529 Plans seem to be the default but definitely not the only option out there.

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Welcome to the EnjoyMore30s Family Finance

podcast. The only podcast dedicated to making life more

enjoyable for young families by hitting on the financial topics

that tend to weigh on us, stress us out, and distract our focus

from simply enjoying life.

Hello and welcome as always to the EnjoyMore30s

Family Finance podcast. We're here as always, to try to help

you make sense of some of these money issues so that you can

spend more time in your life without anxiety, more time in

your life actually enjoying your family and the things that

matter most to you. So today, we're on the second episode of

Your Money Mindset For Kids series. As always, if you like

what you're hearing, please make sure to subscribe, follow us on

Apple podcasts wherever you listen. Clicking that star,

leaving the review, it really helps us reach the other

millions of other young families out there just like you. Last

week, we discussed what savings bonds are likely costing you,

the opportunity that you're giving up or missing by not

having that money instead in someplace where it could grow to

a much higher value for your children's future, potentially.

So if you did not listen to last week's episode, please make sure

to check that out.

Today's episode though, is titled Education Savings - It Is

Not All 529 Plans, where we're going to cover the various types

of accounts that you can use to save for your children. 529

plans for education are the default that people seem to hear

about, you've probably heard the term 529 plan, but it's not by

any means the only option or even the best option for what

you may be wanting to accomplish yourself for your children. This

overall I find to be a very similar situation to when I was

looking for colleges. I heard about Ivy League schools, I

heard about those schools that I may have seen on TV with sports

but what school is actually right for me. There is no right

or wrong per se. I needed one that would be the best fit for

the things that I was actually looking for, though, right? I

toured different schools and I wound up really, really liking

the College of New Jersey, or how it's known around these

parts as TCNJ. What was the most important to me, though, when it

came to a school was that it was reasonably close to home. So for

me, that meant a couple of hours worth of driving, I didn't want

to go out to California or Arizona or anything like that. I

wanted it to have a somewhat higher bar to entry that I had

to reach a certain mark to really be able to get in. A good

business school program, of course, and a smaller community

campus type of feel. I didn't want to go to a school that had

you know, 50,000 people in it. If I was wanting to be far away

from home, though, if I wanted to major in I don't know

robotics or cooking, or go to a really large school, TCNJ

wouldn't have been a fit for me at all, nevermind the best fit.

So when you're looking at saving for your kids, you need to

really first organize what is most important to you, just like

I had to do when I was picking my college and probably exactly

the same thing that you did when you were picking yours. The two

main trade offs that you're going to have to choose between

when you're thinking about 'what do I want to be able to provide

for my child', are flexibility and tax free growth. So the goal

for today's episode is for you to walk away and say, 'Hey, I

really would like more flexibility when I'm saving for

my kids', or 'Hey, I'd really like more tax free growth that's

specific for them go into college'. One of those two

things is what I want you to be able to walk away from today's

episode having more clarity within your mind.

Now let's start with the tax free growth because that sounds

like the no brainer answer, right? I want tax free growth.

Who wouldn't want tax free growth? If you use a 529 plan,

that's where the tax free growth comes into play if, and here

comes the trade off, if it is used for qualified college

expenses, so tuition, books, room and board, all that kind of

stuff is covered. However, let's say now that Jimmy gets a full

ride to school though, and so you decide to pull money out of

that 529 plan to buy him a car. All of that growth that's built

up is no longer tax free. And not only is it not tax free, but

that now causes an extra 10% penalty on all of that growth

because you did not use it specifically for school. The 529

is built specifically for school. They have some

flexibility in that you can change the beneficiary. So if

Jimmy doesn't need the money, because he's so smart and got a

full ride, he could change the beneficiary to his brother

Johnny, and use the funds for his education instead. So

basically, if you would say, 'Hey, I'm really confident that

my kid is going to college, I'm confident that it's gonna be

expensive, and then I'm going to want to pay for it', then a 529

plan could very very well be a great fit for what you're trying

to accomplish.

The other option I mentioned though, of the two main trade

offs is flexibility. Here if you open up an account, let's say in

your name, but earmark it for your children, then you maintain

full flexibility of the funds. The account doesn't grow tax

free. So again, the trade offs, but you can use it for literally

anything without penalty. Again, Jimmy gets a full ride example,

you can pull the money and buy him that car without any

penalties. He can use that money for a down payment on his first

home, getting married, and whatever it may be. This account

also can invest in anything. So it's more flexible from that

standpoint as 529 plans have specific 529 plan funds and

assets that you have to use. Now notice in my example, I said

it'll stay in your name, putting the funds in your name instead

of the child's name. And now there's a point to why I said

that. There is something you can do, you may have heard of an

UTMA or an UGMA account. But here are the funds now you're

legally giving to your child. And so when they turn what they

call the age of majority, which is usually 21, depending on the

state you're in, they have full access to that money

technically. Now, I'm not sure about you, you can think back

I'm 35 now. If I think back to when I was 21, I wasn't, let's

say as responsible, as I am today at 21. So it's certainly

an option but I would definitely tell you to think about that

route and think if you want your 21 year old or whatever they may

be to have full access to a large chunk of money. Now, if

you're asking me what I personally would like the best

so 'Hey, Joe, what are you doing for your kids', especially if

you have younger kids like me, so I have a five year old or

excuse me, an almost five year old and an almost two year old

as of the recording of this episode. To me, the flexibility

could be helpful, as I'm really not sure what college is going

to look like or cost 15 years from now. The 529s also allow

for a lump sum contribution, equal to five years of the

gifting limit. So I could take $15,000, which is the annual

gifting limit times five, so $75,000 in total, and I could

mass fund a 529 plan for my daughter Avery's last 10 years

before college hits. So Avery turns, you know, 8 or 10, or

whatever may be I could take $75,000, throw it into the 529

plan and if that say doubles to 150, then I have all of that

growth now at that point forward, which is all tax free.

So you still have an opportunity if you start flexible to go the

529 route when your kids get a little bit older, if you feel

like you have more certainty on what the road ahead is going to

do.

Lastly, you don't have to pick one or the other. If you're not

comfortable with either of the options 100%. If you don't say

'I really connect with being flexible', or 'I really connect

with just going all out and providing max funding for

college'. You can put some funds in each bucket, but certainly

have a discussion with your spouse and what is most

important to you both. Is it flexibility or maximizing that

tax free going all out for college approach. And again

there's no right or wrong. It's the correct tool for what you

are most wanting to accomplish.

So thanks for tuning in today. And please make sure to join us

for next week's episode. It's called School Doesn't Teach

Money, It's On You, where we're going to cover just how little

school prepares your children for managing their finances, and

what you as the parent can do to change that. So out of all the

episodes this season, I think that this one is super, super

important. So make sure to check in next week.

Overall, if you are able to implement what we covered, like

we always say, that's just wonderful. That's why I'm doing

this. That's why I'm putting out this information. You have less

to worry about than before, you can focus more on enjoying life.

If though you're wanting help with these things, or you have

questions that I didn't cover in the episode, please make sure to

reach out to me. Check out the Ask Joe section on the show's

website at www.EnjoyMore30s.com, that's EnjoyMore30s.com. So

until next week. Thanks for joining me today and I look

forward to connecting with you again soon.

The conversations on this show are

Joe's opinions and provided for general information purposes

only. They do not constitute accounting, legal, tax or other

professional advice for your specific situation. You should

always seek appropriate advice from a financial advisor,

accountant, lawyer or other professional before acting upon

any content or information found here first. Joe is affiliated

with New Horizons Wealth Management LLC, a branch office

of TFS Securities, Inc., and TFS Advisory Services an SEC

registered Investment Advisor member FINRA/SIPC.