- A 529 plan is an investment account
where you can use that money to pay for qualifying
education expenses including college and now,
K through 12 expenses.
Usually, they're state-sponsored plans.
They grow tax-free, and your withdrawals are tax-free
when you pay for those education expenses.
Now armed with this info, here are the top five hacks
we have for 529 plans.
(air whooshing)
Hey, guys, welcome back to The College Investor,
investing and personal finance for millennials.
Today, we are talking about 529 plans,
and these are investment accounts
where you can contribute to to pay for education expenses,
either for yourself, your child.
You can open one up for a niece or nephew,
your brother's best friend's baby's cousin.
You can open a 529 plan for just about anybody
and use that money to pay for education expenses.
(light music)
Okay, so our first hack
is to take your state's tax deduction during
the college years.
So a lot of times you're like,
"Well, this doesn't really apply to me
"because I need the money now."
What you can do is during the college years,
you can take that money
and contribute towards your 529 plan
and then immediately use that money
to pay for tuition or expenses.
So for example, if you're in grad school,
you can open up a 529 plan for yourself,
contribute up to that tax deduction,
and this is gonna bit a little different for each state,
so check with your state plan,
and then, immediately turn over and use that money
for tuition, and then you can take
that state tax deduction when you file your taxes.
Now this works really well if you haven't been saving
for a 529 plan for years and years and years.
This kinda happens within the moment.
So our second hack is to contribute
up to five years at once.
So this is on the opposite side.
So if you get an inheritance or you fall
within a large lump sum of money, call me first,
and then, we can talk about putting that into your 529 plan,
which is exactly what this hack is all about.
So actually, what you can do is you can take
five years' worth of your max contribution limit.
Generally, this is around $14,000 per year, per child.
And you can contribute that large lump sum of money
all at one time.
You can let that sum grow and compound
at a much higher rate.
So for example, let's say that you live in Nebraska
and you wanna open a 529 plan
for your son or daughter.
So Nebraska has a state-sponsored plan
through TD Ameritrade.
So when I went onto TD Ameritrade's website
for their 529 plans, it looks like it says here,
you can contribute up to $15,000 per year per beneficiary.
And then, you can contribute as much as $75,000
in a single year, and that $75,000 counts towards
a 15K gift and four annual gifts of 15K in future years.
So you can really work this to your benefit
if you have a large lump sum of money
that you wanna put towards that 529 plan
because you can do it all at once
instead of just doing 15K each year.
Your interest and your investment is going to grow
a lot faster when you put that 75K in it upfront.
The third hack for 529 plans
is you can change the beneficiary.
So let's say you do open up that plan for your daughter,
and she ends up not going to college.
You can change the beneficiary to another child
who does plan on attending college.
You can even do this for yourself by furthering
your own education, even later on in life.
Maybe you wanna go to a tech school
or go to a culinary arts school
because that's what you wanna do when you retire.
You can use that 529 plan and pay for those expenses
to go to culinary arts school.
The fourth hack is to pick the 529 plan
with the best features.
This really is going to apply to people
who live in states that don't offer state tax deductions
for 529 plans.
So if you live in California, Kentucky, New Jersey,
there's a few of them on the list,
so make sure that you check out if your state actually has
a tax deduction.
If not, you're just going to have to pick
the best plan that fits your needs.
So there are plenty of investment brokerage firms
where you can open a 529 plan with,
and make sure you understand the fees
and what types of funds and investments
that you can use to fuel your 529 plan.
So I just so happen to live in California that doesn't,
unfortunately, offer a state tax deduction.
So I personally use Vanguard
because I really enjoy index funds,
and that's exactly what I can invest in with my 529 plan.
And our fifth hack is that you can use your 529 plan
to pay for private school expenses.
We know private school is just an insane ridiculous
amount of money, but you can use that 529 plan
and the money in it to use to pay for private school.
This can really, really help,
especially in the early years if you can contribute.
You can even contribute before your son or daughter is born,
and then afterwards, you can just change the beneficiary,
as we talked about.
So you can really get a jumpstart on paying
for private school from the get-go.
This would be a great way to do that with the 529 plan.
We all know education costs are just continuing
to skyrocket, and a 529 plan helps alleviate that burden
a little bit if you can get started early,
even just with a couple of hundreds bucks
to get you going to help pay for those college expenses.
And also, it pays for K through 12 expenses now,
which is great to hear because then you can start using
that money a little bit earlier.
Check to see if your state has a tax deduction
for your 529 contributions and make sure you understand
the contribution limits.
If you want more tips on how to start a 529 plan
or just saving for college in general,
be sure to check out thecollegeinvestor.com.