Your Questions Answered: Should I Cashflow My Goal or Sell Earmarked Securities?

Chris and Amy have been funding an education account for their daughter for the past nine years. It is a regular investment account – not a 529 – holding mutual funds that now have substantial gains.

His daughter is getting ready to go to college and Amy is returning to get a graduate certificate, a move that will significantly increase her income and eventual pension with her employer. In a recent meeting, Chris asked me if he should just divert what has been going into savings each year directly toward tuition and fees. By his reckoning, it did not make sense to invest the cash, then turn around and liquidate securities. By just switching where their annual college savings were now going, it would save money in capital gains taxes.

I wholeheartedly agreed with Chris. In this instance there was no benefit to continuing to put money in the education investment account. It also speaks to the benefit of having a mindset of flexibility in how you use earmarked funds. Just because we have accumulated funds for a specific purpose, it does not mean we cannot adjust how we access and utilize funds seeking maximize their benefit, tax or otherwise.

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/ SIPC.

This is a hypothetical situation based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your advisor prior to investing.