Farnoosh Tarabi (3:06)

Hey so money, I'm Farnoosh and we've got something special for you today. I'm going to take you inside my Sew Money members club for an exclusive workshop that I hosted recently on one of the most urgent financial topics for families today, Saving for Higher Education. It's a deep dive into The World of 529 College Savings Plans and it features our friend Patricia Roberts, who is a leading expert and author on the topic. She brings both professional and personal insight to the conversation. Patricia is actually a member of the so Many Members Club, so when you join the club, you get access to Patricia as well. What you're about to hear is the full workshop presentation, but what you won't hear is our very rich Q and A that we hosted at the end just for members. That's one of the many perks of joining the club. It's a private, tight knit community that's curated and run entirely by me. I don't have an assistant, there's no chatbot. It's just me guiding you through live monthly workshops, office hours, and deeper discussions around money, work and life. The membership also includes full access to our growing library of recordings and commercial free episodes of this podcast. If this sounds like something you'd love, go to somanymembers.com to learn more and join us. But for now, let's get into it 5 to 9 planning what you need to know and how much to invest. How to start making smart, informed money moves towards higher ed costs.

Farnoosh Tarabi (4:33)

Hi everyone. We are here for our May workshop, Saving for Higher Education. I have two kids. This is deeply personal to me as I know many of us too in the group either have children, we have nieces, we have nephews, or we have adult children. Right? And maybe we're still dealing with the cost of college. We're thinking about going back to school. Some of us this is, I think I Hope I know it's applicable to a lot of us. We are going to get mostly into the 529 College Savings Plan for the bulk of our time together. And this presentation is me as well as our friend Patricia Roberts. She has spent over two decades advancing her mission to educate and inspire families to have brighter outcomes when it comes to paying for higher ed. And I know she has a personal story of her own, putting herself through college and then also her son just graduated college. So she has a lot of personal experience in this area as well. She's also the author of an amazing book, Route 529. It's a guide to saving for college and career training. And I think it's been updated because there have been changes to the 5 to 9 plan over recent years, which we'll get into. But going back to the agenda for today, our roadmap. First, we're going to talk a little bit about the State of the Union, what is happening with college costs, whether you're looking at private, public. Then we'll get into the world of five to nines. What are they? How do they work? How do you pick the right one? How much do you save? So just off the bat, these are the numbers on average for the academic year 2024-2025 in state is usually your most affordable route. Route and tuition and fees those are for in state students is around $11,000 all in, about $30,000 out of state. If you're going to go to Penn State, like where I went, you're looking at more like 49. I've, I've seen it as high as like $60,000 for out of state all in, depending obviously on your cost of living. But tuition and fees is about 30,000 for out of state public college. Then when you're talking about liberal arts schools and the MITs of the world, tuition and fees roughly 43,000 average per year. Total cost of attendance, 63,000. But I have friends who are sending their kids to NYU and all in, it's about $99,000, believe it or not, per year. Let that sink in. And then we have community college, which is a great option for those who want to spend the first two years getting the basics under their belt in terms of their credits and then perhaps transferring to a traditional school. But they're you're looking at about $4,000 a year tuition and fees and about 20,000 annual if you commute, which a lot of community college students live close by or they live with their family. All right, before we get into the 529, just want to kind of give some advice, general advice around ways we can start to prepare for the bill, thinking about how to supplement the cost. I'm going to go to number three first, because I think I should have made that number one. But number three is really, I feel, and I think, Patricia, you would agree with this is the buck really can make a difference. So it's where you go, right? And these days we're having more conversations around the value of college. Is it even worth it? But selecting an affordable school is so critical that of course, we'd all love to go to our dream schools, but it comes. If it's going to come at a cost where the only way you can afford it is to take out private loans, and now you're saddled with a small mortgage upon graduation. I'm not so sure that was the right smart path. And so for me, I'll just give a quick anecdote, like going to Penn State was not my first choice. I was an In State resident at the time, and my father, being the immigrant who was very big on academics. They were the family, we were the family. That it wasn't like, where are you going to go to college? It was like, where are you going to go to grad school? What are you going to get your PhD in? They're still waiting for me to get a PhD in something. And he was like, where are you applying? And I said, oh, nyu, Northwestern? And he goes, what? Like, how much do those schools cost? I said, oh, don't worry about it, dad. Our teachers, our guidance counselor just said, you'll. There's this thing called student loans and that, that's how you do it. And he goes, no, no, no, we don't go into debt for college. And maybe that was wishful thinking on his part because he was of an era of students that they got scholarships. He went to school in the 70s and early 80s. So, like, different situation as far as the cost of higher ed and how you did it. He was also coming here as a, as an international student. Anyway, he said, you should apply to Penn State because if we're going to, worst case scenario, have to bankroll this out of our paychecks, that is the school that we can do that at and then apply for the scholarship there. And so begrudgingly I did. And it was where I ended up going. And I'm so grateful. I still wasn't convinced it was the right school for me after year one, but I stuck with it and I would say the biggest advantage, two things, meeting my husband there, but secondly, coming out without debt and being able to go to graduate school and then they're taking on some debt. But at least then it was more manageable because I didn't have, you know, what my friends had, which was like 50, 60, $70,000 in debt. So that's the first thing I would zero in on. And the earlier you have these conversations with your children, the better. My dad stuck it to me senior year of high school when the applications were already out, and I had to be heartbroken when I did get into NYU and I did get into Northwestern and I didn't go. And that was like a real tough thing to, I mean, still apply to your dream school. And maybe I should have been more vigilant about number two, which was scholarships and grants. I didn't get that communicated to me. I just thought, unless you're a scholar, unless you started a nonprofit in high school, unless you're a soccer athlete star, you're not really going to get free money. And that's not true. We know that there are so many scholarships for so many people. And it's a numbers game often that there is. There are scholarships that go untapped many times because people don't apply. And then that's a whole other sort of workshop on how to get free money for college. But definitely look for that. A site that's great is the Department of Labor's scholarship finder. I think these days too, with AI like ChatGPT, a great way to utilize AI to identify the free money that's out there with the links, with the application deadlines and have it all be centralized there. The FAFSA is really important now I'm talking to the parents and the households on the call that are getting close to college. The Free Application for Federal Student Aid is what you fill out typically the year before college, like the year that you're applying to school. There's a deadline for this. The earlier you apply, the better because it is a first come, first serve situation. And through the fafsa, they evaluate your household income and they hold that up against aid. And this is where things like your, your federal loans, your work study, your grants, this is how it's all determined and given to you. And you can re, you can reapply with the FAFSA every year. So this is something that families don't do because they think it's a one and done. But if your family circumstances change, let's say you lose your job sophomore year of your son's time in college. This is a material change to your finances. And then it allows you to either ask for more money, maybe enroll in some sort of payment plan, that this is important. This is something that we talked about a lot during the recession. I remember we're doing a lot of reporting on this that families didn't know. Sometimes during hard times like recessions, colleges will also set aside emergency funds for those families that are particularly hard hit. But it's like you need to know to apply. It's not like they send out a press release.

Patricia Roberts (12:59)

Right.

Farnoosh Tarabi (12:59)

You have to become friends with the bursar office, the financial aid office. And then as far as 4 and 5, like federal versus private. Private loans I think should be a very last resort for borrowers. We know that they're not as flexible when it comes to repayment and the interest rates are typically higher. It's tough because there's a cap on how much you can get from the federal government. There's really not a cap on private. So it's an attractive route for those families that need to really afford a lot of this through financing. But we know that we have a $2 trillion student loan crisis in this country. That's a lot of that is private loan debt. Anything you want to add to this, Patricia, in terms of affording college before we get into the 529?

Patricia Roberts (13:45)

No. I like everything you've said and I completely agree. No harm in aiming high for a dream school. Those students need to know, even years before you start touring those schools, that it's going to depend in the end on the net cost and how affordable that is for your family could be. You do get into that dream school and there's some fabulous scholarship waiting for you. But I would be perfectly clear in telling the student what your budget is and what's going to work and not work. Because the worst thing is exactly what happened to you getting those acceptance letters and then hearing the crushing news that it's not possible after working so hard. So I'd start those conversations a few years earlier. Even. Even when you're touring schools just to set the expectations.

Farnoosh Tarabi (14:31)

Yeah. And things I didn't say here, like taking a gap year. Completely acceptable. A great way to take a beat and think about what is it I want to get out of college. Too often we rush families into the college application process. Kids, families, parents, where you're trying to finish your school and then trying to figure out your next steps and you're trying to visit campuses and put all the numbers together. It's a lot. And so I think putting aside a year to reflect on a what is it I even want to get out of college. If you're that if you don't know this is I'm talking specifically to the kids who are like unsure. Round up some more money, get a job, apply for more scholarships and the gap year is no longer a weird thing to do. It's actually I think maybe one of the Obama daughters took a gap year. I think it can be a great way to avoid the financial burden. In some cases that comes as a result of rushing through this process. So a heavy slide here on 529 College Savings Plan. I tried to format it in a way that was a little more reader friendly, but I wanted to give you the high levels here. And for those who are very unfamiliar with five to nines, these are savings account. But as I will explain later, you're really, your money is really being invested. So don't be fooled and thinking that it's FDIC insured money. In most cases it's not. But this is an account that is set up designed mainly for education expenses and the earnings grow tax free. Withdrawals are also tax free when used for qualified education expenses. In some cases when you live in a state that has a tax break a tax deduction for their state's 529 plan, you might get that tax benefit of being able to reduce your taxable income by those contributions. Which brings me to how these accounts are offered. They're state administered. So every state, I think every state has its own 529 plan. That doesn't limit us to only investing in our state's 529 plan. If you live in Kansas, you can invest in New York's plan and vice versa. But a lot of people choose to go with their state's plan if there is that state tax deduction because only residents can get that. So that is a no brainer. Of course you want to also see performance of that fund over the 10, 15 years perhaps. And this is all available online. There are no annual contribution limits, but large contributions could trigger a federal gift tax rule. So I know some families who have said in some cases, some years they like front load the 529. They'll get like a huge tax refund or they'll, I don't know, they'll get a windfall and they're like okay, I want to put this money to work. We're going to dump $50,000 into the 529 and then call it a day because it's, we got 10 more years and this money can grow. That's one strategy. But you have to be careful about whether or not that's going to trigger a tax penalty. But work with an accountant on that. They're pretty flexible and we'll get into more of like how they work and some of the functionalities of it. But if a lot of people ask me if I'm opening up this very education specific fund and one of my kids, the kid that I designated as the beneficiary doesn't go to college, first of all, you can use this for more than just college. But second of all, you can always switch the beneficiary. So if you have multiple children, you can take the account and transfer it to in someone else's name. If there's leftover money, same thing, you can switch the beneficiary. And that's just very generally how it works. Then in terms of choosing your plan, as I said, these are state administered. So your first choice is do I want to go with my state's plan or the out of state plan? Savingforcollege.com is a great site. Morningstar also can have some data there to look at. But Saving for college is a pretty good one stop shop where it shows you all the plans by state, their historical returns, the fine print. And so those are like the three things I look at. Is there a tax benefit? What's the performance, what are the fees? Patricia will talk later about accessing this. You can access this usually directly online through the website that the state has set up or through your broker financial advisor. Either way is acceptable. It just depends on fees and what you're comfortable with. I want to spend a little bit of time talking about how much to save this. I just want to start by saying is like just one way to do it. Someone who has a small child and you have ambitions to send them to college or even private high school, because that's also something that you can use your 5, 2, 9 for. And it's a bill, it's 30,000 a year. Whatever it is, you know there if starting early can allow you to have most of that money ready for you in savings potentially. But if you're not for whatever reason able to save as much right now because you have competing financial responsibilities or frankly you're of the mindset that I don't want to pay for the entire bill. I want my child to have some skin in the game. So they're going to have to get their own Scholarships or work studies or save during the summers and pay for some of it and then a lot, then the rest maybe we can bankroll out of our bank accounts. But thinking of it as a joint effort, a multi pronged effort to get the bill taken care of, that we often feel like we have to save all of it. And I don't think that is necessary because there are, as we talked about, other ways to fund the college education. This is why we often say that saving for your retirement is more important than saving for college. Because there's no scholarship for retirement, there's no Pell Grant for retirement, there's no federal student loan for federal retirement loan.

Patricia Roberts (20:35)

Right.

Farnoosh Tarabi (20:36)

It's just what you save for the most part and what you contribute into Social Security and maybe a little bit of a pension if you're lucky, you work for a big blue chip company or something like that, or a union. But for college, there's a lot of ways to make it affordable and so to not put that pressure on yourself that I have to save whatever's left at the end of the month or at the beginning of the month for college. How my husband and I do this. And Patricia, I'd love to hear too about your story with your son, but we. My son's 11 and our daughter is 8. When I was pregnant with my son, I opened up a five to nine because you can do that. We have kids.

Patricia Roberts (21:13)

You.

Farnoosh Tarabi (21:14)

Because I made myself the beneficiary and then I changed it to him when he was born. And I started to contribute about $500 a month. Actually my husband would contribute because as the breadwinner I wanted. This is how we, this is getting into more of like our mechanics of our money. But I write about this and when she makes more as the higher earner and as someone who was footing a lot of like our day to day expenses, my husband was a, was prime candidate to be like more of a long term saver for us to use his income in that very meaningful way. So we identified college as one way for him to really leave a financial impact on the household. So he would contribute $500 a month to Evan's 529 plan. And every month he would do that. And then when our daughter was born, same thing, she got an account, 500 bucks a month. How did we land on 500? We actually work with a financial advisor. We, we projected the cost of college. We are both stake university recipient degree recipients. We're not insistent that they go to Penn State. We would love that. But even if they did, it would be out of state for them and probably still expensive. But we also knew like we don't.

Farnoosh Tarabi (22:24)

Have to have all the money.

Farnoosh Tarabi (22:25)

Like we know maybe it's going to be, gosh, sounds crazy to say, but 300 grand per kid all in if they go to an Ivy League or a liberal arts college or something. So we're gonna do our best. We're starting early. 500 bucks a month for us at the time was not terribly difficult. So we're like, that's, let's do that. It's not our first priority. We're, we're gonna do it and we're gonna make it automatic. And then I will say now, by year 10 of putting $500 a month in to the New York State plan, Evan has over a hundred thousand dollars saved for college. But I'm also freaking out because I'm like the next eight years he's, we're not going to hit 300 grand. That was like the initial goal. So we have increased that to a thousand every month for him also knowing that the economy might not do as well over the next 10 years. So the thing, the way that we can offset that decline in growth is to contribute more. Hopefully we'll grow some bit. And then of course the plan that we have adjusts for risk as he gets closer to college. It's not going to be as maxed out in the stock market. It'll be more in things like bonds and dividend paying instruments. And we've done this for both kids. Both my daughter and Hegi are each getting 1000 bucks into their college account. And I'll be the first to say I'm not sure they're going to go to college. I hope they do. I will encourage them to. But the world is changing and it's not because I don't think they're college material kids. It's because I just don't know where they're going to get the biggest bang for their buck. Should they go to a trade school instead? Should they do an apprenticeship instead? Should they just start a business? Look, if they get into MIT or Stanford, I might get a second mortgage. But I'm just saying that I'm keeping an open mind about it. And I'm still investing in the 529 because as we'll learn through Patricia, there are ways to still leverage that money. Even if it's not for higher ed. You can use it for retirement.

Farnoosh Tarabi (24:20)

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Farnoosh Tarabi (28:08)

Patricia, to some of these myths that you wanted to talk about. I'm sure everyone in our group is familiar with the 529, but maybe we have some, we've heard some things. We want to get some clarity. What are and these are the things that you've identified as being very universally misunderstood.

Patricia Roberts (28:23)

Absolutely. And if you have people in your audience that are not familiar with 529, they are in good company. Ed Jones just did another survey on 529 awareness and I think 52% of Americans cannot identify what a 529 plan is. So there used to be, I think up to 2/3 of Americans couldn't. I'm hoping my book has helped somewhat and people like you talking about these plans. But there's still a lot of people that can't even get to the basics. They don't know what they are. They can't utilize them as well as as a result. And even though those who do know something about them, they don't really know and they're a little bit confused. So I think it's great we're going over these myths. First of all, they're called college savings plans. And people think they're just for college as a result. And college is thought of often as a traditional four year institution where someone goes away and lives and gets a degree. But these plans can be used for two year and four year colleges and universities. Community college, as Farnoosh mentioned, trade and technical school, as well as and additionally certain registered apprenticeships are covered by 529 plans. So we're not talking only about a traditional four year college. We're talking everything from cosmetology school to dental school in the end all the way up to that PhD that Farnoosh says maybe someday she'll pursue. These plans are extremely flexible. And when pursuing those types of degrees and accreditations, you can pay for tuition and fees, room and board, books and supplies, even computers. And that room and board is as long as the student is attending at least half time. Room and board is not just on campus housing. With the meal plan, room and board can be living off campus. Room and board can even be living at home if you can document the expenses of doing so and if those expenses don't exceed what the institution puts on their website as the cost of attendance, that housing and food component. As long as you're not spending more than that and you've got legitimate documented expenses for your child living off campus or elsewhere and eating right and paying their utilities, you can use the 529 for that. And in fact we did for our son Benjamin. He moved off campus junior year and stayed off campus through graduate school. It was actually cheaper up there in Worcester, Massachusetts to live off campus. So we used his 529 for that. We were careful. It's all self substantiating. We were careful to keep the receipts, keep a copy of his lease, if we were ever challenged, asked him to send us those grocery bills as he got them or his utility bills. But know that you can live off campus as well. And I think that's incredibly important for parents to know at a wide range of institutions. And no, you do not need a financial advisor to open a 529 account. If you have a financial advisor or if you're inclined to get one soon, why not ask them about opening a 529 account? They can be incredibly helpful because this is an important part of your overall financial picture. You wouldn't want to just be focusing on other goals and forgetting about this one. And why is that? As Farnoosh gave you the numbers, oftentimes this is like the second largest expense a family will ever face, second only to home purchase. So if you've got an advisor, utilize one. If you don't, it's okay. In fact, over 60% of 529 investors go it alone. As Farnoosh said, there's a tremendous amount of information online. Every state that offers a 529, every state except Wyoming does. For a new fun fact, I open the state. Yes, the District of Columbia offers one, too. But each of those states has a tremendous amount of information on the 529 plan. They are required to under disclosure statements. They're required to provide information on how the investments are designed and how they've performed over periods of time. So it's more than possible to go it alone and figure this out. And I love what Farnooch said about starting with your homestay plan, seeing if that makes sense for you based on maybe some other bells and whistles they may be offering, whether it's that state tax deduction or credit or Pennsylvania currently is putting, I think, $100 a year. They have a Keystone Scholars program. They're sweetening the pot with a deposit into their program. So look into what your state has to offer first and then consider other plans as well. You can do more than one plan. Some people go up to what their state offers and then they pursue another plan that they've heard is very good or they've read about it. And the third point Farnooch makes here, which is tremendously helpful, is people believe you're going to lose it if you don't use it. Couldn't be further from the truth. I love the fact that the 529 plan account belongs forever to the account owner. That's the individual who opened the account and named a future student, or beneficiary, as we refer to them, for future use. The person who owns the account has control at all times. That future student will never get their hands on the 529 funds. Unlike other forms of savings and investing for young people, oftentimes parents set up traditional bank accounts or maybe a brokerage account. There's a UGMA or a UTMA Uniform Gift to Minors act designation on it. Those accounts do belong to the beneficiary and the child, indeed, upon reaching the age of majority, gets their hands on it. They can go buy a form lease instead of going to Harvard. They can do whatever they want. Not the case with 529. It's always within your control, account owner. So you're not going to lose anything. If the child decides not to go to college or as far as shed take a gap year or so, you can keep the funds in indefinitely. You can switch the beneficiary to someone else as long as they're a member of the family. And that's a very broad definition. It goes all the way out to cousins, step siblings, half siblings, aunts, uncles, even you. If you're related to the beneficiary, someone else can use those funds. Great to know. What else can you do with it? You can roll up to $35,000 of a leftover balance that the child doesn't need or isn't going to use to a Roth IRA for the benefit of that original beneficiary. Not for your benefit, not for somebody else's benefit, the person you named on the account. As long as the account's been open for at least 15 years, you can do a trustee to trustee rollover in total up to $35,000. And that money is now in a retirement fund for your beneficiary. You do need to follow the Roth rules. This is very specific. You want to look at this very carefully. If you decide to do it, get some tax advice on it. But the Roth rules allow, I think it's only 7,500 a year to go into it. So you can't just load in the $35,000. You're going to do it incrementally. And there are some other rules associated with it. But know that you can do that as well. You can also always get at your money. You can take what is called a non qualified withdrawal. If no one else is ever going to need it. Don't want to save it for a future grandchild. You don't want to roll it to a Roth. You can certainly take the money out. As Farnoosh said, the account was growing without tax. You will pay tax on the earnings portion of the withdrawal. Fair enough, because you never did pay tax on it. So if you've saved $10,000, it's worth $11,000. You're going to owe state and federal tax on that $1,000 of earnings only. And there will be a 10% federal penalty on that $1,000 as well. Never a penalty. In the case that the child got a scholarship, you don't need it because the child got a scholarship. You're never going to get that 10% penalty there. And God forbid there's a disability or death of the beneficiary. Never a penalty, but you've got a lot of options if that child doesn't use the account. I bet you some sort of use is going to take place. Given the state of the world and given how broadly 529s can be used, this financial aid question comes up all the time. People fear they're not going to get financial aid if they save for College in a 529. Well, guess what? Financial aid is largely comprised of student loans. Most people think this is just a boatload of free money that's coming your way. While there is some of that and there are other elements of financial aid that don't need to be repaid, holding out your hat, hoping for some free money and not saving most feel is not a good idea. And in fact, the 529 savings, I told you, they always belong to the account owner. As such, they are considered a parental asset if it's the parent who happens to own the account. Parental assets are counted much more favorably than student assets. If that was an account like an UGMA UTMA or trust account, something the child had access to, it's going to count much more significantly for federal financial aid purposes. This is great as a parent that it's considered one of your own assets. And Only up to 5.64% of the account value is going to even be considered in this financial aid formula. So you've saved that $10,000. $564 of it only will be considered. And even better if that account is in the name of someone who's not one of the two parents of the child, like a grandparent. It's not counting at all. And that was one of my updates to the book Farnoosh that got clarified in 2024. I wouldn't worry about this federal financial aid. The school aid could have some impact. But again, much better to save than.

Farnoosh Tarabi (38:49)

To hold our hope.

Patricia Roberts (38:51)

And as Farnoosh said on the last point, college savings plans, some people think, oh, it's a savings plan. And while some states do offer a federally insured investment option within their plan, many do not. And generally these are investment accounts that are subject to volatility. You really many believe you need that volatility because you need the growth varnish talked about the rate of inflation of college costs. So if you're making 0% on an FDC, I see in short, or something a little bit more than that these days, you may not be able to keep up with the rate of inflation. So look carefully at the investment options. Make sure you understand a couple of things. Your time horizon, your risk tolerance. How are you going to feel if this goes up and down? And your investment objective. Arnoux's investment objective is unique to her and her husband. For their children, yours may be something different. You may want to be trying to save 100% or 25%, whatever that objective is. The time horizon with respect to reaching it is important too. If you're getting really close to college. We talked about this separately for anoose. You may want to take a look at what your investments are and make sure they still feel right to you. Yeah. Lots to discuss here. I'm glad we're bringing to life some of these most common myths.

Farnoosh Tarabi (40:15)

Thank you so much. That's so helpful. And I think as the world of higher ed evolves and I think there's a reckoning, I do. I'm on the board of a business college. I'm an advisor to the dean and we talk a lot, we talked a lot at our last meeting about affordability, about some degrees that they should just get rid of because we're just. They're just not seeing application of that in the real world anymore. AI obviously disrupting so much that I think the 529 is going to be.

Farnoosh Tarabi (40:49)

In reflection of that.

Farnoosh Tarabi (40:50)

As we've already seen, the flexibility, the expansiveness of it. I think it says something about how, I guess it's the IRS who governs it. I don't know. The states, they're like this. Federal government is basically reissuing the rules around it and saying you can use it now for retirement, you can use it now for 5th grade parochial school or whatever you need to use it for. And I think we'll see more of that probably as the whole idea around college evolves. Maybe I'd love to see them increase the 35,000 to like a hundred thousand. You could use that for retirement, right?

Patricia Roberts (41:27)

Yeah. You know what? People aren't saving that much for anoosh. People are saving on average less than 35,000. It's great. And I want every listener of yours to know whatever you can save is that much that's going to need to be borrowed and repaid with interest. Put a lot of pressure on ourselves as parents. Don't beat yourself up if you didn't save or you didn't save enough or you haven't started. Get started and do something. But truly, people are not saving those big amounts. That's another myth is that people are loading up these accounts and avoiding taxes. It's really not the case. But regardless, any increase, any further flexibility I think will be appreciated and appropriate. And I don't know if we're going to talk about some of the changes that have come up with the 529 plan, because there's one thing I want to mention about.

Farnoosh Tarabi (42:13)

Sure.

Patricia Roberts (42:14)

Shall I cover a couple of those or. Yeah. And I want to say with respect to each of these, and I don't mean to insert yet another element of potential confusion, but these changes about which I'm going to speak and Furnouche has to some extent already done so are at the federal level. These are now permissible uses at the federal level. I want to mention that some states have not caught up with that or their statutes or their rule set does not conform with federal law. With respect to permissible uses of 529 plans. If you're going to use the 529 for K12 expenses, yes, at the federal level, that's an eligible educational expense. You're never going to pay tax on a federal level on the earnings. But some states do not consider that in their definition of what's permissible. So I want to say with some of these developments, including the Roth rollover check with your state plan, it doesn't mean you can't do it. It's permitted at the federal level, you certainly can. But you may owe state tax on the earnings portion of a withdrawal. A Roth rollover. It's very interesting use for a registered apprenticeship. Some states didn't catch up on that either. And then student loan, that's the one thing we didn't talk about, believe it or not. I think it was in 2020, 529s were expanded to be able to allow account owners to repay over the life of the account up to $10,000 in student loan expenses of the account beneficiary or a sibling of that individual. Why on earth would somebody want to use a 529 to repay student loan debt? We hear from some parents that they wanted their child to have skin in the game and they had them take out student loans and they're holding back this money, seeing how they performed in the end. And perhaps they're going to help them to repay.

Farnoosh Tarabi (44:12)

That's a very.

Patricia Roberts (44:12)

It's very astute.

Farnoosh Tarabi (44:14)

I don't know what's the word for that? Like crazy strategic. I don't know. I know the money's there. Just use it.

Patricia Roberts (44:21)

I know. Or hold it back. But you can use 529 at the federal level. It is Permissible to repay over the life of the account, not annually. $10,000 in student loan expenses for that job. And I want to say about the K to 12, that's $10,000 annually and it's K to 12 tuition only. I just want to stress that some people think it's books and supplies and it's tutoring and it's other things. Yeah, it's not that. It's the tuition only. There is some legislation pending. I really don't want to get into it to confuse people at this point because we never know how these things are going to turn out. There are some objectives to make that even broader to cover broader K12 type expenses. Let's see if something passes on that. We can talk a little bit more about that another time. As to not confuse people now, But I think 529 plans are going to continue to get better and better. But some of these enhancements, I just encourage you to think about them. Check with your state and the plan you're in to find out, gee, if I do this, is there going to be any kind of state tax consequences? And I want to say with K to 12, if you plan to use your money for K to 12, the money you're saving for college or some portion of it, think carefully about what investment option you're in. If you're in a target date fund or an age based fund that's got your kid going to college around age 18 and now you're pulling it out when they're five, that's not necessarily a good approach. So you really want to think about. Sometimes parents don't know when they set up the 529 account what they're going to be using it for. Is the local school going to be good enough from a public school perspective? Might they want private school? But if you decide you're going to start doing that, take a look. Because you can change your existing allocations in the 529 account twice annually, your existing ones and then for future contributions you can always change. So you want to think about, gee, if I'm doing something that's a little bit off the beaten path, I'm not really using.

Farnoosh Tarabi (46:22)

I'm going to conserve that money and not have so aggressively invested in the stock market. The value could go down overnight. Yeah, it's more volatile essentially. And I need this for immediate needs, not like long term needs. So I need to change my investment strategy to reflect that risk tolerance. All right. Patricia, I'm so grateful you're such a. Well, of knowledge. I felt helped and I'm sure those attending also feel more in control of this. And until next time, we'll see everybody in June for our June workshop and we'll have an office hour next week. So if you have any additional questions about this or anything, we'll see you there.

Farnoosh Tarabi (47:03)

And that's our show today. Thanks so much for tuning in. Again, if you'd like to learn more about the so Money Members club, go to Sewmoneymembers.com we've got our calendar of workshops for 2025 on there as well as you can see what we've covered up till June. All of that is stored in our Recordings folder in our Recordings Vault. And if you have any questions, just email me. Farnouche had so many podcasts.com be happy.

Farnoosh Tarabi (47:25)

To walk you through it.

Farnoosh Tarabi (47:26)

I'll see you back here on Friday. And I hope your day is so Money.

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