Episode 139 529 Plans

School is back in session! In this week's episode, we will discuss the benefits and limitations of 529 plans. It is never too early or late to build a financial plan that supports lifelong learning for your children, grandchildren, and yourself.

Envision Financial Planning. 5100 Poplar Avenue, Suite 2428, Memphis TN 38137. (901) 422-7526, This communication is strictly intended for individuals residing in the United States. Advisory Services offered through Envision Financial Planning, a Registered Investment Adviser.

Transcript

Stacey Hyde: 0:00

Hi, this is Stacey Hyde and I'm back for another episode of Better Financial Health in 15 Minutes or Less, and I'm going to talk a little bit about back to school things to think about there, although I do realize I'm a little bit late to the party. A good friend of mine teaches elementary school in Mississippi and they actually started on August 1st. I remember as a kid thinking it was terrible that we had to start before Labor Day. Well, now it's early August at the latest. So, that being said, I hope you've already got your back to school things picked out and your kids have found the pencils and the notebooks that they need. I'm going to date myself. I can remember really wanting a Trapper Keeper. I thought that was the coolest thing. But in any event, I think it is important to think about how you're going to fund your children or, if it's you, your lifelong learning either maybe finishing a degree or getting a master's degree to help you along and also preparing your kids. If you're preparing for your kids education, then I think it's important to start.

Stacey Hyde: 1:13

529 plans are a great vehicle. They've gotten even more flexible If you live in a state that has a state income tax most states if you use the state's 529 plan, they'll give you a deduction on your state income taxes. But there's more than just that deduction that can help you. It allows you to save and up to $10,000 a year can be withdrawn to pay for private high school or middle school. It can be used for college and it's a pretty expansive definition. It can be used to pay the full cost of attendance. So that's room and board, it's tuition fees, books, a computer, internet access is considered integral to a college education. What it can't do is to pay for study abroad and a plane ticket to study abroad and things of that nature. And if you're renting an apartment, it costs quite a bit less I mean quite a bit more than what the dorm would cost. Be careful with that, because you really need to stick pretty close to that cost of attendance there. And some people have been concerned over the years about what happens if the money gets stuck in there. Like they get a scholarship and I put all this money in there. Well, most kids that are smart enough to get a scholarship also have continuing education that they're going to do post undergrad, so it can certainly be used for that.

Stacey Hyde: 2:48

If you have more than one child, you can transfer it to another child. That's what we've done. The other thing you can do now is up to 35 000 can come out and fund a Roth IRA for the beneficiary. Now the limitations on that you can't do more than what the, for example, in 2024, the $7,000 Roth limit. So you'd have to. Over five years you could get that money out all into your child or grandchild's Roth and what a great start for them in saving for their retirement. You know you pay taxes on the money when it went in and it grew over time and then you're moving it to a Roth and they're going to get that continued tax deferred growth and as long as they keep to the rules and wait till they're 59 and a half, those distributions are going to come out tax-free. So that's a huge wealth building sort of legacy building tool for your kids. Now you can also use these for your own. In particular, you can get some arbitrage if you're in a state income tax state, because you can get that savings on money that you're going to turn around and pull out the next year to fund yours.

Stacey Hyde: 4:13

But you do want to be careful. Student loans with interest rates going up, the rate on student loans is much higher than it used to be. They're still, I think, too easy to get a loan and you really want to be careful and counsel your children about don't just accept the money because it's there. It actually will stay with you and it's not dischargeable Student loan debt is not dischargeable in bankruptcy. So you want to be very careful how much you use and maybe you spread out your classes that you take over time so that you don't have to borrow as much, because maybe you work at a place where there's some where they'll reimburse you for taking certain classes and so you can spread it out that way.

Stacey Hyde: 5:03

So, being very cognizant, look at different things. In Tennessee, if a student is a first-time college student and they go first to a community college, there's no cost for that. That are out there. They are state specific. But really pay attention and read the fine print. Do your homework, do your research, talk to the financial aid office about you know work, study ways to get additional funds, because you don't want to have a big debt over you once you finish up your education. You want to be able to concentrate on what's the best for my career longer term. Thanks so much for tuning in. I'm Stacey Hutt, and this has been another episode of Better Financial Health in 15 Minutes or Less.