Episode 269

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Published on:

6th Sep 2023

Diving into the 529 Plan: College Savings and Strategies

Welcome back Wine and Dime listeners! As the CEO and founder of Rooted Planning Group, I am fervent about assisting families in steering through the intricate world of college planning. This episode will dissect the nuances of 529 plans, a favored college savings avenue. We will scrutinize the advantages and considerations of these plans, coupled with shedding light on other savings prospects and strategies. So, pour yourself a glass of wine and accompany me as we venture into college planning, equipped with the finest insights and a splash of exquisite wine.

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Key Takeaways:

  • 529 plans are a tool for college savings but should not be overfunded.
  • Contributions to 529 plans are made with after-tax dollars and grow tax-free.
  • 529 plans may have minimal impact on financial aid eligibility.
  • Consider other savings opportunities and prioritize retirement savings.
  • Engage with the college financial aid office early and be aware of hidden costs.

Exploring the East Side of Seneca Lake

Before we immerse ourselves in the complexities of 529 plans, I wish to impart some reflections on the wines I am venturing into this autumn. As the fall season graces upstate New York, I am eager to traverse the east side of Seneca Lake. A vineyard that has piqued my interest is Caywood Vineyards. Nestled near the Finger Lakes National Forest, Caywood Vineyards boasts a tasting room adorned with handcrafted redwood and oak, complemented by a three-story fireplace. It seems to be the quintessential locale to bask in the fall atmosphere. Caywood Vineyards, a subsidiary of the Pleasant Valley Wine Company family based in Hammondsport. If you happen to be in the vicinity, I strongly advocate for a visit to appreciate the scenery and ambiance. Learn more about them here and discover the best wine trails around Seneca Lake here.

Understanding 529 Plans

Transitioning our attention to the focal point of this article - 529 plans. These plans serve as a vital instrument for college savings, yet it's imperative to avoid overfunding them. Contributions to 529 plans are facilitated with after-tax dollars and flourish tax-free. Withdrawals utilized for qualified education expenses are also exempt from tax. In certain states, like New York, tax deductions or credits are accessible for contributions to 529 plans. A notable merit of 529 plans is their negligible effect on financial aid eligibility, being categorized as a parental asset. In instances where the 529 plan is held by someone other than the parents or student, it might be excluded entirely.

Strategizing Contributions and Gift Tax Exclusion

When orchestrating contributions to 529 plans, awareness of the gift tax exclusion is vital. For 2023, the gift tax exclusion stands at $17,000, allowing anyone to bestow a gift up to this amount per annum to your child without triggering gift tax repercussions. Furthermore, direct tuition payments to colleges are unrestricted and can diminish taxable estates. Strategic planning of your contributions to 529 plans is essential, taking into account other savings avenues. Prioritizing retirement savings is prudent, as borrowing for retirement is not an option. A diversified investment approach, encompassing both 529 plans and conventional brokerage accounts, can facilitate a balanced strategy for college planning.

The True Cost of College

In the realm of college planning, recognizing that the advertised tuition rate may not be the final figure is crucial. A substantial number of students, even those hailing from families with incomes surpassing $200,000, do not bear the full price. A majority of colleges propose monthly payment schemes to assist families in managing education costs. Tailoring a 529 plan to your unique circumstances and seeking professional advice is vital. Early engagement with college financial aid offices can unveil valuable insights and aid in steering financial aid choices. Additionally, it's noteworthy that supplementary funds might become accessible later in the process, and alumni could offer scholarships for their offspring. Being vigilant of the concealed costs of college, which can accumulate, is essential.

Exploring Different Types of 529 Plans

In the context of 529 plans, distinguishing between the various types available is crucial. The primary categories are savings plans and prepaid plans. Savings plans operate akin to other investments, fostering the growth of your savings over time. Conversely, prepaid plans permit you to secure current tuition rates. Private savings plans are crafted specifically for private colleges, while state plans offer prepaid options as well. Adapting your strategy to your circumstances and evaluating all potential options, including brokerage accounts, is vital when saving for college.

Understanding the Cost of Prepaid Plans

The pricing of prepaid plans fluctuates based on elements such as your child's age and the duration of your savings period. Unit plans, for instance, enable the purchase of fractional units redeemable in the future. A thorough analysis of all options, weighing the pros and cons, including potential returns and investment flexibility, is essential. While 529 plans present tax benefits and serve as a potent tool for college planning, exploring other savings prospects and investment avenues to ensure a comprehensive approach is crucial.

Conclusion and Future Outlook

To conclude, 529 plans stand as a potent tool in college planning, offering tax benefits and adaptability. However, approaching them with a discerning eye and not relying on them as the sole college savings mechanism is vital. By diversifying your investments and exploring other savings prospects, like regular brokerage accounts, you can craft a holistic strategy for financing your child's education. Engaging early with the college financial aid office and investigating all scholarship and financial aid opportunities is also key. As college costs escalate, staying abreast of developments and modifying your college planning strategy is essential.

Looking ahead, the dynamics of college planning are set to evolve continually. Keeping pace with regulatory changes and uncovering new avenues for education funding is vital. By adopting a proactive stance and seeking expert guidance, you can navigate the intricacies of college planning, securing a promising future for your child. Here's to a triumphant journey in college planning!

Thank you for joining us on Wine and Dime. If this podcast resonated with you, we encourage you to share it with your friends and family. We'd appreciate your support in rating us on iTunes to help others discover us. A heartfelt thank you to TJ Meehan at Meehan Media for his expertise in production. Until next time, cheers!

This episode is brought to you by Rooted Planning Group. Rooted Planning Group is a fee-only financial planning firm that specializes in working with women in their 30s and 40s who want to take control of their finances and plan for the future. Whether you're just starting or you're looking to make a big change, Rooted Planning Group can help.

Visit www.rootedpg.com to learn more.

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Money Roots
Money Roots with Amy Irvine
Welcome to "Money Roots," the podcast where personal finance becomes personal. Join host Amy Irvine, CEO of Rooted Planning Group, as she demystifies the world of finance and makes it approachable for everyone, from beginners to financial experts.

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About your host

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Amy Irvine

Uncorking Amy Irvine!!

If any of you have ever met Amy, you know she is passionate about
three things. Family, Finances, and WINE! This comes through in all
that she does and all that she is. When asked to describe herself she first and foremost states, “I am a wife, a daughter, and hopefully a good friend, who happens to also be a financial planner.” Amy holds a Master’s Degree in financial planning and is a Certified Financial Planner TM , Enrolled Agent, Certified College Financial Consultant, and a Financial Wellness Coach with over 25 years of financial planning and industry experience. She is the Founder and owner of Rooted Planning Group, (Formerly known as Irvine Wealth Planning Strategies LLC), which started in 2016 and has grown to include 6 other planners and 2 part-time staff members. Amy is definitely “doing it her way” and has been recognized by her financial planning colleagues as being a “disrupter,” a title she holds close to her heart and is proud of.

Uniquely, at the age of 44, she decided to not only start her only company, but to act on what she defined as her perfect life and she splits her time between Parrish, Florida and Jasper, New York.
On her website it states, “I love what I do, but I also very much enjoy warmth, good
conversation, wine tastings, and volunteering. New York is extraordinary in the summer and fall, but so is Florida in the winter.”
In 2018, she decided it was time to take the stigma out of finances by combining her passion for finances and wine. She started a podcast called “Wine and Dime,” which highlights a different wine and financial topic each week, and she released her book combining those same two passions, titled, “Uncork Your Finances.”
Many of you may know her as one of the co-founders of the Southern Tier Women’s Financial Conference – a day of collaboration and financial education, which will be hosting it’s sixth year!
To round out her volunteering passion, she often provides financial education to the
community through the financial management program of Cornell Cooperative Extension of Steuben County, she serves on the board of Faith-in-Action of Steuben County, volunteers for various Fund For Women of the Southern Tier events, works with the finance committee of the Arts Council of the Southern Finger Lakes, and serves on the board for the Corning Painted Post Historical Society (also known as Heritage Village).
In her downtime, you’re likely to find her with a glass of red wine from one of the many Keuka or Seneca Lake wineries that she highlights in her Wine and Dime Podcast.