Motley Fool Money Podcast Summary: "Choosing a 529 and How Does Your 401(k) Compare"

Release Date: July 26, 2025
Host: Robert Brokamp, The Motley Fool

1. Introduction

In this episode of Motley Fool Money, host Robert Brokamp explores crucial aspects of personal finance, focusing primarily on choosing the right 529 college savings plan and comparing 529 plans to 401(k) retirement accounts. The show also delves into recent financial news, including retirement savings behaviors, stock market trends, and the real estate market.

2. Comparing 401(k) Accounts

Brokamp begins by discussing Vanguard's 2024 "How America Saves" report, highlighting how retirement savings vary with job tenure:

• Median 401(k) Balances by Job Tenure:
  • 2-3 years: ~$20,000
  • 4-6 years: ~$44,000
  • 7-9 years: ~$73,000
  • 10+ years: ~$166,000

Robert Brokamp (00:05):
"The median savings rate is 6.8% just from the worker and it's 11.5% when you include the employer match."

Despite these contributions, many fall short of the recommended 15% savings rate. Brokamp advises listeners to consider maximizing their 401(k) contributions, especially since only 14% of workers maxed out their accounts in the previous year.

He suggests using online calculators, such as the XML Comprehensive Retirement Planning Module, to assess if one is on track for their retirement goals.

3. Small Cap vs. Large Cap Stock Performance

The podcast references a Wall Street Journal article by Jason Zweig, which discusses the underperformance of small-cap stocks compared to large-cap stocks over the past decade:

Robert Brokamp (04:41):
"Small caps have trailed large caps by more than 7 percentage points over the last decade, which is the widest gap since 1935."

Zweig cites Stephen DeSantis from Jefferies, noting the significant outflow from small-cap ETFs and inflow into large-cap ETFs. Despite historical outperformance, small caps are currently undervalued, trading at lower price-to-earnings multiples compared to the S&P 500. This presents a potential buying opportunity through low-cost ETFs like the Vanguard Russell 2000 ETF (RUT) or the iShares Core S&P Small Cap ETF (IJR).

4. Real Estate Market Update

The episode covers the current state of the real estate market:

Robert Brokamp:
"The median price of an existing home sold in June hit an all-time high of $435,300."

However, while home prices have surged, sales volume has decreased by 2.7%, and inventory levels have risen by over 15% year-over-year. The Case Shiller National Home Price Index reveals substantial gains:

• 49% increase over five years
• 91% over a decade
• 146% since February 2012

This indicates that homeowners who purchased properties before recent price hikes are benefiting significantly from the appreciation.

5. Choosing a 529 Plan with Arthur Kordiak Mert

The core of the episode features an interview with Arthur Kordiak Mert, author and COO at Savingforcollege.com, discussing the intricacies of 529 college savings plans.

A. Expanded Uses of 529 Plans

Arthur Kordiak Mert (05:32):
"The list of qualified expenses just keeps growing, including... standardized tests, SAT exams, ACT, and more."

Recent legislative changes have broadened the scope of 529 plans beyond traditional college expenses. Now, funds can be used for:

• K-12 Tuition: Up to $10,000 per year per beneficiary, increasing to $20,000 starting January.
• Post-Secondary Education: Tuition, room and board, books, supplies, computers, and software.
• Vocational Training: Trade schools, welding certification programs, and professional certifications like CPA or bar exams.
• Flexibility for Future Needs: Including continuing education and extended credentialing.

B. Selecting the Right 529 Plan

Robert Brokamp (07:44):
"With 529s, they're operated by states. So you're like, well, do I go with Virginia or Utah or Alaska?"

Mert explains that choosing a 529 plan involves several considerations:

• State Tax Benefits: Nearly 40 states offer tax deductions or credits for contributions. Check if your state requires using its own plan to receive these benefits.
• Performance and Ratings: Assess how different plans perform, especially if they offer diverse investment options that align with your goals.
• Investment Options: Plans may offer age-based portfolios that automatically adjust from aggressive to conservative investments as the beneficiary approaches college age.
• Number of Plans: There are close to 100 different 529 plans. Over half are direct-sold, allowing you to open them without a broker, while others require a financial advisor.

C. Rating and Ranking of 529 Plans

Arthur Kordiak Mert (10:49):
"We rank the plans based on their investment returns across age-based and target-year options."

Savingforcollege.com evaluates 529 plans by:

• Performance Metrics: Average returns across age ranges from 0 to 18+ years.
• Saving Success Features: Gifting options, ease of enrollment, and program delivery reliability.
• Program Manager Excellence: Continuity and quality of service provided by the plan administrators.

D. Financial Aid Implications

Arthur Kordiak Mert (13:53):
"A 529 plan is considered a parent asset on the FAFSA form, but only up to 5.64% of its value is counted."

Key points on financial aid:

• Ownership Matters: Parent-owned 529 plans are treated as parent assets, affecting financial aid calculations differently than student-owned plans.
• Grandparent 529 Plans: Recent changes exclude money in grandparent-owned 529 plans from FAFSA calculations, avoiding the previous high income percentage inclusion.
• Multiple Plans: If divorced, only one parent's 529 plan is considered based on who provides more financial support.

E. Underappreciated Aspects of 529 Plans

Arthur Kordiak Mert (16:45):
"The real beauty of a 529 plan is that every dollar in your account can go toward education, tax-free."

Additional benefits include:

• Tax Advantages: Federal and state tax-free growth and withdrawals for qualified expenses.
• Flexibility: Ability to change beneficiaries if funds are not fully used.
• Roth IRA Transfers: Recent provisions allow transferring up to $35,000 to a Roth IRA for the beneficiary under certain conditions.
• Encouraging Early Savings: Emphasizes the power of compound interest with early and regular contributions.

6. Final Segment: Actionable Tip – Leveraging the "One Big Beautiful Bill"

In the concluding segment, Brokamp discusses the implications of the recently signed "One Big Beautiful Bill":

• Tax Changes:
  • Higher standard deduction and child tax credits.
  • Bonus deductions for seniors.
  • Limitations on student loan repayments and energy efficiency tax credits.

Robert Brokamp (20:24):
"Most middle to upper income households could see their after-tax incomes rise 2 to 4% annually over the next few years."

Actionable Advice:

• Increase Savings Rate: Redirect the extra tax savings into retirement accounts like 401(k)s or IRAs to bolster financial security.
• Prepare for Future Tax Impacts: Anticipate potential future tax increases and reduced benefits by strengthening personal investment portfolios now.

7. Conclusion

This episode of Motley Fool Money provides valuable insights into optimizing both educational and retirement savings through strategic use of 529 plans and 401(k) accounts. It underscores the importance of understanding tax benefits, plan performance, and financial aid implications to make informed decisions that support long-term financial goals.

For more detailed information and personalized advice, listeners are encouraged to consult the resources mentioned in the podcast and consider reaching out to financial professionals.