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