Happy 5\/29 Day! Regular readers probably already know that a 529 is a college savings plan. For those new here, well, I guess you just found out!<\/p>\n
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I first started looking into college savings plans in 2007, when my nephew was born. I wanted to give him a little head start. I loved the idea my gift would be multiplied thanks to the power of compound interest. Now, he\u2019s 18 years old! He\u2019ll be off to college in the fall.<\/p>\n
Unfortunately college savings plans can be a little difficult for a new parent to understand. This is why I wrote my guide for How to Choose a 529<\/a> back in 2007.<\/p>\n As new uncle, I put in a little money to seed the account and added more on birthdays and holidays. My nephew got himself an awesome little sister, so I opened up an account for her too. My mother (their grandmother) pitched in on holidays.<\/p>\n Today, he has more than $7,500 in his account. More than half of that is from stock market gains. College is expensive, but $7,500 is still something.<\/p>\n In 2012, we had kids of our own and we focused on saving in their own 529 Plans. We\u2019ve got some work to do on that front, but we do have $50,000 saved. We have some saved in a Coverdell which is another educational savings plan. (In my opinion, 529s are better, but I did the Coverdell once because it was a little more flexible for some expenses). We also have my wife\u2019s GI Bill. We\u2019re investing in their education with the best private school in the area, so they better earn scholarships too, right? Finally, we want the kids to have some of their own money for their own education so they don\u2019t skip classes.<\/p>\n In short, there are a lot of ways to save for college. Before we get started with my 29 thoughts on 529 Plans on 5\/29, I have one update for 2025. I added my updates from 2024 with negative numbers, so I\u2019ll continue with that system with this year\u2019s update. (If I had more time, I\u2019d consolidate a few of these thoughts to keep it at 29. Yes, you can laugh at my numbering system.)<\/p>\n -2. 2025 Update \u2013 While 529 plans are mostly the same for this year, keep an eye out for Trump\/MAGA Accounts. They aren\u2019t passed into law yet, but they\u2019ve could be soon. If they do become a real financial product, it seems they won\u2019t get the same tax benefit as 529 plans. So if you think you are going to use money for higher education, it\u2019s likely going to be better to stick to the 529 plan. In any case, we\u2019ll wait and see what those financial accounts look like when they are done baking\u2026 if they get done baking at all.<\/p>\n -1. 2024 Update \u2013 There was an update to one of the laws in 2024 that makes a 529 even more flexible. The law is the Secure Act 2.0 and you can read more about why a 529 plan is even better in 2024<\/a> from my friend Jim\u2019s Wallet Hacks website.<\/p>\n 0. 2024 Update \u2013 Here\u2019s a brilliant hack to draw down from your 529k Plan if your kids don\u2019t use all the 529 money you\u2019ve saved. It comes from Justin at Root of Good<\/a>:<\/p>\n Ultimate 529 draining methodology:<\/p>\n Enroll half time in a community college in fun interesting classes. Pay for 6 hours to be considered half time (cost ~$1k\/yr)<\/p>\n Withdraw from 529 the $21,717 per year for Room and board plus the $1k tuition, all qualified educational expenses pic.twitter.com\/nDd9fRoS5R<\/a><\/p>\n \u2014 Justin RootofGood, Worker Emeritus (@RootofGoodBlog) December 15, 2023<\/a><\/p>\n<\/blockquote>\n Jonathan at My Money Blog, explains it in more detail here<\/a>. Essentially by enrolling part time in Community College you can use the amount of room and board as a qualified tuition expense. This means that you don\u2019t have to pay the 10% withdrawal fee or taxes on the investment gains.<\/p>\n 1. When money from a 529 plan is used for a qualified education expense, there are no taxes to pay on the investment gains.<\/p>\n 2. Unfortunately, it\u2019s difficult to get great gains on a 529 plan since they are typically compounding for less than 20 years.<\/p>\n 3. You might<\/em> be able to reasonably double your money twice in that 20 years. Thus one dollar invested at a child\u2019s birth may be worth four after high school graduation. This assumption uses the rule of 69<\/a> with 7-8% investment growth.<\/p>\n 4. Thus, if you put one year of tuition in a 529 account at birth, it could fund their entire college education. (Unfortunately, very few people have tens of thousands to invest when a new child is born.)<\/p>\n 5. 529 plans are run at the state level. As soon as you are done with this article, you\u2019ll want to look at your own state\u2019s specific plan.<\/p>\n 6. Some states give you an extra incentive to open a 529 plan. My state, Rhode Island, gives a $100 grant if you sign up for a 529 plan when your baby is born.<\/p>\n 7. I used this idea to help motivate a blogger friend to start a 529 plan<\/a>. I offered $25 and a couple of other bloggers joined in.<\/p>\n 8. Some states allow for a tax deduction or credit for saving in a 529 plan.<\/p>\n 9. Some states have better investment options than others. When I lived in California there was no tax incentive for me to invest in the state plan. I decided it was best to invest in Ohio\u2019s plan which had Vanguard funds with low expenses.<\/p>\n 10. 529 plans can be rolled over to a new beneficiary such as a child. This can be done indefinitely, possibly creating a family legacy of education funding and compound interest.<\/p>\n 11. 529 plan money can be used to buy computers. See this IRS page<\/a> for more details.<\/p>\n 12. 529 plan money can also be used to buy computer software subject to the same IRS rules mentioned previously.<\/p>\n 13. 529 plan money can even be used for internet service.<\/p>\n 14. 529 plan money can be used for tuition at private or religious elementary or secondary schools.<\/p>\n 15. 529 Plans can be used for community and technical schools.<\/p>\n 16. 529 Plans can be used for some nontraditional schools such as the Golf Academy of America, the commercial diving program CDA Technical Institute, and the Le Cordon Bleu College of Culinary Arts. Yes, golf, diving, and cooking can qualify.<\/p>\n 17. 529 Plans can be used for online schools.<\/p>\n 18. 529 Plans can be used for hundreds of international schools. Check with the government searchable database<\/a> first.<\/p>\n\n