How Families Reduce College Costs Without Sacrificing Retirement | Terry Wheeler on Tax Strategies

Parents, is your teen college ready? Are you feeling overwhelmed, stressed out, or excited about your teen applying to college? Do you know what colleges are looking for? And if your kid gets in, do you know what you'll pay for it? College admission has never been so competitive or expensive. Shellee Howard will take you on a journey to help you and your teen get college ready. Now here's your host, Shellee.

Hello parents, this is Shellee Howard, the founder and CEO of College Ready, and today I have an incredible guest. I can't to share with you, Mr. Terry Wheeler. Welcome to the show.

Hey, thank you, Shellee Howard. Thank you for having me on.

Outstanding. So Terry, can you give our audience a little glimpse into who you are and a little bit about your background so they know what we're talking about today?

Sure. So I am a wealth strategist and tax attorney who has 5 children, 3 of which are triplets that are in high school and I have 2 in college. So we do a lot of high net worth planning and portfolio strategies and tax planning, but As my kids were entering college, I really fell deep into how do we get more money for college through tax savings techniques, because we made too much to get financial aid and we still wanted some help because with 5 kids, it's a tremendous bill we are facing and mountain to climb for college expenses. So I'd say I'm a father first, love what I do with the children. They're amazing kids and we want to give them the best, but we also want to retire someday and be able to do that comfortably too. So it's a balancing act.

So what qualifies you to do this work? Did you just one day decide, I just want to do this, or did you get an education and certifications? So give us a little bit of the background. Sure.

So I, I've been in the wealth planning business since I was 21 years old and I'm 57 now. And I started with Dean Witter, ended up going to law school and doing tax planning, asset protection, estate planning, a lot of tax work. And then we've been combining and integrating those primarily for people who are in the are into retirement or are retired. And we happen to live in an area where we have a lot of older parents. So my wife and I are both, both around the similar age and we have the triplets are 15 now. So we've, we became qualified just through doing tax planning for 30+ years. How we got into education tax planning was really just because our kids are going through it. So we were looking for things to help ourselves. And then embarrassingly, embarrassingly enough, I realized we're doing all this great tax planning for our clients and these little things add up to big $1 million. So we started really helping them with the tax planning as it relates to their children. And that really added to the power of their tax planning. So I fell into it by having 5 kids basically.

Sure. And that's the best, right? My listeners know my story of my son saying, mom, will you help me get into an Ivy League school? And of course, what we do for our children. 18 years later, did I ever think I'd have a podcast or did I ever think that I would be running a corporation? Not really. That was not part of my strategy, but as I've done this work, meeting people like you, Terri, I have learned that it takes a village. It really does. If we want to give our families the best and still be able to retire, which is very important as you get closer.

Yeah.

When I was 20, I remember asking my first employer, why do I have to put money in retirement? Made no sense at all when I was 20. And now I'm like, dang, I don't know if I put the right amount in. And when I was going through this with my firstborn and I was thinking, wow, $63,000 a year for Harvard. Wow. And that was just my first child. And I was like, there's got to be a better way. And like you, I started digging and I started interviewing people and I started really doing my research. And I started to ask those hard questions. What does tax code look like when it comes to this strategy? How about asset protection? Can we put it where the FAFSA doesn't look? And so I read the FAFSA 3 times. I'm not going to lie, parents. Fell asleep 2 times, got through it the 3rd time. So, Terry, how was going through tax code and, uh, learning the strategy?

Yeah, you keep the tax code by your bed if you have trouble sleeping. It works great. But all joking aside, this is a fun area because we are, we, we all care so much about our kids and want to give them the opportunities that maybe we didn't have. And some of the strategies you're talking about with moving, moving assets around in order to have them in exempt categories and make sure that you can get the maximum financial aid possible. It's important, but not all financial aid is created equally and you have grants, scholarships that you don't have to pay back. Those are wonderful, but loans are still money you have to pay back. So to me, that's sort of financial aid. It can clear the path and it can be very important. That's how I got through college, but I also graduated with a lot of debt. So I think when you get into things that can actually create dollars for college that you don't have to pay back, to me, that is so much more powerful. So that's, that's what I love about the tax code is it's got so many hidden gems and some of it is a mind game to me. And what I mean by that is if you're working with a couple that has their kids about to go to college, if we can find dollars for them that they use for college. The dollars don't have to be directly from what you're doing with your child. They are dollars found if you find them in the tax code. So give you an example, you could do, do cost segregation strategies for real estate and rental properties that can create hundreds of thousands of dollars, not directly tied to your child, but can be incredibly, incredibly powerful through short-term rentals and things of that nature. Those clients that have businesses themselves, there's powerful income shifting strategies that can create $20,000, $30,000 per child very, very easily just in tax savings. So we've estimated that between our 5 kids, we're targeting close to $300,000 in dollars found just through tax savings that we'll get over their college careers. And that's with zero financial aid. So we'll send about the 5 kids through college for the price of 3 is about what it works out to be.

And you work the numbers, I'm sure, forward and backward. There's no doubt about it.

We do. And we're, I mean, we love the tax planning, so we're doing it for our retirement also. So if you, if you're balancing education and retirement, if we can create tax-free dollars for retirement, that means you need less money in the portfolio to support your standard of living because you're not paying taxes. So you have more money that you could spend for college. So. Both the direct and indirect forms of tax planning can be powerful.

So parents, if you're listening to this and you're blown away, I just want to pause for a second and say, this is why I had this podcast. So here's some things I want you to be thinking about. College is a business. They need your dollars as much as your student needs the education. And if you approach this as a business transaction and not an emotional decision, you will be 10 times, 100 times better off. And I learned that the hard way with my firstborn, as we often do. We call them the guinea pig. But by the time I got to number 4, I was like, dang, I wish I had a do-over. So why I'm carrying on to the show is I don't want you to have that do-over, that, that I wish. He has some strategies that not, I will say very few tax people I've ever worked with really understand when it comes to college planning. Most of the time I'm telling them and they're like, no way, I'm going to look that up. I don't do, right, the tax part or the financial part. I do the strategy part. Yes, we get the big scholarships. Yes, we do the negotiations, but Terry's the guy that's going to get you the money that you can save and not have to spend your retirement. So Terry, how is it that everywhere a parent goes, they're on social media, they're on the news, they hear there's no money for college, you're going to go into massive debt, it's dire, it's horrible. What, what words of encouragement can you give them?

I think when you look at tax planning, the, there is money there to be had if you're a high income earner. Now, if you're not paying taxes, you're not going to benefit from these because there's, there's no taxes to save because you're not paying anything. But for higher income earners that are paying many times hundreds of thousands in taxes per year, there are very powerful ways to get money back. And it's kind of a spectrum of short, intermediate, and long-term, even multi-generational tax planning. And it's a spectrum of effort. If you're willing to put in low to no effort, you can still probably get back a solid $10,000-$15,000 per child for 4 years of education. So not a lot, but those are the low-hanging fruit, easy things. You put in a little bit of effort, you might be able to save $20,000, $25,000, $30,000 per child pretty easily. And if you put in a lot of effort, you might be able to pad your retirement account after you pay for their college to boot. So tax planning is powerful, but it does take effort and commitment, but it's probably the best part-time job you could ever have. Put in 5 or 10 hours a month at the most, and you might be able to get hundreds of thousands of dollars in returns in the right set of circumstances.

And I always say there's usually one parent who's a little bit better at this kind of thing. And if they enjoy it, it's actually fun. I found it to be really fun when I could save money on my taxes. There's some joy that goes into that versus if I just choose not to go on vacation, there's no joy in that. No. Right. So when we, when we think, yes, there's a little bit of work, but at the end of it, you're, you get closer to not putting your child in debt and you not using your retirement. So thinking about education and retirement, is it possible that you can actually do both and not have to pull from your retirement or go into massive debt? Have you seen this to be true?

Yeah, I think absolutely. I think that's the goal for every client as you begin planning is how to get them from point A, where they're really facing this mountain they've got to climb for the education costs, even if they can afford it, it's still a lot of money that they could be doing all kinds of other things. I can't tell you how many of our friends were like, well, do we send them to college or just get them a substantial down payment on a house? Which are they going to be better off with these days? But the college ticket, so to speak, getting through college still has value today. And the key is to do it any way that you're paying the least amount from a net after-tax dollar perspective. And that's very achievable. It just takes a little bit of planning and starting as early as age 14 for your kids is ideal because then you can, you can probably cover half, if not all of it, just through tax planning. So it just depends on how much income and what your circumstances are and what you're willing to put in. But there is a lot of opportunity both for this and then also to maximize your retirement plan. So we teach advisors all across the country on these concepts because most tax professionals, they simply don't do enough tax planning. Even CPAs, we do more than 99% of the CPAs out there from a tax planning perspective because it's part of wealth Planning. You can't do portfolio management without doing tax planning. They fit hand in hand. And it's especially powerful when you're helping a family send their loved ones, their baby girl or baby son to college. So it's, it's very rewarding when you can help see that their shoulders just relax that this is doable.

So in a perfect world, it sounds like 14 would be great, but in a perfect world, I have two kids that are getting married this year. Right. And I'm thinking grandkids are coming next and I'm not going to buy them a bunch of junk, I'm really starting to strategize of how I'm going to set them up for not having to deal with this. But for a family that's listening, can you talk about some benchmarks in wealth planning or strategies for college financial planning? Yeah.

So benchmarks depends on how old your children are as to what tools are available. So if you're starting at newborn, doing things like 529 plans are good. Saving in really capital gains type investments might even be better where where you're not paying any taxes until you withdraw, and then you can do gifting strategies and things to keep the taxes either low or at zero. But benchmarks, I think you've got to really think about what kind of school are you trying to send them to? Is it a state school, which tends to be much less expensive? In our area, we're in California, so UC schools are more expensive, but they're still fairly reasonable. And then there's private schools, which one of our daughters just went from UC Berkeley to a private school, and the cost doubled. Depending on what you're doing, you reverse, you look backwards and you start creating a plan as to how you're going to get there. And the earlier you start, the better, both through savings and then also through tax savings. So if you save $10,000 this year because of a tax concept, are you putting that right into the college fund or into your retirement account? I want to answer the question as to benchmarks, but I think most of our clients don't come in as a newborn starting. They're coming in and their child is 17. They're like, what do I do now? Here's how much I saved. So benchmarks are out the window and it's like, what can we do over the next starting immediately in the next 4 or 5 years while they're in college to get as much as we can through tax planning. And I think that all starts after doing, Shellee, what you do. So really FAFSA planning and CSS profile. So maximize financial aid, the good kind of financial aid, then maximize scholarships and negotiating the way you do, which I thought was really powerful how you negotiate the schools against each other and then tax planning. And you don't do one or the other, you do all of them so that you can keep your costs down. And if you make too much money through all of these and too much tax planning savings, you just put it in your retirement account. So that's a good problem to have. But for a lot of, a lot of these schools, they're expensive. So if we can get rid of 60, 70, 80% of the cost, and that's a pretty good first step.

So good. So parents, if you're listening, you're like, I'm not alone. I did wait a little too long and I knew this was coming, but I, I really didn't want to think about it. I often tell families, once you know that this is possible, that's when you've got to do it. If you didn't know, you can't beat yourself up. You can always work forward. We can't go backward. The FAFSA looks at the second semester of your sophomore year and the first semester of your junior year. Do we want to get your financial house in order? Absolutely would make everybody's life easier. But if you either haven't saved or saved a lot in the wrong place or invested in the wrong entity, there's things that can be done to fix that situation, but you want to have a professional like Terry in your corner that you don't just do something and then it sets off the wrong rhythm on all of the other stuff. And I, I personally have met with lots of families who ditched this or ditched that based on something they listened to or something they read. And I tell parents, it's just scary. We don't know where they're gonna go yet. We don't know if they're gonna go to a public, a private, if they're gonna go to get a large full ride scholarship, if they're gonna not get any. What does that look like? So the best strategy, right, Terri, is do something now, whatever that is. An example that comes to mind, and you might say, Exactly that or neither of that. I don't know, Terri, it's kind of risky in the room I'm in, but I know if you own your own business, you can hire your own children to work in your business.

Absolutely.

Cool, right?

All 5 of my children work for the business doing different things. Some are doing very detailed hard work. Some are more in my ads and they, they're getting Actors Guild type wages. So that's definitely one of the strategies. If you have a business that works well, or you can create a business if you you don't have a business and that could be part of your strategy.

And for those of you who have two paychecks, I would highly encourage you to look at the numbers and have a side hustle as you're getting through this. If it makes sense, again, I'm not a tax advisor at all, but what I get to see coming through on the FAFSA is the people who have a strategy outside of just giving them your you have a much better chance of navigating this without heart palpitations. So, Carrie, do you have any other easy ones that you can share with the listeners that, that they may just not know is possible?

I think part of what you're pointing out is strategies where if you've got, if you're in the phase-out, meaning you're not going to get the tax credits that are available, available for education, then you can get those back through things like employing your children and shifting of income techniques. And that's an easy $2,500 in your pocket every single year for 4 years. So it's $10,000 per child. That's what I call the low-hanging fruit. And even though it's low-hanging fruit, I can't tell you how many people don't, don't get those monies. And then there are certain things that are available. If you've got a child, maybe with a minor disability and you live in a state like California, you can get all of your tuition paid for if you go under the right programs. So that there are more resources than most people realize. They just have to, let the stress go and just start. And it doesn't matter if your kids are 13 or if your kids are 18 or 19 and in college already. There is time to get some of these benefits. It's just a matter of you got to start. The sooner the better. And there's, there's something called the Augusta rule, which is another tax rule that if you have a business, it's easy to take advantage of. And that allows you to rent out your own home. Your business rents out your home for up to 14 days a year, pays fair market value. You get the deduction as a business owner, but you don't have to count any of that income. So let's say that was $20,000 over the 14 days. It could even be more. In a higher tax bracket, you might have $8,000 to $10,000 of savings per year for a child right there. So that can add up to $32,000 to $40,000 right there. So there are a lot of powerful tools and techniques. It's just taking a look at what you have going on right now.

So good. I just wanted you to get an idea. When this concept first came to me, I was having lunch with a gentleman, not quite as handsome as you, but you know, did he have hair? And I was sitting down and I was venting about how much Harvard was going to cost. I was just livid. And he kept saying, but it's Harvard. And I'm like, I don't care what it's called. I am an entrepreneur and it does not make sense for me to pay full price for anything. That's just how my mind works. And he goes, well, what about your short-term rental? How are you utilizing that? I'm like, what do you mean? And all of a sudden, whoa, a whole new concept, a new idea that nobody had ever told me before, what I could do with a short-term rental or a long-term rental with a totally different retirement strategy. I was like, I am missing the boat. And that's when I realized that your world is one in which I wanted to be friends with. So if somebody wanted to find out more to see if maybe they were a good fit for your tax strategies, what would it look like if they worked with you? Is it, is it scary? Are you just going to yell at them that they did stupid stuff? What does that look like?

No, it's the fun thing about when you're doing this for, for tuition tax type planning is it's all parents. So you just, we start out just by having an initial meeting and just issue spotting. And we do that complimentary and seeing if we can help. And we've done this long enough where I can I can usually look at a situation and say, I think we can do X, Y, or Z amount. Here's what's involved. And then they can decide if they want to go forward with planning. And we, so we do initial, it can be by Zoom because we can do federal tax planning all across the country. State issues are different, but they all fall in line pretty naturally. So we can help people. It's very seldom we don't find somebody we can help because unfortunately the tax planning is just not done very proactively in the United States, at least not for most people. So when you add proactive tax it's amazing what you can do. The hardest part is some people look at us like, that can't be right.

It's like, I've had that before.

It is right. I can show you my tax bill. I saved $300,000. Uh, you just gotta do it. You just gotta plan ahead and things like short-term rentals. And then you combine that with cost segregation analysis and you can get huge write-offs upfront in many of those areas. And it's beautiful when you're buying it like we have, we have some friends that are there. Their child is in Long Beach and they're looking at a short-term rental in Long Beach and they'll go there a little bit and work on it and they'll get there, stay under the number of days they can utilize. But that will also create enough of a write-off to pay for the full first year of education very easily with that one rental property. So lots of powerful strategies.

So good. This stuff makes me crazy. I love it. So if somebody wanted to reach out or get that complimentary discovery strategy call, what's the best way for them to do that? Sure.

So you can, you can find us at www.strategicwealthlegal.com or just call Chris, who's our client services representative. So she's, she's our front desk person. She's great. She's at 916-325-0130. And just give her an idea of what you want to do. And she'll set up what we call an initial meeting. We'll send you out a questionnaire and collect some data, just share as much as you're willing, but we'll issue spot and be able to find where the opportunities are for you. And if it's a good fit, you'll go forward. If not, you'll walk away with some good information anyway. Um, and we'll give some good drive-by advice that you can put in place right away.

So good. When I, when I, um, want you to understand, families, is it's not dire out there. Last year, our students got over $10.3 million in scholarships that was earned. That wasn't need-based. That was because they did what they needed to do and they had the right strategy. So when you put the academic strategy next to the financial strategy, You can do this. And I want you to know, so continue to listen to our podcast as I bring the village to you. And until next time, parents, you've got this. Thank you.

Thank you, Shellee Howard. Have a great day.