1 00:00:00,005 --> 00:00:00,754 Ralph: Hey there friends. 2 00:00:00,754 --> 00:00:06,395 Do you ever stress about how you'll pay for your child's or your grandchild's college education? 3 00:00:06,814 --> 00:00:13,805 Do you wish there's a way to start saving now that would help cover those huge tuition bills that you know are coming down the road. 4 00:00:14,105 --> 00:00:17,675 Well today, I want to share with you one powerful option that exists. 5 00:00:18,005 --> 00:00:27,395 That's the 5 29 college savings plan stick around until the end to learn the basic of how these plans work, what the main benefits are and what to watch out for. 6 00:00:27,935 --> 00:00:30,095 Education costs are soaring. 7 00:00:30,395 --> 00:00:33,275 So being strategic in savings is the key. 8 00:00:33,515 --> 00:00:34,175 Alrighty folks. 9 00:00:34,265 --> 00:00:35,285 Let's dive right in. 10 00:00:37,065 --> 00:00:56,165 Intro: Welcome to the Ask Ralph Podcast, where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines, and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. 11 00:00:56,464 --> 00:01:03,254 Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial. 12 00:01:03,495 --> 00:01:06,044 Now here's your host, Ralph Estep, Jr. 13 00:01:07,055 --> 00:01:08,884 Ralph: Welcome to our tax talk Thursday show. 14 00:01:08,914 --> 00:01:10,685 I'm so glad you chose to join us. 15 00:01:10,745 --> 00:01:19,085 I just want to thank you for listening and more importantly, supporting the program I'm coming in today from the Estep Farm at the Saggio Accounting studio. 16 00:01:19,445 --> 00:01:29,405 Let me put on my podcaster hat and put down those overalls and let's push that adding machine to the side and let's get into some financial wisdom from a Christian perspective. 17 00:01:29,705 --> 00:01:32,615 Now don't forget to subscribe to the show and join our email list. 18 00:01:32,914 --> 00:01:40,115 You do that at askralphpodcast.com . So you don't miss tomorrow's show when we discuss how to spring clean your finances. 19 00:01:40,115 --> 00:01:40,324 Yes. 20 00:01:40,324 --> 00:01:43,175 You heard me right spring cleaning your finances. 21 00:01:43,465 --> 00:01:44,525 That's a show you don't want to miss. 22 00:01:44,555 --> 00:01:47,134 If you want to get off to a great start with your finances. 23 00:01:47,405 --> 00:01:55,354 We also just launched an insider's group on Facebook and encourage each of our listeners to join the group, to continue the conversations from the show. 24 00:01:55,595 --> 00:02:03,035 It's a great place to share ideas for the show, discuss your triumphs and even your challenges got some great conversations already started there. 25 00:02:03,275 --> 00:02:06,005 I have a link to the Facebook group in the show notes. 26 00:02:06,228 --> 00:02:08,328 We're going to be talking about finances today. 27 00:02:08,328 --> 00:02:12,618 That's what we do on the show, but I want to ground our conversation first in God's word. 28 00:02:12,898 --> 00:02:15,748 So here's a verse from Proverbs chapter 13, verse 11. 29 00:02:15,748 --> 00:02:18,118 It stood out to me as I was preparing for this topic. 30 00:02:18,568 --> 00:02:19,648 And it goes like this. 31 00:02:20,098 --> 00:02:22,138 Dishonest money dwindles away. 32 00:02:22,498 --> 00:02:31,468 But whoever gathers money, little by little makes it grow saving for college is definitely an exercise in gathering money, little by little and making it grow. 33 00:02:31,888 --> 00:02:36,838 When we're disciplined and consistent over many years, the results can be powerful. 34 00:02:37,228 --> 00:02:42,778 This passage reminds me that God honors diligence and wise planning when it comes to money. 35 00:02:43,108 --> 00:02:46,258 All right, let's see how we can apply that mindset to college savings. 36 00:02:46,258 --> 00:02:47,698 Let's get into some details today. 37 00:02:48,208 --> 00:02:58,138 In a nutshell, a 529 plan is a tax advantaged investment account designed specifically to help families invest for future college expenses. 38 00:02:58,468 --> 00:03:04,978 5 29 plans are usually organized at the state level, but participation is open to anyone nationwide. 39 00:03:05,428 --> 00:03:08,758 Each state partners with an investment company to manage their plans. 40 00:03:09,028 --> 00:03:10,608 So how do these accounts work Ralph? 41 00:03:10,888 --> 00:03:16,798 Well, essentially you open a 5 29 account and you contribute money regularly, just like you would in any investment account. 42 00:03:17,068 --> 00:03:25,798 The money's invested based on your chosen portfolio and your allocation of those funds, you get to pick from a preset set of options provided by the plan. 43 00:03:26,278 --> 00:03:28,468 As your contributions grow over time. 44 00:03:28,708 --> 00:03:30,178 You can eventually withdraw the money. 45 00:03:30,178 --> 00:03:36,898 Tax-free that's the key to pay for college costs when they're needed the name 5 29 is not magical. 46 00:03:37,048 --> 00:03:41,698 It comes from the section of the tax code that authorized these plans back in 1996. 47 00:03:41,908 --> 00:03:47,968 When they were created, but they become much more popular and well-known in the past five to 10 years, you may have heard about these. 48 00:03:48,328 --> 00:03:53,458 So let's look at some of the key benefits of using a 5 29 plan to save for college. 49 00:03:53,788 --> 00:03:56,158 First, your money grows tax deferred. 50 00:03:56,338 --> 00:03:58,438 You don't pay taxes on any gains each year. 51 00:03:58,438 --> 00:04:00,328 Like you would in a normal investment account. 52 00:04:00,718 --> 00:04:03,448 Instead taxes are deferred until money is withdrawn. 53 00:04:03,448 --> 00:04:04,918 When you go to use it for college. 54 00:04:05,428 --> 00:04:07,468 And this leads to the second big benefit. 55 00:04:07,798 --> 00:04:09,418 Tax-free withdrawals. 56 00:04:09,688 --> 00:04:16,018 When you take money out to pay for college expenses, you don't pay any federal or state income tax on those withdrawals. 57 00:04:16,228 --> 00:04:16,918 That's huge. 58 00:04:16,918 --> 00:04:23,368 My friends, this benefit supercharges your savings ability compared to your normal investment accounts. 59 00:04:23,698 --> 00:04:30,448 And thirdly, 5 29 plans offer high contribution limits over $300,000 in some states. 60 00:04:30,748 --> 00:04:34,018 So you can sock away a lot of money for college over the years. 61 00:04:34,408 --> 00:04:38,308 And fourthly, there's an estate planning flexibility component to this. 62 00:04:38,608 --> 00:04:45,748 If your child ends up not needing the money, you can transfer the account to another family member pretty easily with absolutely no penalties 63 00:04:46,018 --> 00:04:52,768 and fifth, some states offer a state income tax deduction or even a credit for contributing to their 5 29 plans. 64 00:04:52,978 --> 00:04:53,068 You've. 65 00:04:53,098 --> 00:04:56,338 Got to make sure you check to see if that benefit happens in your state. 66 00:04:56,578 --> 00:04:57,418 I'm in Delaware. 67 00:04:57,418 --> 00:05:00,538 We actually don't offer that, but just next door in Maryland, they do. 68 00:05:00,818 --> 00:05:07,238 So in summary tax deferred growth tax free withdrawals for college costs, high limits. 69 00:05:07,508 --> 00:05:10,868 Estate planning options and potential state tax breaks. 70 00:05:11,108 --> 00:05:12,578 Those are some stellar benefits. 71 00:05:12,578 --> 00:05:13,058 My friends. 72 00:05:13,508 --> 00:05:14,678 But 5 29 plans. 73 00:05:14,708 --> 00:05:15,578 Aren't perfect. 74 00:05:15,698 --> 00:05:20,228 And I always want to give you the other side, so let's talk about some potential drawbacks. 75 00:05:20,918 --> 00:05:24,578 First your investment options are limited to what the state plan offers. 76 00:05:24,578 --> 00:05:28,598 You can't invest in just any mutual fund or stock like you could in a normal brokerage account. 77 00:05:28,838 --> 00:05:31,298 You're going to be set with what the state plan offers you to do. 78 00:05:31,568 --> 00:05:34,508 Secondly, there are penalties for non-qualified withdrawals. 79 00:05:34,508 --> 00:05:42,378 If you take the money out for non-college expenses before age 59 and a half, you're going to pay a 10% penalty plus income tax on whatever. 80 00:05:42,428 --> 00:05:44,348 That portfolio has gained. 81 00:05:44,618 --> 00:05:47,708 Thirdly, 5 29 plans are not free. 82 00:05:47,768 --> 00:05:48,668 Let me repeat that. 83 00:05:48,848 --> 00:05:49,928 They are not free there. 84 00:05:49,958 --> 00:05:58,478 There are management fees charged by the fund companies that manage the plan These vary state by state, but are usually reasonable, still it's an extra cost. 85 00:05:58,478 --> 00:05:59,588 So you want to shop around. 86 00:05:59,888 --> 00:06:05,858 Fourth, some financial aid formulas may count 5 29 assets against you more than other assets. 87 00:06:06,218 --> 00:06:11,348 So large balances could potentially impact how much aid your child or grandchild qualifies for 88 00:06:11,678 --> 00:06:12,518 and fifth. 89 00:06:12,788 --> 00:06:17,348 5 29 investment options tend to be conservative and they follow market trends. 90 00:06:17,348 --> 00:06:20,618 So while they're reliable, you may not see sky high returns. 91 00:06:20,828 --> 00:06:28,928 So there's some factors to consider if you're thinking about using a 5 29, but for most families, The tax benefits outweigh the drawbacks. 92 00:06:29,108 --> 00:06:31,118 So let's talk about some action steps. 93 00:06:31,118 --> 00:06:34,268 You know, I always want to give you action steps that you can work on. 94 00:06:34,448 --> 00:06:39,188 So if you want to look into opening a 5 29 plan, here's some specific steps to get started. 95 00:06:39,488 --> 00:06:43,328 You want to research your state's plan options and investment choices. 96 00:06:43,628 --> 00:06:50,498 See if they offer any state tax benefits, check out plans from other states to you could open a plan in any state, not just your home state. 97 00:06:50,888 --> 00:06:56,948 Compare investment options and costs those management fees and see what you can do from state to state. 98 00:06:57,228 --> 00:07:00,528 Estimate how much money you may need to save. 99 00:07:00,558 --> 00:07:02,688 Based on current college costs. 100 00:07:02,898 --> 00:07:08,358 Many plans have calculators to help you do that, and then decide on recurring contributions that fit your budget. 101 00:07:08,418 --> 00:07:12,018 Hey folks, even $25 a month is a great start. 102 00:07:12,468 --> 00:07:16,008 You then want to select your investment portfolio based on risk and return levels. 103 00:07:16,008 --> 00:07:16,848 You're comfortable with. 104 00:07:17,268 --> 00:07:24,738 Each plan does have, aggressive and then maybe more conservative plans and then go and open an account online and set up automatic contributions. 105 00:07:25,128 --> 00:07:26,508 And then make it a habit. 106 00:07:27,078 --> 00:07:36,048 You want to make sure you review your account periodically and adjust contribution or investments if needed you have, you're seeing those prices of college go up and you don't have as much as you'd like to have in there. 107 00:07:36,408 --> 00:07:37,188 Make sure you. 108 00:07:38,058 --> 00:07:39,288 Give it a supersize. 109 00:07:39,828 --> 00:07:52,398 Visit askralphpodcast.com and search for 5 29 to find all of our past episodes on this topic to the investment world can seem complicated, but taking one step at a time to educate yourself makes all the difference. 110 00:07:52,618 --> 00:07:53,188 All right, friends. 111 00:07:53,188 --> 00:07:53,698 Let's recap. 112 00:07:53,728 --> 00:07:56,878 What we learned today, about 5 29 college savings plans. 113 00:07:57,238 --> 00:07:59,068 5 29 plans are tax based. 114 00:07:59,098 --> 00:08:02,758 Investment accounts designed for tax advantage college savings. 115 00:08:03,088 --> 00:08:08,098 The money grows tax deferred and can be withdrawn tax free for college expenses. 116 00:08:08,488 --> 00:08:12,178 These have high contribution limits, estate planning, flexibility. 117 00:08:12,508 --> 00:08:14,668 And potential state tax breaks. 118 00:08:14,968 --> 00:08:18,478 Remember there are limited investment options, penalties for non-qualified use. 119 00:08:18,808 --> 00:08:21,928 And there are some costs, which is a big drawback. 120 00:08:22,378 --> 00:08:26,878 But you need to take time to research plans and start with recurring contributions that fit your budget. 121 00:08:27,598 --> 00:08:32,608 And remember this compounding growth over many years is powerful with 5 29 plans. 122 00:08:32,608 --> 00:08:38,068 So even when you start, let's say your kid's a year old, putting that $25 a month in can really grow. 123 00:08:38,308 --> 00:08:42,808 So I hope this overview gives you a great starting point for considering whether a 5 29 account. 124 00:08:43,078 --> 00:08:45,598 Could be useful for your family's college planning. 125 00:08:46,078 --> 00:08:49,108 Education costs are only going to increase folks. 126 00:08:49,378 --> 00:08:52,228 So having a tax smart saving strategy is key. 127 00:08:52,528 --> 00:08:56,248 Feel free to visit askralphpodcast.com to explore this topic further. 128 00:08:56,488 --> 00:09:01,978 And do me a favor, share this episode with others who may benefit from learning about 5 29 plans. 129 00:09:02,188 --> 00:09:02,848 Well, God bless you. 130 00:09:02,848 --> 00:09:03,148 Friends. 131 00:09:03,148 --> 00:09:07,168 Stay tuned for more practical faith-based financial advice headed your way soon. 132 00:09:07,318 --> 00:09:08,368 Have a great day. 133 00:09:10,068 --> 00:09:12,918 Outro: Thank you for joining us on the AskRalph podcast. 134 00:09:13,048 --> 00:09:16,688 And with a simple click to subscribe, we'll invite you back to our next episode. 135 00:09:16,868 --> 00:09:19,938 And remember, financial issues don't have to be complicated. 136 00:09:20,238 --> 00:09:21,278 Just AskRalph. 137 00:09:21,698 --> 00:09:27,308 The information contained in this episode of AskRalph is based on data available as of the date of its release. 138 00:09:27,368 --> 00:09:30,278 Saggio Accounting Plus and AskRalph Media Inc. 139 00:09:30,438 --> 00:09:33,788 is under no obligation to update this content if changes occur. 140 00:09:33,878 --> 00:09:44,528 Applying this information to your specific situation requires careful consideration of all facts and circumstances, and any information provided is not to be considered as financial, tax, or legal advice. 141 00:09:44,668 --> 00:09:48,618 Please consult your tax advisor or attorney before acting on any material covered.