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529 College Savings Plan Explained



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today I'm gonna talk about the 529 college savings plan explained so I'm

gonna go through some of the major points of the 529 plan things that I

think are important to give you a good understanding of how you can use the 529

plan for your son or daughter, grandchild or whichever beneficiary you

choose for their 529 college savings plan I'm also gonna talk about

one particular point that I don't think it's talked about enough and I think

it's a huge risk of the 529 plans and I'm also gonna make another

video specifically talking about this issue if this is your first time

watching these videos or you haven't subscribed yet be sure to click on the

bell at the bottom and subscribe today

my name is Travis Sickle CERTIFIED FINANCIAL PLANNER with Sickle Hunter Financial Advisors

The 529 college savings plan let's get right into how it works so these are dollars that get

invested in after-tax dollars into an investment account grow tax-deferred and

if they're used for college education or K through 12 they come out tax-free when

you're thinking of the529 plans think of them just like a Roth IRA

these go in after tax dollars the same way that a Roth IRA does they're gonna

grow tax-deferred and then they're gonna come out tax-free as long as they're

used for a qualified expense so the Roth IRA is for retirement the five to nine

plan is going to be for college education expenses and again when I say

college education expenses I'm also talking about K through 12 so any of

those school related expenses you can use a 529 plan for

The 529 plans or the 529 plans are state sponsored plans they're set up state by

state but that doesn't mean you're limited only to your state's 529 plan

you can actually look at other states to see if they have a better 529 plan

when you're looking at which is a better 529 plan you're looking

at the actual investments so the investment choices inside these 529

plans are typically mutual fund type of investments and you'll be able

to choose some of the options with inside those

plans so you can kind of construct your own portfolio

there are also portfolios designed with a specific target date in mind when

you're comparing the 529 plans it's going to come down to the

investment choices that you have inside that plan which traditionally are mutual

fund style investments now some of them you're gonna be able to construct your

own portfolio so if you really want to get into the weeds of it you can build

your own portfolio or you can choose a target date style fund which will either

show you the age of your child currently or the target on which the money is

going to be used so those are target date funds so the idea behind them is

they're gonna be a mix of equities or stocks and bonds so the closer we get to

that target date it's gonna have more bonds than equities inside of that plan

which will gear it towards their risk tolerance for that particular goal

another point of the 529 plan is the ability to transfer to another

beneficiary so if you have multiple kids and your oldest is in school and they

don't use all the money you can actually trickle that down to another beneficiary

or you can actually give it to another family member another niece or another

nephew so there's a lot of flexibility in

transferring the 529 plan and if if you have multiple kids in school

at the same time if you have twins or triplets then you can actually take that

money in certain plans and transfer it in the same year so you don't

necessarily need to have multiple 529 plans or multiple accounts when

you're planning you can have those assets in a 529 plan and then

transfer it to another 529 plan now you can't have two beneficiaries on

the same 529 plan so you will eventually, have to open up a separate

529 plan count and those those rules are based on the individual

plan so be sure to check with whatever plan that you're going with on their

transfer rules I know for the state of Florida you can actually take the assets

from one 529 plan and transfer it into another 529 plan with

the state of Florida as many times as you want throughout the course of the

year the 529 save plan limits the contribution limits the

amount that you could put into the plan according to the IRS or only the amount

that you can fund for a college education so there's no actual number on

it but if you don't use those dollars for

college education not only are you gonna have income taxes but then you're also

gonna have a ten percent penalty so you don't want to over fund the five to nine

savings plans and you also want to consider the gift tax consequences

currently in 2018 that's 15,000 per beneficiary so it's another

consideration you might want to spread out your contributions over a set amount

of years when you're planning for college education one of the biggest

risks I see of the 529 savings plans are the bond funds that are inside

of these plans and a lot of these target-date funds will shift more into

bonds or bond funds specifically in these plans to make you believe that

they're being more conservative in their investments and that money will be there

but bond funds can lose money and their positions such as bonds which adds

another layer of risk when you're looking at a bond fund versus an

individual bond it's such a big deal I'm gonna do another video on it to really

explain and give you some data to back it up

on what you should really look at when you're looking at these five to nine

plans and is it really worth it to invest in a 529 savings plan so

if I haven't already I'll post a link up at the top you can click on it we can

get a little bit more in-depth on the five to nine savings plan an investment

portion to it and the risks that are not talked about enough in a 529

savings plan again as soon as the video is posted I'll post the link at the top

if it's not there already right here just click on it I'll go in a little bit

more into depth if you've enjoyed this video be sure to subscribe and leave

your comments down at the bottom