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Money Girl
076 MG Saving For College with a 529
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Phones via 24 monthly bill credits for well qualified customers contact us before canceling entire account to continue bill credits or credit stop and balance on a required finance agreement to bill credits and if you pay off devices early see T-Mobile.com. This is guest host Andrew Horowitz from the Disciplined Investor podcast. And today on Money Girl, I'll be discussing how to start saving for your children's educational expenses through a tax-advantaged 529 plan. Do you ever wonder how you're going to be able to afford your child's college education? Have you looked into different savings plans and been confused about what's the best choice? Well, you're not alone. As a matter of fact, listen to Phil wrote in about this subject as he wanted to get some direction for his eight-year-old boy's college plan. Well, Phil, it's never too early to start and you're asking an important question. Parents of youngsters worry about the same thing every day. I'm one of them. With the rising costs of education and other expenses, it becomes more worrisome for many every single day and it should. The college board estimates that the average cost for college increase at double the rate of inflation. At 8%, the cost will double in nine years. And in difficult economic times, when people are just trying to put food on the table and keep a roof over their family's heads, college savings is so distant a notion it may as well be non-existent. Luckily, there is some help in what is known as a 529 plan. The 529 plan is a tax-advantaged investment which promotes and encourages savings for higher education. This plan is often favored over traditional methods because of its tax advantages. There are two types of 529 plans that are usually discussed, the prepaid plan and the savings plan. The prepaid plan makes it possible for someone to buy tuition credits at the current rate in today's dollars and save those to be used sometime in the future. These essentially eliminate the worry associated with inflation and rising costs. The savings plan, on the other hand, is meant to be used as a tax-advantaged savings plan specifically designed to cover the cost associated with higher education. There are a variety of these and it's important to understand that these usually carry investment risk and contain penalty provisions if the money is withdrawn for other uses beyond educational purposes. There are some of these that offer a stable value and guaranteed option, some that are risk-based which retain the same equity to fixed income ratio despite age and then there are the age-based asset allocation plans that will automatically shift the plan assets to a more conservative posture the close to the time until college. There is a good deal of flexibility here. The money in a 529 plan can be used for the college costs of the plan beneficiary for tuition, books, equipment, room and board fees and supplies at any accredited college, university or vocational school in the United States as well as a handful of foreign universities. The only school expense which could not be applied toward is the payment of any student loans or the interest accumulated from student loans. There's also a way to get money out if it isn't all used for educational expenses but there could be penalties. The money can be withdrawn by the controller of the account which is usually the donor but will be subject to income tax and a 10% penalty for early withdrawal. The plan does provide for some exceptions to the general rule however should the beneficiary become disabled to the point that they can no longer perform a gainful activity in other words work for a living the money can be withdrawn without penalty or if the beneficiary dies the money could be passed on to another named beneficiary or back to the donor. There are even more benefits of the 529 plan. Several states offer tax deductions to the donors for these contributions. No federal breaks however are available. Secondly and at the heart of the plan is that the principal growth and the beneficiaries distributions are all tax exempt. September is a great month for planning. We start thinking about the rest of the year whether it's back to school, big year-end work projects, holiday plans or travel. Planning ahead is crucial in life especially when it comes to what happens when you're gone. Getting life insurance may sound daunting but policy genius makes the process a breeze. 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Pay off up to $650 via virtual prepaid master card in 15 days free phone up to $130 via 24 monthly bill credits plus tax qualifying port and trade and service on go 5G next to credit required. Contact us before canceling entire account to continue bill credits or credit stop and balance and required finance agreements do. H5N1 bird flu is spreading in some animals. If you work with poultry, dairy cows, wild animals or with raw unpasteurized milk wear protective gear and take precautions cdc.gov/birdflu a message from CDC. Third the donor continues to control the account the beneficiary has no right to touch the money and in most cases the donor can withdraw the cash at any time but remember those penalties. Other reasons to enroll in the program are well it's easy unlike some college programs there are no hoops to jump through. You don't have to do intensive research and accounting to figure out what you have and where you have financially. You just fill out simple account forms and make a contribution plus the startup deposit requirements are usually low and everyone is eligible and this is because there are no requirements on age or income. However there are some disadvantages as well some states charge excessive fees that nearly offset the rewards and the earnings and should one not use all the money that there is there is that little 10% penalty to deal with. Also being named as the beneficiary of a 529 plan can limit your financial aid eligibility as the account value could be counted as an asset. If you think that this may be an issue you could always have the owner or donor of the plan be someone besides a student or a parent. Here's a tip naming a grandparent as the owner for example would be a great way to benefit the financial aid application since it won't show the student has a claim on the account with the cost of higher education well higher you should really start thinking about plans such as the 529 to help offset the expenses of giving your children an education and a chance at a better life. I've added a few additional links on the show notes to help like a college cost calculator check it out at the money girl section of cutie now.com and for helping us with a question for this episode Phil will be getting a copy of my audiobook the disciplined investor now available as an audio book at itunesanaudible.com Chaching and that's all for now thanks for tuning into the money girl is Andrew Horowitz sitting in for the money girl I invite you to listen to my weekly podcast the disciplined investor a top 10 us news and world report investment podcast it's available for free so what are you waiting for download it today and start on the road to becoming a disciplined investor available on iTunes and the zoom marketplace and don't forget there's more information the transcript of the show notes on cutie now.com as always everyone's situation is different so be sure to contact a tax or financial advisor before making important financial decisions this podcast is for educational purposes only and is not intended to be the substitute for seeking personalized professional advice thanks for listening h5n1 bird flu is spreading in some animals if you work with poultry dairy cows wild animals or with raw unpasteurized milk wear protective gear and take precautions cdc.gov/birdflu a message from cdc imagine earning a degree that prepares you with real skills for the real world cappella university's programs teach skills relevant to your career so you can apply what you learn right away learn how cappella can make a difference in your life at cappella.edu [BLANK_AUDIO]