How to Superfund Your Child’s Education with a 529 Plan

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Ken discussing the 529 plan.
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TRANSCRIPT:
For any history buffs out there, who can guess what college tuition costs were in 1984? Well, one year tuition in a public university, including room and board, was $3,800 per year. Now, fast forward 40 years. In-state tuition averages about $21,000 per year, and for those hoping to get your child into the engineering program at Vanderbilt, expect to write a check for $100,000 per year. Hi, I’m Ken Hargreaves, and I’m president of WealthGen Advisors, and today I’m going to talk about a college savings vehicle that can help parents superfund their children’s college education in something called a 529 plan. So let’s back up. What is a 529 plan? Well, it’s a savings plan with a specific tax advantage, specifically designed for future education costs.

Now, each state has the their own sponsored plan, but they’re open to fund qualified education expenses, as defined by the IRS, in K-12, private schools, colleges, universities, and trade schools. So what are the benefits of saving for school in a 529? Well, there’s four big benefits to saving in a 529 plan. The first is you get tax-deferred growth. If you use the funds for qualified education expenses, your money grows completely tax-free. Second, if you start early enough, you might benefit from compounding your returns and lowering your out-of-pocket expenses for college. The third reason is if funds are not used for education, you can convert up to $35,000 to a Roth IRA. But there’s another huge benefit for the super wealthy.

Consider grandparents with a large estate. If they had seven grandchildren, they would be able to afford to buy a house, or a car, or a car, or a car, or a car, or a car, or a car, or a car, or a car, or a car, or they could in one day reduce their estate by over 1.2 million dollars without using any other lifetime exemptions. So how can you superfund a 529 plan? Well the IRS has tax rules around how much money we can give to others. In 2024 that limit is $18,000 per person or $36,000 per couple. With 529 plans the IRS has allowed a special situation in which a person or couple can lump five years worth of gifting into just one contribution.

Or in other words $180,000 per couple can be considered a non-taxable gift in a single year to one 529 beneficiary. So if your child is three years old today and they start college in 15 years assuming a 6% growth rate that child could have over $431,000 in their college 529 plan. Now remember, investing involves risk and there’s no guarantees and it’s important to coordinate your decision to start a 529 plan with your team of advisors.

Would you like to learn more about college savings strategies? Feel free to reach out to us or click the link below to visit our website. As always, thanks for watching. Go to Beadaholique.com for all of your beading supply needs!

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Ken Hargreaves - Wealth ManagerKen Hargreaves - Wealth Manager

Ken Hargreaves
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