One For The Money

• What is a 529 account? [03:13]
• Creating a legacy of education [05:20]
• Navigating college funding [10:00]
• Determining what your family can afford [12:18]
• Prioritizing retirement [16:21]

A 529 account is a phenomenal investment vehicle to help pay for college. These investments are made with after-tax money, so taxes don’t have to be paid again when the money is used for qualifying college expenses. These qualifying expenses include tuition, fees, books, computers, and even room and board. While the general strategy of a 529 seems straightforward, there’s much more than meets the eye regarding what you can do with them. 

One of the most powerful wealth transfer vehicles available to the American public is the 529. Any relative, friend, stranger, or even yourself can be named on the account as a beneficiary. While most people invest in a 529 for children, you can also use these for yourself. If one of your goals in retirement is to go back to school, you can start saving now to have tax-free funds to help offset that cost.

We all want our kids to graduate from college so that they have a better chance of higher-paying jobs and are less likely to be unemployed. So we must be careful how we go about paying for college. Please know that as a parent, you should only contribute to your kid’s college savings after you have an established emergency fund, no high-interest debt, and you are on track for retirement. Of course, your kids would love for you to pay for their college. Still, they’re less enthusiastic about parents moving in who weren’t retirement ready! Additionally, it seems kids study a bit harder when they know they’re paying for a portion of their education. 

There are many factors to consider when it comes to navigating college funding. While a 529 is a tremendous help, it’s only part of the financial strategy. One of the first things to consider is which college is affordable. As I mentioned in the last episode, colleges will charge you based on what they believe you can afford. Colleges look at parents’ and students’ assets and income to determine what you will be able to pay for college. So it’s essential to understand what colleges think you can afford. 

Similarly, families need to determine how much they can realistically afford. Far too many people don’t look at the calculations available to them. The college application process itself can take the majority of a family’s attention, and understandably so. Unfortunately, too many achieve their college dream by graduating from a particular university, only to end up having a student loan nightmare as a result. They’re saddled with student loan debt and can’t begin saving for retirement, so they miss out on years of compound growth. This conversation needs to happen long before your children receive an acceptance letter. It’s much more challenging to have this conversation after they’ve been accepted, particularly if the school is one they want to attend.

• The Cost of College and How to Pay for It - Part 1, Ep #15
• FAFSA® Application | Federal Student Aid