π€ CPA helping moms:π Invest confidentlyπΈ Raise money-savvy kids π€ π My FREE Money Challenge helps you accomplish the MOST important financial tasks step-by-step!
π We're saving for college using *this* account type . . .
Hey Reader,
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Time to check in on your finances!
Consider this your monthly reminder to update your Net Worth -- an easy way to track your financial progress. π
Need the Money Meeting Agenda?
| DOWNLOAD |
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Money Fit Challenge for AUGUST: Calculate the monthly amount to save for kids' college expenses
MAKE SURE TO CONSIDER THE RULE CHANGE HAPPENING IN 2024! (Highlighted below)
β οΈ REMINDER: BEFORE Saving for Kid's College Fund:
1. Payoff DEBT AND
2. Get on track for RETIREMENT β
Why? Although student loans aren't ideal, there's no such thing as a retirement loan.
As we're reminded every time we fly, βοΈ put on *your* oxygen mask first so you can safely assist others.β
Y'all . . . a study showed it's taking students an average of 20 YEARS to pay off the loan for their undergraduate degree!!!!! π± Even if *you* didn't face that issue, your *kids* might. U.S. College tuition is inflating at TWO TIMES the general U.S. inflation rate.
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What is a 529 Plan?
An invested, tax-advantaged way to save for college. An invested tax-advantaged 529 plan could grow more than a basic savings account (depending on investment returns).
The sooner you contribute to a 529 plan, the more contributions can grow.
Our son's 529 is currently worth $11,555, but we only contributed $7,245. The rest (36%) is investment growth -- and that percentage will GROW. π±
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We set up a $25/mo auto-deposit (with an extra $100 on his birthday). A few years ago, we increased to $125/mo. The rest is investment growth.
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As you can see (in a classic investment curve), there are fluctuations in the market, but generally (especially if you set up auto-deposits), the growth curve gets steeper over time thanks to compound interest.
ββWhy I love 529 Plans
Contributions GROW federal tax-free and can be DISTRIBUTED federal tax-free IF USED FOR QUALIFIED EDUCATION EXPENSES*
- *States generally follow federal rules, but some rules differ.
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529 Plans can be used for:
- Some K-12 tuition (see rules for state/federal limits)
- Undergraduate degrees and many technical schools
- Graduate, Professional degree, etc.
What if my child does not go to college? Is that money recoverable?
You have a few options:
1. Rollover to a Roth IRA (NEW! Starting in 2024)
Secure Act 2.0 will allow rollovers from 529 Plans into a Roth IRA -- this is AMAZING news since contributing too much used to be a concern.
Some limitations:
- The plan must be >15 years old.
- Rollovers are subject to Roth IRA Annual contribution limits (e.g. as of 2023, this annual limit was $6,500/year)
- $35,000 is the maximum lifetime rollover amount allowed
- Roth IRA must be in the name of the 529 beneficiary
- Canβt rollover contributions or earnings made in the last 5 years (would have to wait until theyβve been in the account > 5 years)
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2. Name a new beneficiary for the 529 Plan
Instead of rolling over to a Roth IRA, you could keep in the 529 plan and change beneficiaries to another relative (e.g. a younger sibling).
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3. Pay the penalty and taxes
Note that if you withdraw funds for a purpose other than qualified education expenses, the earnings will be taxed and assessed an additional 10% federal tax -- not ideal. I'd recommend option 1 or 2. β
Calculate your Monthly Contribution to Each Child's Fund:
OPTION 1: If you already have an Empower Account (create a free account), you can add college expenses to your Retirement Planner.
1: Go to Planning: Retirement Planner
2: Add a Spending Goal: Education Expenses
3: Follow prompts to complete calculation
βCreate a FREE Empower Account - Retirement / College Savings Plan β
What I love about Empower: You can link your kids' actual 529 Plans (and the rest of your investment/retirement accounts), so your calculations are updated in real-time.
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OPTION 2:
Use another college savings calculator (I put a couple of calculators at the end of this post about 529 plans).
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π€ DON'T OVERTHINK IT.
Like I said, we started with $25/month per kid and re-evaluated down the road.
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Have more QUESTIONS about 529 Plans?
Check out my post about 529 Plans. ππΌ
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Can't-stop won't-stop calculating things,
Lisa Schader, CPA @MoneyFitMoms π€πΈ
π€ CPA helping moms:π Invest confidentlyπΈ Raise money-savvy kids π€ π My FREE Money Challenge helps you accomplish the MOST important financial tasks step-by-step!
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