost, even before clicking the Refresh button:

529 Balance / Savings

Beneath the education goals, you will see information regarding the 529 assets in the plan for that student:

The Current 529 balance will reflect the total value of all education savings accounts entered within the Profile > Net Worth area, with the student listed as the beneficiary.
The Annual 529 savings section will list the value associated with any 529 savings cards entered within the Profile > Savings area, where the student is set as the beneficiary. If there are multiple cards for that student, you will see them all listed as separate items. The values entered within these data cards will flow through into the Education analysis:

You will also see two additional options for illustrating additional savings. Lump sum saving will allow you to model a one-time lump sum amount, saved to a 529 plan for the student. The amount you enter is assumed to be invested in the 529 account immediately. Additional annual 529 saving allows you to show an additional annual amount that will be saved each year. These savings will occur from the current year through the first year of the student's education goal.

By manipulating existing 529 contributions and modeling additional 529 savings, you can fine-tune a student's education funding proposal to achieve the exact amount of goal coverage that your clients are looking for (a certain number of years, a specific goal coverage percentage, etc):

Why aren't my 529 savings having an impact?

As a reminder, the Education module is based on comprehensive cash flow data from the Proposed Plan in the Retirement Analysis. If you're making changes to the 529 savings and not seeing an impact, it may be due to cash flow deficits that are occurring within the proposed plan.

If this is the case, you can resolve this issue by checking the following setting in the Gear Icon > Settings > Methodology tab of the client plan:

When this setting is unchecked, 529 savings will not occur in years where clients do not have sufficient cash inflows. Checking this setting will cause 529 savings to be funded by liquidating taxable assets in those instances.

Strategy

Within the Strategy column on the right-hand side of the Action Items, you'll find two more options to round out your education funding proposal. These options are 529 Asset allocation, and Funding sources:

The 529 Asset allocation strategy determines how the funds invested in that student's 529 plan(s) are allocated. This will affect the annual portfolio return generated within the 529(s) moving forward.

If 'Current allocation' is used:

We will use the asset allocation associated with all 529 accounts in the client's Profile, where the student is the beneficiary.
If there are no 529 accounts where the student is the beneficiary, we will use the Asset Allocation for the Proposed Plan in the Retirement Analysis module.

Within the dropdown menu, you can choose from a list of model portfolios. Here you'll find RightCapital's seven default models, in addition to any custom models you've created. As a reminder, you can view existing and create custom models within the Models > Portfolios tab of the Advisor Portal.

The Funding sources strategy determines which assets are used to fund the education costs for this student. Options include:

529 only - only assets and savings in 529 accounts will be used. If there are not sufficient 529 assets, remaining education costs will not be funded.
529 and taxable - we will first look to fund education costs using 529 accounts. If those assets are fully depleted, we will look to fund goals from available cash flows and any taxable investment accounts within the plan. If those assets are insufficient, remaining education costs will not be funded.
529, taxable and Roth - we will first look to fund education costs using 529 accounts, available cash flows and taxable investments (same as 529 and taxable). If those assets are insufficient, we will withdraw assets from any Roth IRA accounts within the plan. Withdrawals from Roth accounts will be penalty-free. If Roth assets are insufficient, remaining education costs will not be funded.
All resources except 529 - 529 assets will be excluded from education funding. Costs will be funded using available cash flow, followed by investment withdrawals according to your Withdrawal Sequence setting.
All resources - we will first look to fund education costs using 529 accounts. If those assets are fully depleted, we will look to fund costs using available cash flow, followed by investment withdrawals according to your Withdrawal Sequence setting.

Details Tab

After dialing in your education funding proposal, the Details tab is where you can take a closer look at the mechanics of what's happening as a result of your strategy. Here, you will find two separate cash flow tables for each student that allow you to review the numbers behind the projections:

Using the first dropdown menu above the chart, you can choose between viewing the Education cost summary, and the 529 summary. Using the second dropdown menu, you can choose which student you'd like to view.

The Education Cost Summary table provides additional cash flow details on education costs and funding. This table can be a useful backdrop for talking points such as:

The impact of scholarships & student borrowing on a student's education costs.
How much of a student's education is funded with 529 assets vs other sources.
Any shortfalls that may occur if the selected funding sources are insufficient.

The 529 summary table tracks beginning and ending 529 balances each year, in addition to portfolio return, savings, and withdrawals once education costs begin. This table will only reflect 529 assets where the specified student is the beneficiary. Using this table, you can:

Highlight the impact of a change in 529 asset allocation on the portfolio return.
Visualize lump sum and additional annual 529 savings that have been entered via the Action Items.
Identify if a student's 529 accounts are being under or overfunded within the projections.

Note on Overfunding 529 Accounts:

If a student's 529 account is overfunded in RightCapital, the leftover funds will be used on the next youngest student once the beneficiary has finished school within the plan. However, if there are no more education costs in the rest of the plan, excess funds in a 529 can grow endlessly and skew your plan output. Be mindful not to overfund 529 accounts for the youngest student in the plan!

Applying Your Proposal in the Retirement Analysis

After dialing in your education funding proposal within the Education module, you can then choose to instantly reflect this strategy within the broader context of a client's retirement projections. To apply an education proposal, visit the Retirement Analysis module and access the action items at the bottom of the screen. On the right side of the action items, isolate the 'Education Strategy' dropdown, and choose the 'Education Proposal' option. Once you click Refresh in the lower right, details from the Education module will flow into the Proposed plan:

A few things to note when importing education funding proposals into the Retirement Analysis:

When using the "Current Strategy" option (which is selected by default), nothing entered into the Education module will impact the retirement projections. The Current Strategy will attempt to fund education goals in the same way as the 'All Resources' funding strategy (529s first, then available cash flow, then investment withdrawals according to your Withdrawal Sequence setting).
If you enable an "Education Proposal" that is funding less than 100% of a student's education goal, the remainder of the goal that is unfunded will be omitted from the retirement projections. This can be done intentionally (for example, parents who plan to pay for only a portion of a child's college education).

Additional Information

Including 'Other Family Members' in the Education Analysis

To include an Other Family Member in the Education Analysis, navigate to the Profile > Family tab (or Step 1 of the initial six steps of data entry). Open the 'Other Family Member' card, and check the "Include for Education planning" box. This will allow that family member to be selected as the student within Pre-college and College goal cards, as well as the beneficiary for 529s and other education savings accounts.