529 College Savings Plan Fully Explained! (Beginner's Guide To 529s in 2020)
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- เผยแพร่เมื่อ 9 พ.ค. 2024
- In this video, I'm going to go over exactly what a 529 College Savings Plan is and walk you through the different key factors you should be looking for when you're considering opening one up.
Simply defined, a 529 is a state sponsored tax advantaged education savings plan designed to be used for qualifying educational expenses, including school tuition, room & board fees, books & supplies and even college meal plans.
The first 529 plan was founded at the Michigan Education trust in 1986 as a College Tuition Savings plan, but over the years as more and more 529s began to emerge, the definition has grown to cover more types of educational expenses - and most recently in 2019, this investment vehicle's scope expanded to include K-12 private school tuition as well as registered vocational and trade school tuition, - like culinary institutes, cosmetology academies and film schools.
529 School Look Up Tool: www.savingforcollege.com/elig...
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15+ years of corporate experience in large Fortune 500 companies has given me a unique look at how some the most successful people in the world manage their personal finances, investments and careers.
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The content in this video is strictly the opinion of Daniel's Brew and is for entertainment purposes only. It should not be considered professional financial investment or career advice. Investing and career decisions are personal choices that each individual must make for themselves in accordance with their situation and long term plans. Daniel's Brew will not be held liable for any outcome as a result of anyone following the opinions provided in this content.
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Do you guys already have 529s set up for your beneficiaries? Let me know what State 529 you guys chose!
Is the money I put in the 529 safe from losing value like a retirement account can when there's a dip in the market? I am looking at short term use for grade school tuition that will be withdrawn each year.
Hi Carla, even a retirement account is not completely free from the risk of losing value - but for 529s, depending on what investment option you choose within the program, you could potentially pick an option that is very low risk. It all depends on which state program you choose and which investment option you select within that program. I’d make sure and ask the plan administrator for the risk profiles of each option before investing. Hope that helps!
So my uncle and aunt live in California and they have 2 kids in private school one is 13 years old and the other is 7. My question is in more basic terms how can they utilize this? It’s not quite just a straight out tax deduction through the 529 correct. Like let’s say their tuition combined is 10k for one year, you can’t just write that 10k off because you put that money into your 529 correct? Or if my aunt makes 5k a month through her job pretax she can’t put 1k into that account every month without receiving the state income tax correct?
Hi Knowledge88 88, the contributions you make into your 529 are typically after-tax dollars. But depending on what state you live in, certain states will allow you to deduct some portion of that when you do your taxes at the end of the year (only some, not all states). But usually, the tax advantage comes in on the growth and the usage of the 529 dollars after they have been deposited into the account. The growth of the value in your 529 are tax free and when you use the money for qualified uses, that is also tax free. Hope that helps!
I live in Massachusetts, two if my nieces and nephews live in Texas and ny wife and I would like to start a 529/ESA PLAN for each of them. Both grandparents live in Texas too and we have other relatives in Tx, Ma, NY, and NJ who may contribute from time to time. The kids are 12 and 10 yrs old. We would want a growth account since we have 6 o4 more years until we need these funds. Does anyone have any good options...looking through all 50 states options is a bit daunting. The parents of the child live in Texas im not sure but i don't think that is an income tax state...not sure how that factors in....any recommendations would be appreciated...there parents are not sure how to proceed but id like to get something going to help start then off. Tyvm. Tom
I started 529 when my wife said "Honey I'm pregnant" with my daughter.
My daughter is now 18yo, and has enough in her 529 to cover full 4 years of tuition. She will graduate debt-free.
I plan to continue to throw some money into her 529 even after she graduates... and give it to my grandkids.
Great tax-free way to pass generational wealth - says my CPA.
How much money did you contribute to her fund ?
@@JitinMisra total contribution about $30k over 19 yrs. . Grew to around $70k. She graduated last month. In total, paid $67k in tuition bill out of 529. Now $3k left, which I rolled over to daughters name.
@@jwc3104 how much did you contribute to the 529 monthly to get it to grow that big ? I have two little ones and thinking of doing something similar.
@@JitinMisra Originally I setup $100/mo when I started. Bumped it upto $200/mo when she was in HighSchool. Make sure you pick Total market index fund or equivalent.
Wow!!
I live in Georgia and I set up one for my son 15 years ago and now he's on his way to collage. Having a 529 college plan to pay for his tuition has lift the heavy burden of college cost. It's all worth it.
I live in Georgia too and I'm trying to decide which state plan to use. GA state income tax seems not high enough to justify using GA's plan if another state has better performance. What state did you use?
@@kolebowman8961 look into Wisconsin, California, New York and West Virginia.
Great video, Sir. Useful detail that most others lack
Thanks brew I learned so much from this well explained video.
Smaller, speculative stocks have endured a historically weak stretch. Investors are betting that a turnaround is finally in the works. I’ve lost about $320k within a few months, how do i take advantage of the market turnaround?
There are many interesting stocks in many industries that you might follow. You don't have to act on every forecast, so I'll suggest that you work with a financial advisor who can help you choose the best times to purchase and sell stocks.
@@LukeDiogo Having an investment adviser is the best way to go about the stock market right now, especially for near-retirees, I've been in touch with a coach for a while now mostly and I made over $800K within a short time
@@ReeceSharo That's impressive! I could really use the expertise of these advisors. how can I get to your advisor?
@@LukeDiogo renowned for her proficiency and expertise in the financial market, *KRISTIN GAIL CUNNINGHAM* my financial advisor, holds a broad understanding of portfolio diversification and is recognized as an authority in this domain.
@@ReeceSharo I Found her online page by searching her full name, I wrote her an email and scheduled a call, hopefully she responds
This is the best explanation I've seen so far.
Thank you, great info.
Your video is very informative on 529 plan and covers it in very good details. I feel quite knowledgeable on 529, after watching ur video. Thanks
Thanks for the video! It's straightforward and spot on.
Glad you found it helpful!
Yep. Got one started for my son before he turned one.
Great video 🎉 Thank you 🙏🏼
Excellent video!! You got a new subscriber.
Thank you Ana!
wonderfully explained and nice clean edits. thanks, you earned a sub from me.
Thank you so much!
Super helpful, Daniel! Trying to figure this out with my brother-in-law. He is helping fix my toilet... I am helping him set up 529 and using this a resource, ha!
This is the best 529 video I've watched. Thank you!
You're welcome!
3 paths and only 3 I respect this man
Great video Daniel! I really appreciate your ability to be concise and informative and to use lay language. I watched several frustrating or political videos before coming across yours. Thank you for the effort you put into an actionable lecture.
Just made them and they’re SO GOOD
This is a great video. Thank you Daniel!
Glad you liked it!
This is great!! Thank you!!!
You are so welcome - thanks for watching!
Great video Daniel!
Glad you enjoyed it, Sohail!
Thank you so much for the amazing video. This answers almost all basic questions that I have as a beginner of the 529 plan.
Man, this guy knows his stuff. Kudos, thanks for the awesome/informative video.
Glad you found it helpful!
this is such great info ... I am not a parent (yet) but hopin next few years ... I definitely plan to setup a 529 Plan even if I don't contribute a ton but enough to get something out of it (I am just not sure if college will be a thing in future). Thanks for sharing!
Thanks buddy!
Thank you for the great information! I might be a little late in the game as I have a 13 and 10 year old daughter, but better than late than never.
Same here "/ I graduated college as a first generation graduate at 30...became a teacher...and I'm super late to the game. Didn't grow up with the best financial security or literacy.. Just want better for my son.
One of the best 529 video explanations. Appreciate the effort you put in. Which one did you personally go with. How do I compare the best states, I understand its a manual process but it is daunting. Can you share some tips around this.
Thanks Nalla! For us, our parents started a 529 for our kid a while back on the NY 529 program - and their reasoning was that the historical investment performance was really good. Other notable ones to consider: Ohio's 529 College Advantage Program, Utah's My529 Program and also California's ScholarShare Plan. They all have pretty good historical performance, but make sure you are mindful of the fees included in each one. Hope this helps!
I set one up this morning with Charles Schwab. I didn't really do a lot of research to be honest, all i know is I need to set it up and start funding it.
Thats great Daniel , but in closing , you could have finished it off by going over -once the beneficiary is ready to apply and attend a school , how to employ the saved up funds
Thanks so much
Great! Thanks
Great video, Daniel. Love the depth on desk. Where's it from?
IKEA! Just their standard desk
Thank you
Thank you so much for the video! Very well explained! Can 529 investment be used for educational purposes outside the USA?
Glad you found the video helpful, Megi! Your question is a little bit complicated, but the short answer is yes, it can be used for schools that are outside of the US. There are, of course, many stipulations that you have to be aware of, with each individual institution, but a good place to start is this website that lists qualified schools that are eligible to accept this form of financial aid: www.savingforcollege.com/eligible_institutions/ And I would just contact the schools your beneficiary is interested in and make sure to ask if they can accept a US 529 as financial aid. Hope this helps!
Thank you so much! This is very helpful!
Hey Daniel, if the beneficiary did not use or go school at all, can i roll over the money in the 529 plan to a custodial account or to my own IRA account? Tia
Excellent video and I hit your thumbs up button. I have to admit though, my concentration was broken at the 11:48 mark when that dude was getting fresh on the couch with what I hope was his girlfriend.
Lol - glad you enjoyed the video!
1 thing that I did not hear is Grandparent becoming a beneficiary? Can you clarify.
Thanks for the info! You mentioned that it grows tax free, so does it work similar to a Roth IRA (i.e. taxes apply when money is deposited)? And if so, do you know which tax bracket is applicable in this situation?
Hey Daniel - it is similar to a ROTH IRA in that, you first put in after-tax dollars, it grows tax free and when you withdraw - as long as it is for qualified educational expenses, your usage is also tax free. So regarding your question, it's not that it is taxed at deposit, rather, you contribute money you've already paid taxes on, just like a ROTH IRA. Hope that helps!
@@DanielsBrew , it helps a lot! I ended up not explaining it properly. I am calculating everything starting from my gross income, that’s why I was mixing tax bracket conversation in my roth IRA point. But what you said makes total sense! Thanks a lot!
Great video! I have IL Bright Direction 529 plan but I think it has higher fees than IL Bright Start 529. Can I rollover the money from one 529 plan to the other? And is it worth it?
Yes, I believe you can rollover once without a tax penalty - so if you feel there is a better plan, you can do it!
thanks
That's good
Thanks for watching!
Thanks for the information. Thinking of opening one. What financial institutions can one open a 529 account with?
Hey OJ - in my opinion, the best way to open one up is to go directly to the 529 state program website. These state sites give you the best info and method of signing up. This website gives you a good comparison of some of the 529 plans out there - I'd recommend checking them out: www.savingforcollege.com/intro-to-529s/which-is-the-best-529-plan-available. Hope this helps!
@@DanielsBrew Thanks so much. I will peruse the site to see what is available.
Thank you for the information, there is a interest rate that you make with the money thar you deposit in 529 ? Or is only the tax benefits , thank you😊
Yes - you can invest those funds based on the options your 529 offers you. Each state has different options so make sure you research well before deciding which 529 to start!
Hello Daniel, this is nicely explained but could you please let me know what can be done in my scenario.
I have two sons, one is 7 years who is non US citizens and other one is 7 months who is US citizen. I am not sure if I can open a 529 plan for elder one. If I can open then how can open and can that be used further for my little one as well. I guess only one beneficiary is allowed on one plan. Any idea or suggestions is deeply appreciated.
Hey Madur - you do have to be a US citizen (or have a ITIN) to be a beneficiary of a 529. But you can open one up under your own name (as your own beneficiary) and later switch beneficiary to your eldest son, if he becomes a citizen later on. But regardless, I would make sure you contact your plan administrator to get specific details. Good luck!
Great video. One questions: What happens if my child chooses a school that is not on the 529 School Look Up Tool (does not accept 529 funds)? Can I still withdraw the funds tax free to use for educational expenses for her? Thank you.
That’s a great question! Outside of tuition, that could be true as long as the expenses are on the approved list.
@DanielsBrew Great video .. a couple of questions.
1) if I chose the NY 529 plan and my son chooses a school outside NY, then do I need to pay taxes back to NY. I live in NJ but work in NY
2) Also what happens if my kid doesn't go to college in the future and doesn't utilize the full amount in the 529 plan. What can I do with the remaining amount?
3) Also what if I have to withdraw money from 529 in between for some other reason. can I do it? If yes, what are the implications?
Thanks - and great questions. A 529 plan (as long as it is not a pre-paid 529 plan for a specific college) can be used at any qualifying educational institution, for any qualifying cost, without any kind of tax penalty. And if you have remaining funds in your 529 after your child finished school, you have the option to switch the beneficiary (at any time) and your new beneficiary can use the 529 funds for their educational needs, for any qualifying institution. And finally, if you make withdrawals that are non-qualified - you would incur a 10% penalty and whatever additional penalty each state might apply to your non-qualified withdrawal. Hope this helps!
Good video.
Having a 529 will affect my kids financial aid in the future if he needs to apply for one ????
Thanks Jimmy! Yes - having a 529 could affect the amount of financial aid your children receive in the future, but the stipulations are a bit complicated. Here is a really good article that outlines the impacts: www.savingforcollege.com/article/yes-your-529-plan-will-affect-financial-aid
Hope this helps!
Overall, only 5% of the amount in 529 counts towards the financial aid decision.
FAFSA is definitely NOT a reason why you shouldn't start 529. Benefit is too great to pass up!
I’m new to this. I’m trying to set up an account for my son, but I’m confused about which account type to use, both look like brokerage accounts (individual and UGMA/UTMA). I didn’t realize that. I just thought they were high interest accounts. I’m in Minnesota.
Did you find out? Please let me know
So Grandparents can't set one up? And what if you you don't use some or any of the funds, are you taxed to withdraw?
Is it like a trust that a child is the beneficiary of or is it the sole property of the creator? What if the creator passes away? Can it transfer to the child who is now an adult?
How do you preform a qualified withdrawal?
And what happens with left over money if any?
Quick question if I set up a 509 plan in Missouri that I contribute to and take a tax deduction. What happens when I moved to New Jersey? Can I take a tax deduction for the Missouri 529 plan in New Jersey?
Hmmm that would be a question for your plan administrator - I’m not sure about individual state tax implications in your scenario
my daughter just started 9th grade. Is it too late to start this account for her?
How to compare fees of each plan? Is there a particular set/factors to look for?
I would look on each of the state websites and see what the expense ratios look like for each type of fund in the program. And make sure you look at the historical returns as well so you get a sense of what you get for the fees you pay. Hope that helps!
So I just got an invite from Florida prepaid to open and account. I’m thinking of opening an account for my child but do I need to open separate account for myself or can I use the same 529 for myself and my child?
Great question! You can only have one beneficiary at any given time for a 529, so if you wanted to use the 529 concurrently for more than one person, you'd have to get more than one 529 account. But the good news is that you can change beneficiaries at any time, so if you choose to use it for your child first, then later on, use it for yourself, you can always switch beneficiaries.
What’s the minimum $ one had to pay into it monthly?
Daniel which state did you signed up for and which investment did you went with?
For us, our parents started a 529 for our kid a while back on the NY 529 program - and their reasoning was that the historical investment performance was really good. Other notable ones to consider: Ohio's 529 College Advantage Program, Utah's My529 Program and also California's ScholarShare Plan. They all have pretty good historical performance, but make sure you are mindful of the fees included in each one. Hope this helps!
Hi. Are we allowed to switch 529 companies. Do you have a tutorial on how to do that? Thanks.
Hi there - yes, that is possible! The easiest way would be to contact the administrator of the new 529 program you want to switch to and ask about the rollover process. It will probably involve you opening the new 529 plan first, and then initiating a rollover distribution process - but you'll want to contact the new 529 first because each program's process may be different. Hope that helps!
So for us lazy people that are looking for the best overall performing plan rather than a tax break plan from the state we currently live in...what plan did you decide on Daniel?
For us, our parents started a 529 for our kid a while back on the NY 529 program - and their reasoning was that the historical investment performance was really good. Other interesting ones to consider: Ohio's 529 College Advantage Program, Utah's My529 Program and also California's ScholarShare Plan. They all have pretty good historical performance, but make sure you are mindful of the fees included in each one. Hope this helps!
Can you setup a 529 for yourself?
Hello Daniel. You didn’t list grandchildren. Would they qualify for a 529?
Yes - grandchildren can certainly be a beneficiary for a 529! However, for grandparent-owned 529s, the distributions might affect your grandchild’s financial aid - here is a really good article to get some more info on that aspect: www.washingtonpost.com/business/2018/11/08/how-grandparent-owned-account-affects-need-based-financial-aid/
what about tutoring? is that covered under a 529?
You'll have to check for your respective plan, but in general, tutoring is not typically a covered expense for a 529. Hope that helps!
Are there income limits for people who want to open a 529?
No income limits for 529s. There are max contribution limits that you cannot exceed - but to enroll in one, no income limit.
I thought max contribution per year was 16,000?
I love using credit card bc it tricks you not to spend to much
What happens if the owner of the 529 (set up by grandparents) doesn’t release the funds for his children?
Hmm that’s an interesting question, Carol. I suppose it’s up to the owner of the account who they decide to make a beneficiary and provide funds to.
@@DanielsBrew right now it looks as though their son (probably the beneficiary) will end up ‘stealing’ the money for himself😢
Is the money taken out of the salary?
Hi there, it is not typically - since it is after-tax dollars that you contribute into a 529, you usually open an account and fund it through contributions outside of payroll deduction.
@@DanielsBrew so, is this like a ROTH IRA account?
There are some key differences (features that I call out in my video) but yes, they are similar in that they are both after tax accounts.
Daniel, looking at saving for my niece. Can you explain how unspent money is effected. Im thinking what if she ends up not going to college or if after she graduates there is still a balance. Thanks
Hi David, great question. For education savings plans, in most cases, you (the owner of the account) still maintains control and the unspent balance simply remains in your account. You can select a new beneficiary to spend it towards, or you can withdraw the money for non-educational needs (if you need to), with a penalty. For the prepaid tuition option, you'll have to check with each institution as that is very specific to each college/university. Hope that helps!
What happens if you don’t end up going to college
It doesn’t necessarily need to be a college, it could be a technical institute or trade school - as long as it is listed as a qualified facility. But if you choose not to go to any educational institutions, you could either just keep holding it in the 529 or you can withdraw the money for non-educational purposes, with the penalty.
So I can’t set up a 529 plan for myself?
Yes - you can, actually. You can be your own beneficiary if you choose.
Exactly what I came to the comments to find out. Very exciting to know I can be the beneficiary!
But what if I want to set one up for myself? My understanding is this is possible.
Yes anyone can be a beneficiary
Changing beneficiary won’t change the targing date to get access to the account ?
So if you have multiple children you can't save for all the children at one time in 529
In that case, you'd have to open up a separate 529 account for each child. Or, if your children are far apart enough in age, you could designate the 529 to your oldest child, then when he/she is done with school, change the beneficiary to a different child. But yes, each 529 account can only have one beneficiary at a given time. Hope that helps!
@@DanielsBrew great thanks. I have a 12, 4, 3, and 2 yr old
@@meateatertoveganish2032 you could fund each but if money is an issue you could stagger the money with the most per month going into the one for the older child who would need it the quickest and who has the least amount of money already saved for school. So the minimum on some accounts are 25.00 and some are none....but what if you could afford 100 week for the older child, 40, a week for the next in line, then 35 and then 25 for the youngest...by time then each come of age they will be in good shape?
@@FLYINGWARRIOR19661 thanks so this. I'm new to all this and you explained it very well
@@meateatertoveganish2032 My pleasure....This is new to me to me too and so many options...of course we all want the best returns over time, with the lowest fees! I'm fine with moderate risk to get some growth in the money over time, but which state offers the best plan? My niece and nephews parent's know less than i do about these plans....they live in Texas...so i feel like i need to make a couple of recommendations for them. We all waste money on junk when we could be putting it towards something that matters....and when the time comes and we are scratching our heads wondering where the money will come from....we will at least have a head start.....
I don't like the pre pay plan that locks in a particular in-state school...how would you know 15-20 years prior to a kid going to school where they plan to go?...so the 529/ESA makes more sense ...but now what state and what plan within the state do you pick? Does anyone have suggestions? Thank you all.
I think they should either join thr military or take out their own student loans which will teach them more than a 529 because lets face it college education is not needed to succeed anymore its all on youtube
Thank you
You're welcome!