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529 College Savings Plan - The Most Complete Guide - YouTube
Channel: TheFirstMillion
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this story began in 2008 when my first
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baby girl was born
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i was so happy and excited that i
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promised to give her all the best i
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could when she was seven years old i
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visited silicon valley california
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and i took her with me that was the
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first moment when i showed her stanford
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university she also had a chance to see
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harvard when we returned home she said
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dad
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i promise you that i will study at one
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of the best u.s universities
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you will be proud of me
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or damn it that was my first thought it
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seems like now it's time to save money
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for her education it's time to
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understand better what is a five to nine
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student saving account and everything
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related to this topic
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so in a brief 49 plan is education
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savings plan that lets families put
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money aside to help pay qualified
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educational expenses and there are two
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types of four to nine plans
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prepaid 49 plan these plans allow
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families to prepare future college costs
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at today's rates and 49 savings plan
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these are the most popular 49 plans
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allowing families to contribute money
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into a savings account and let the money
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grow
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through various investment options and
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portfolios
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so savings plans are the more common
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type and the account holder usually
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contributes money to the plan which is
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typically invested in selection of
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different different mutual funds
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account holders can choose the funds
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they want to invest in and how those
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funds perform will determine how the
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account grows over time
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and many 49 plans also offer target date
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funds which adjust their holdings as the
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years go by becoming more conservative
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as the beneficiary gets closer to the
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college age
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usually withdrawals from 4-9 savings
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plan can be used for both college and
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k-12 expenses in the case of 4-9 savings
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plan qualified expenses include tuition
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fees room and board and related costs
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prepaid tuition plans are offered by a
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limited number of states and some higher
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education institutions they vary in
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their specifics but the general
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principle is that they allow you to lock
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in tuition at current rates for a
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student who may not be attending college
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for years to come as with 4 to 9 7 plans
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prepaid tuition plants grow in a value
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over time and the money that eventually
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comes out of the account to pay tuition
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is not taxable
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unlike savings plans prepaid tuition
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plans don't cover room and board prepaid
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tuition plans may have other
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restrictions such as
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which particular colleges they may be
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used for the money in savings plan by
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contrast can be used
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and adjust about any eligible
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institution
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49 students saving account have very
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obvious benefits
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first of all tax benefits earnings on 49
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are tax-free withdrawals for qualified
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education expenses are also tax-free so
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some states
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offer tax deductions or tax credits for
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in-state 49 plans and others even offer
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tax benefits for contributions to out of
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state plans
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second benefit law maintenance a 49 plan
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accounts can be opened online or through
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licensed financial advisor
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families who prefer to set it and forget
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it can select an automatic investment
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plan linked to a bank account or payroll
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deduction plan the third benefit high
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contribution limits unlike other savings
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plans such as rosa array or cowardle
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education saving account 49 plants have
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no annual contribution limits and have
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high aggregate limits maximum aggregate
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limits right by state and ranging
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usually from two hundred thirty five
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thousand to five hundred twenty nine
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thousand dollars one more important
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benefit minimal effect on financial aid
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a 49 plan will not hard a student's
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eligibility
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for
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free application for federal student aid
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f a f c a
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it's viewed as an asset not as an income
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and only a small percentage of its
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earnings is considered when calculating
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student aid so you can apply for
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financial aid and last benefit
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flexibility 49 plans offer the same
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benefits for all families regardless of
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their household income all the amount
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they contribute so you can invest in
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almost any 49 plan no matter where you
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live where your child will attend
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college
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[Music]
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for all the impact it can have on
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child's future
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opening a 49 account is easy it's even
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possible to open a 4 to 9 plan online
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but before you will go somewhere to open
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49 plan that's very important to make a
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first step to make a plan
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how much money you want to invest every
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month how many years you need to get the
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needed sum of money all these steps
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should be planned in advance
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when a family is ready to move forward
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you should choose a beneficiary for the
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account this is typically a child or
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grandchild but essentially anyone can be
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named beneficiary of account if they
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have social security number or tax id
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number a good thing about most 49
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accounts is that a new beneficiary can
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be named including the account owner if
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the original beneficiary no longer needs
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their funds so for instance in my case
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if i have three kids i can transfer 49
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plan from one kid to another the second
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step you need to choose a plan or
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brokerage firm when i started looking
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for a broker i found out that neither
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robin good no we bull doesn't have four
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to nine account the only one way that i
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found attractable and trustable was to
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choose a wineguard or fidelity i should
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mention that each state has its own 49
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plans options and what is important that
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it's not mandatory to have a 4 to 9 plan
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in your home state some states offer tax
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benefits if you have an in-state 49 plan
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but each state offers different benefits
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fees and other considerations that make
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it worthwhile to research other
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potential options
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once 49 plan has been choosing it's
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simply a matter of filling a application
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and opening an account next step is to
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build your portfolio because 49 savings
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plans use invest contributions into
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various assets and portfolios
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usually the next stage is to allocate
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your assets in photo 9 plan
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49 accounts offers three different
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portfolio options based upon a level of
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risk tolerance management style and any
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other type of investments that you
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prefer what i found that fidelity and
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weingart have three options age-based
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portfolios it's a kind of portfolios
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that are designed to align with the
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child's expected years of college
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enrollment simply saying you have 5 10
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or 15 years to come to the sum of money
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you need target risk portfolios for
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instance you can choose from three
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portfolios calibrated to match various
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levels of risk conservative moderate or
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growth style it's only up to you to
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choose what style to choose and the last
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one individual portfolios usually
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individual portfolios provide access to
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equity fixed income and capital
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preservation options for many 49 plants
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there is no minimum contribution
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requirement so families can contribute
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an amount that feeds them best and no
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matter what the number is it's important
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to set up consistent recurring
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contributions to help maximize the
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steady long-term growth of 49 plans that
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you choose
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basically there are several ways to
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deposit money to your 49 account for
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instance you can send money uh to or
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from bank account with electronic uh
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funds transfer eft you can wire money
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from a bank or third party account you
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can deposit a check via mobile upload or
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mail pay-per-check to the bank you can
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transfer money from one brokerage
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account to another and lastly you can
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transfer money via short party payment
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app like when or paypal
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[Music]
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so you are depositing the money groaned
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your wales 10 years have passed and the
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x day came
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you need to withdraw money 49 plan
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accounts owners can withdraw any amount
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money from their 4 to 9 plan but only
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qualified distributions will be tax-free
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it means that you can use all the money
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for college graded or vocational school
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tuition and fees or you can use it for
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elementary or secondary school k-12
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tuition and fees for books and school
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supplies for student loan payments for
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off-campus housing or for campus food
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and meal plans for computers internet
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and software or maybe other type of
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equipment you need for education and
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finally for instance for special needs
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and accessibility equipment for students
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and let's imagine in case you have such
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a problem that you have left over money
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in your 409 plan and you want to avoid
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paying taxes and penalty on your
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earnings you have a few options for
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instance you can change the beneficiary
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to another qualifying family member or
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you can hold the funds in the account in
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case the beneficiary wants to attend
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grad school later or you can make
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yourself the beneficiary and further
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use your own money for education as one
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more option you should know that
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qualified distributions from four to
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nine plan can repay up to ten thousand
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dollars in student loans per borrower
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for both the beneficiary and the
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beneficiary siblings and you know the
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future is always uncertain and some
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parents worry about losing the funds
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they saved in a 49 plan if their child
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doesn't go to college or gets a scourge
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but there are some exceptions the
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penalty is waived if the account
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beneficiary receives a tax-free
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scholarship attends a u.s military
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academy or dies or becomes disabled and
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you know details for 49 plans such as
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fees investment choices tax benefits
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very very varieties varies from state to
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state so you can check the list of the
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plans by state here in the description
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to the video
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so now you heard a lot about benefits of
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49 plan but what are disadvantages
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first of all it's a penalty for
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non-qualified withdrawals non-qualified
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distributions are subject to income tax
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or about 10
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penalty on the earnings portion of
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distribution the next disadvantage is a
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state income tax recapture what does it
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mean if a 49 plan account owner does a
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rollover into another state's 409 plan
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any state income tax deductions and
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credits previously claimed may be
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subject to recapture and the earnings
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portion of the outbound rollover may be
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added back to state taxable income one
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more disadvantage limited investment
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choices usually a 49 plan account owner
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must select from a menu of investment
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options offered by four to nine plan
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only this typically includes pretty
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boring investment portfolios that aim to
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achieve a targeted level of risk
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individual fund portfolios and age-based
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portfolios that automatically shift
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asset allocation at the beneficiary gets
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closer to the college one more
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disadvantage is the ownership rules a 49
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plan account owner not the beneficiary
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has legal control of the money in the
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account so the account owner can easily
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change the beneficiary at any time or
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worse they can take a non-qualified
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distribution and liquidate the plan
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a ros ira is an individual retirement
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account but it can also be used to save
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for college those contributions can grow
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tax-free and you can take withdrawals up
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to the amount you have contributed
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without any taxes or penalties one more
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option is education savings account esa
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or education ira so this type of
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accounts esa works a lot like ross area
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except that it's for education expenses
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it allows you to invest up to 2 000 per
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year per child plus it grows tax-free
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and esa isn't just for college tuition
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and finally while doing my research i
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found two other types of accounts utma
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or ugma uniform transfer or give to
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miners act accounts so if you have
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already done an esa or for instance if
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you don't qualify for esa then and only
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then you should take a look into utma or
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ugma plan thank you for watching and i
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wish all your kids only the best in
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their lives
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