The 411 on 529's: Saving and Paying for College Education

Oct 16, 2018

During this installment of The Confident Wealth Podcast from the Horizon Financial Group, hosts Pete Bush and Bill Bush discuss how to manage, save, and withdraw savings for your child's college education. They answer questions around how much money to save, when you should start saving, and how to withdraw it.

 

Show Notes:

 

• 0:50---Introduction of today´s topic--saving and paying for college. How do you do it?
• 2:00---The 529 plan is a good way to save for college. You save after-tax money and all the earnings on this money is tax-free when you withdraw it. Depending on your state, you may also get a tax deduction or match.
• 4:00---College isn't a surprise. You know it is coming and the cost of education is escalating. Plan for it.
• 4:30--- Where do you start with saving? How much do you save? The sooner you start, the more time you have for your money to compound.
• 5:24---Time is your best friend when it comes to saving.
• 6:00---You don't need to know what school they are going to to start saving.
• 6:34---Saving for college is like the reverse of buying a house. You need to save like it is a mortgage or a bill. However, with college, you incur the bill at a later date.
• 8:30---Louisiana isn't broker fund. They are government funded, and they use Vanguard so the funds are leaner.
• 9:00---Now with the new tax code, you are capped at deducting $10,000 from taxes. College savings have tax and Match incentives.
• 10:30---There is a limit on the deduction, but you can always save more than that.
• 11:30---You can also make up a prior year´s max amount the year after if you weren't able to get the tax return.
• 12:12---In the past, you couldnt use 529 money for high school or any time before college. 529 isn´t available before college now. It is strictly regulated.
• 13:00---However, now there is a k-12 start account that you can use for high school tuition.
• 14:00---How do we decide when to withdraw the funds?
• 14:30---The funds are relatively easy to withdraw. You can write a check to the school and then write a check to yourself through the 529 plan. Or, you send the money to the school directly from your 529 plan.
• 15:15---What happens if your kid gets a scholarship? You are still allowed to take out the amount of money up to the amount of the tuition. They don't penalize you for scholarships.
• 16:20---If your kid decides not to go to college, you can change the beneficiary to your other child who wants to go to college. This is a tax free change.
• 17:30---The parents can also use the funds towards going back to school as well.
• 19:27---Sometimes the 529 makes you declare which school the kid will go to, but this does not restrict where the kid goes to school. Also, the child just needs to be a resident of the state when the account is opened, meaning that your kid can go to any school out of state without penalty.

 

 

3 Key Points:

1. Saving money for your child to go to college can seem complex.
2. Setting up a 529 plan is an after-tax way to compound your earnings and pay for your child's education without tax stipulation on your account´s earnings.
3. You don't need to know which school your child will attend or the state of the school. You start saving by setting up an account, and if your child chooses not to attend college you can always pivot the account to support someone else´s college education--your other child or even your own. The 529 plan is flexible.

 

Tweetable Quotes:

-       “529 allows you to put away after-tax dollars. However, the earnings on these dollars can grow tax free if it is put away for college.” –Pete.

-       “Start as early as you can.” –Pete.

-       “You kind of have to assume, in this day and age, that they are going to want some form of higher education.” –Pete.

 

 

Resources Mentioned:

 

• The Confident Advisor Practice-- Discover more about the Podcast
• Horizon Advisor Network