Episode•May 31, 2022•18 min

Saving For Your Kids with Sarah Holden | Ep. 107

Sarah Holden joins Tiffany again in this episode to break down 529 Plans, going over everything you need to know about getting started with saving for your kid's future. About Our Guest Sarah Holden is Senior Director of Retirement & Investor Research at the Investment Company Institute (ICI), the leading association representing regulated funds globally, including US mutual funds and exchange-traded funds (ETFs). Sarah has a Ph.D. in economics and has studied retirement trends and policy, as well as the behavior of investors, for decades. She uses humor and plain English to make retirement and investment concepts clear. Connect with Sarah Linkedin Episode Resources 529 Plans 529 Search & Comparison Connect with Tiffany on Social Media Facebook: Money Talk With Tiff Twitter: @moneytalkwitht Instagram: @moneytalkwitht LinkedIn: Tiffany Grant YouTube: Money Talk With Tiff Channel Pinterest: Money Talk With Tiff This podcast uses the following third-party services for analysis: Podcorn - https://podcorn.com/privacy OP3 - https://op3.dev/privacy

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Key Takeaways

1
529 plans offer powerful tax advantages for education savings
Earnings grow tax-free inside the account
Withdrawals for qualified education expenses are completely tax-free
Many states offer additional tax deductions or matching contributions
2
Two main types of 529 plans exist with different structures
Prepaid plans let you buy future tuition credits at today's prices (usually in-state only)
Savings plans are more flexible, allowing investment choices and broader use of funds
94% of the $480 billion in 529 plans at end of 2021 were savings plans
3
529 plans have significant flexibility if plans change
You can change beneficiaries to another family member or even yourself
Up to $10,000 can be used to pay student loans
Funds can cover apprenticeships and K-12 expenses in some cases
4
Start with your state's plan but compare options
Use the College Savings Plans Network comparison tool to evaluate all state plans
Check investment options, fees, and whether out-of-state residents are accepted
Age-based funds automatically adjust from stocks to bonds as college approaches

Intro

Tiffany welcomes back Sarah Holden to discuss 529 plans as a tool for saving for children's education, building on their previous conversation about retirement planning.
Sarah Holden is Senior Director of Retirement & Investor Research at the Investment Company Institute (ICI). She holds a Ph.D. in economics and has studied retirement trends, policy, and investor behavior for decades, using humor and plain English to explain complex financial concepts.

LinkedIn ICI

– What is a 529 Plan?

Sarah explains that 529 plans help families save for education with tax advantages. A bachelor's degree holder earns 84% more over their career than someone with just a high school diploma, while an associate degree holder earns 40% more.

Average costs: $23,000/year for public university, $52,000/year for private university for four years.

– Two Types of 529 Plans

Prepaid plans: Buy future tuition credits at today's prices, typically requiring in-state residency and school attendance.

Savings plans: More flexible option where contributions are invested, grow tax-free, and withdrawals for qualified expenses are tax-free.

Qualified expenses include tuition, required fees, room and board, and potentially up to $10,000 for student loan repayment.

– How to Get Started

Start with the College Savings Plans Network comparison tool featuring a map of all state plans.

Check your state's plan first for potential state tax advantages beyond federal benefits.

You can often choose plans from other states if they offer better investment options or lower fees.

– Investment Options Within Plans

Age-based plans automatically adjust asset allocation from stocks to bonds as the child approaches college age.

DIY investors can select individual stock funds, bond funds, and cash options to build their own portfolio.

Plans typically offer mutual funds, with some including ETFs as investment options.

– What If Your Child Doesn't Go to College?

You can change the beneficiary to another child, family member, or even yourself.

You can leave the money in the account hoping for a future grandchild who attends college.

If withdrawing without qualified expenses, you'll owe taxes on earnings plus a 10% penalty.

– Recent Expansions in 529 Plan Flexibility

Up to $10,000 can now be used for student loan repayment.

Apprenticeship program costs are now included as qualified expenses.

K-12 expenses may be covered in some states.

– How to Use the Funds

Contact the plan administrator to request a distribution.

Payments are typically sent directly to the school.

Keep records of all education expenses in case of IRS audit.

Resources

Topics

529 planseducation savings college planningtax-advantaged accountsinvestment strategiesfinancial planningstudent loansapprenticeshipsstate tax benefitsbeneficiary changes