1936: How to Pay for College Without Ruining Your Financial Life

Summary

Podcast Summary: So Money with Farnoosh Torabi

Episode 1936: How to Pay for College Without Ruining Your Financial Life

Date: January 26, 2026
Guest: Patricia Roberts, 529 Expert, Author, COO of Gift of College

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Overview

This episode tackles the pressing concern of preparing for college costs without derailing your personal or family financial stability. Host Farnoosh Torabi delves into 529 college savings plans with Patricia Roberts, a leading expert and advocate, discussing how to use these accounts strategically, the latest updates, and the persistent myths that often prevent families from maximizing this resource.

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Key Discussion Points

1. Patricia Roberts’ Background and Motivation

• Grew up in a low-income household, nearly missed college due to cost.
• A guidance counselor advised her to stick with her waitressing job despite academic achievements.
• With her mother’s support, she persisted, funded her way through undergraduate and later law school, but incurred over $100,000 in student loans that took 20 years to repay.
• This experience inspired her 25-year career educating families and advising institutions about 529 plans. She is also a mother dedicated to alleviating her own child's college debt stress.
• Quote:

  “I think of that poor girl who almost did something else ... I am absolutely cognizant of the value of education, the stress associated with repaying it, and the joy that comes with having done better for my own son.” — Patricia Roberts (10:07)

2. Is College Still Worth It?

• Parents and students increasingly question the value of college given rising costs and uncertain job prospects.
• Roberts maintains education is valuable, but emphasizes college is not the only viable post-secondary path.
• 529s are now more flexible and can be used for various training programs and non-degree credentials due to legislative changes.
• Quote:

  “It’s really not a dream when your child comes out with 10, 15, 20 years of what can be very much a nightmare of student loan debt.” — Patricia Roberts (13:11)

• Families should weigh cost, potential debt, and potential earnings of chosen fields before selecting a school or program.

3. How Much Debt Is ‘Too Much’ for College?

• The commonly cited guideline: Don’t borrow more than your projected first year’s salary out of school.
• Key factors: intended career, projected earnings, where you plan to live.
• Realistic, up-front family conversations about cost and repayment responsibility are vital—ideally before college application season begins.
• Student loan debt affects life milestones: health care, career moves, family formation, and big purchases like homes or cars.

4. 529 College Savings Plans: What Are They?

• Named after Section 529 of the IRS Code.
• Designed for tax-free growth and tax-free withdrawals if used for approved educational expenses.
• Up to 37 states (and DC) offer state tax benefits for contributions.
• The account owner (usually the parent) retains control—unlike UTMA/UGMA accounts, which transfer to the child at majority.
• Not just for four-year colleges: now also trade schools, apprenticeships, non-degree credentials, K-12 (with new rules), tutoring, therapies, and more.

5. Top Misconceptions About 529 Plans

• Myth: Must use your home state’s plan.
  Not true—you can invest in any state’s plan.
• Myth: Only for traditional four-year colleges.
  Not true—covers community college, trade/technical, apprenticeships, more (28:35).
• Myth: You’ll lose the money if your child doesn’t go to college.
  Not true—options include changing the beneficiary, saving for another family member, rolling over up to $35,000 into a Roth IRA (subject to rules), or taking non-qualified withdrawals (with penalties on growth only).
• Myth: Saving in a 529 hurts financial aid eligibility.
  Not substantially—529s are parental assets, assessed at a much lower rate (5.64%) than student assets. And federal aid formulas (FAFSA) do not consider aunt/uncle/grandparent accounts.
• Quote:

  “What you’re fearing is eligibility for student loans. And these are not a major worry ... It’s more important to prepare.” — Patricia Roberts (34:00)

6. Investment Choices Within 529s

• Variety: Age-based (target date), static, individual portfolios, stable value, and some FDIC-insured options.
• Most families choose age-based plans, shifting from equities toward conservative investments as the child nears college.
• Twice a year, you can change these investments.
• Strategy Tip: As college nears, move a portion (e.g., two years’ worth) to low-risk options to protect against market swings (39:50).
• Quote:

  “As my son Ben got closer to college ... I’m going to take 25% off the table ... and put it in a fully insured option.” — Patricia Roberts (39:57)

7. Managing Multiple Children’s College Funds

• Best practice: Open a separate 529 for each child due to different time horizons, tailored investments, and individual family gifts/contributions.
• Research shows kids aware of a college savings account in their name are more likely to pursue and finish higher education.

8. Expanded Uses and New Legislation

• Now covers K-12 tuition, tutoring, test prep, certain therapies, and dual enrollment fees (46:33).
• May also withdraw up to $10,000 per beneficiary (and sibling) over a lifetime to pay student loan debt (44:47).
• Up to $35,000 can be rolled tax/penalty free into a Roth IRA for the beneficiary under recent rules.

9. Workplace 529 Benefits

• Increasingly, employers are offering education about, payroll deduction for, and even matching contributions to 529 accounts.
• Employers recognize the financial stress of college costs and student loan debt—benefits help with employee retention, health, and productivity.
• Quote:

  “Employers are now giving an initial contribution ... instead of that $150 flower arrangement or that onesie and teddy bear.” — Patricia Roberts (52:19)

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Notable Quotes & Moments

• Patricia Roberts’ personal journey:
  “I almost missed the opportunity to go to college because of cost.” (06:15)
• On debt and college dreams:
  “[It’s] not a dream when your child comes out with ... what can be very much a nightmare of student loan debt.” (13:11)
• Reality check for parents:
  “Don’t borrow more than what your first year salary would be.” (15:14)
• 529 flexibility:
  “These are not only for traditional four year college.... now, thanks to HR1 ... can be used even for more purposes.” (28:35, 02:04)
• On the widespread ignorance of 529s:
  “Over half of Americans cannot even identify what a 529 plan is.” (24:34)
• On changing legislation:
  “Thanks to a change ... you can now roll up to $35,000 of leftover funds to a Roth IRA.” (31:52)

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Timestamps for Key Segments

• Patricia’s backstory and why education matters: 06:15–10:37
• Is college worth it? Weighing options and ROI: 11:36–13:44
• How much debt is too much?: 15:14–19:04
• What is a 529 plan? What makes it unique?: 24:34–28:05
• Top myths and realities about 529s: 28:35–35:46
• How 529 money is invested & investment options: 35:46–41:40
• Best way to manage multiple kids’ 529s: 41:40–44:14
• K-12 and other expanded uses: 44:14–49:36
• Role of employers in supporting college savings: 49:36–52:33

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Additional Resources

• Patricia Roberts’ book: Route 529: A Parent’s Guide to Saving for College and Career Training with 529 Plans ([Amazon link])
• Workplace program: giftofcollege.com
• Patricia on LinkedIn and Instagram: @route529mom

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(This summary omits all ads, intros, promos, and non-content sections, focusing solely on the expert insights and actionable advice for families planning for college costs.)

Transcript

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[Patricia Roberts]

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[Podcast Producer/Announcer]

So money episode 1936529 plans explained rules.

[Farnoosh Torabi]

Benefits and common mistakes.

[Podcast Introduction Narrator]

You're listening to SO Money with award winning money guru Farnoosh Torabi. Each day get a 30 minute dose of financial inspiration from the world's top business minds, authors, influencers and from Farnoosh yourself. Looking for ways to save on gas or double your double coupons. Sorry, you're in the wrong place. Seeking profound ways to live a richer, happier life. Welcome to SO Money.

[Patricia Roberts]

First of all, they're called college savings plans or referred to that way. They're not only for college. That's a misperception. So these are not only for traditional four year college. They can be used at two year like a community college. Four year graduate and professional studies, trade and technical school, registered apprenticeships. Now thanks to HR1, that tax reconciliation bill of last July, these accounts can be used even for more purposes. They can be used for many non degree credentials.

[Podcast Producer/Announcer]

Welcome back to SO Money everybody.

[Farnoosh Torabi]

I'm Farnoosh Tarabi.

[Podcast Producer/Announcer]

College today can easily cost six figures even at public universities. And yet so many families still feel completely in the dark about how to prepare for it without sacrificing their own financial future. And my guest today knows this stress intimately. Patricia Roberts grew up in a low income household and nearly didn't attend college at all. A guidance counselor once suggested that she stick with her waitressing job instead. But she pushed forward, working multiple jobs, sending money home, earning not just one degree, but eventually a law degree. And that education changed her family's life. But it also came with six figures in student loan debt that took two decades to repay. That lived experience is what fuels Patricia's passion today. She spent more than 25 years working with 529 college savings plans, from helping launch some of the earliest plans at Citigroup to advising families and employers on how to use them smarter, earlier and with far less fear. She's the author of Route 529, a parent's guide to Saving for College and career training with 529 plans and chief operating officer of Gift of College where she helps employers improve employees financial well being by offering student student loan repayment assistance and matching contributions to 529 college savings and able accounts, which are disability savings accounts. In this episode we're going to break down what 529 plans really are. A lot of us are confused also what they're not. We tackle the biggest myths from what if my kid doesn't go to college? To will this hurt financial aid if I save in a 529? Also, is college even worth it anymore? Should I bother with a 529? We also dig into major new changes that make 529s more flexible than most people realize. Let's get into it.

[Farnoosh Torabi]

Patricia Roberts, welcome back to SEW Money. I'm not saying Happy New Year, but I will say Happy January.

[Patricia Roberts]

Happy January to you as well. And it is a pleasure to be back with you.

[Farnoosh Torabi]

Always a pleasure to have you on the show. You bring so much knowledge to our audience. Often I hear from our listeners, my readers, people on the street, My kid's about to go to college. I can't believe the price tag or I'm about to have a kid or I want to have a kid. Look, the cost of raising a child in this country. No, no news flash here. It's very expensive. That doesn't often take into account the cost of college, which we know is another in many cases six figure price tag. When you're talking about a standard four year college education and that may even include a public education at this point. Right. I went to Penn State and back in the late 90s as an in state student. It costs I think something like 7, $8,000 a year. Fast forward today, it's about $40,000 a year in state and I don't even tell you what it is out of state. So all this to say, we're so grateful to have you on the show because what you're about to teach us is how to get college ready, financially ready for college. And a really important instrument for this investment tool is, is the 529 College Savings Plan. However, before we get to any of that, I do want you to spend some time telling us a little bit about your background, Patricia, because you have a lot of personal experience starting at a young age around this idea of affording college, the challenges with that, and of course also as a mom, tell us.

[Patricia Roberts]

Certainly, and thank you for asking about that. I do have a very close personal connection to this topic and I think it's one of the things that really fuels me in wanting to help other families. I grew up in a very low income family, in fact a no income family at some times, and I almost missed the opportunity to go to college because of cost. In fact, my guidance counselor strongly suggested that I stick with my waitressing job, that waitressing job that I had started at the age of 14 at the local diner. She thought that might be preferable given the fragile state of my family. So rather than me stepping away, she thought I ought to maybe just stick with it. Despite the fact that I was our commencement speaker, newspaper editor, had a few accolades, she still thought that might be the best path for somebody with a fragile family situation and no money whatsoever. But with my mom's insistence, I did go to college. I managed to work multiple jobs and send money home to keep the family afloat. And I did obtain an undergraduate degree and eventually, years after graduation, a law degree. Those degrees, I will tell you for certain, are what enabled me to lift that family of mine and myself out of those really tough circumstances. And eventually Farnoosh. Years later, when I was able to pay off my student loans, I was able to purchase a home for my mom and my brother who has a developmental disability. None of that would have happened, likely with the local waitressing job, could have, but I think I made it happen probably more quickly and in a more satisfying way, having really empowered myself. Now that education I obtained came at a cost. And that cost took me 20 years to repay. As grateful as I was for the education, as helpful as it was in so many areas of my life, it took me just about 20 years together with my son's father to repay over $100,000 in student loan debt. So I've got a close connection on the debt side. Having lived it, I'm happy to say we've repaid it in full. Grateful that we had the opportunity. But I'll never forget the stress of it. And the stress of it led me to want to do better for our son. We did not want him having that academic angst that we had. Every step of the way, every school break, we needed to know, how are we earning money before we get back again? And how are we going to repay all this? What kind of job do we need after the fact? So we definitely put our minds to saving in a 529 plan. And we did it a little at a time while we were repaying, paying that debt. So we are testament to the fact that it can be done a little at a time. Out of our paycheck. Started with maybe $25 or so. I did it as soon as I returned from maternity leave. And over time, of course, we added more as our earnings grew and we became more comfortable once our loans were paid off. Once our son could go to public school, he was in private school at first here in Brooklyn. And once he was able to go to a public school for the upper grades, we were able to save a little bit more. But we were determined. And I am absolutely cognizant of the value of education, the stress associated with repaying it, and the joy that comes with having done better for my own son. Sitting at a graduation, watching that child walk across stage in a lighter way.

[Farnoosh Torabi]

Yeah.

[Patricia Roberts]

Prepared for the future just really brings me such joy. So I'm all tied in, and then I've got the extensive professional experience. I've worked with these plans for over 25 years. I was pregnant with my son when I began my work on some of the earliest plans as an attorney at Citigroup, getting these launched so that firm.

[Patricia Roberts' Colleague or Co-host]

Could serve as an investment manager for some of the state plans.

[Patricia Roberts]

So that's my connection. And I think of it just about every day. I think of that poor girl who almost did something else. I think of my mom's encouragement. I think of my determination to save for my son. Really did all work out in the end. But I love speaking to families that. Particularly families who may have a harder time getting started and families on all income levels, given the costs that you just referenced. I think families on all income levels.

[Patricia Roberts' Colleague or Co-host]

Need to do whatever they can in any amount to get started.

[Farnoosh Torabi]

Yeah, because the tragedy is that you don't have any savings for your child's college future and what happens? A lot of parents take out of their own retirement, they sacrifice their own finances or the child takes out severe loans. And right now what are you hearing most from families and students too? I'm hearing a lot of is college even worth it? I could save for my kid of course, but with everything that's shifting, the landscape is shifting. Job market, our colleges really turning out job ready students. Given that the pace of the market is moving faster than academia is and some colleges are keeping up and others are not, the one you go to now matters more than ever. But of course there's a price to that. What is the roi? I'm just trying to see. What are you hearing?

[Patricia Roberts]

Yeah, I'm hearing the same and fair enough. The cost is high, the return on investment not always clear. Particularly when we're hearing students, recent graduates, even a year or two out are not necessarily getting jobs or getting jobs in the field that they were hoping. What I talk to parents about all the time is that I still do believe education is worth it. But I don't think college is the only path after high school. I think there are so many other routes that can be considered. I hope you and I will talk about some of the recent changes to 529 plans that allow them to be used for much more than a traditional college, even beyond trade and technical school for some certificate programs, for some other non degree credentials. I think families need to be thoughtful about where they spend the money. Whatever they've saved. I think they need to be really thoughtful on the spend down. Oftentimes emotion gets in the driver's seat. As the child gets closer to those college years, they get their heart set on a dream school or two. The parent remembers they've worked so hard to get there and they want to do anything they can to let them go. But the truth is it's really not a dream. When your child comes out with 10, 15, 20 years of really what can be very much a nightmare of student loan debt. So I think people need to think about what they're doing with the money, consider themselves consumers and really think of alternative ways. Particularly if the family doesn't have the money and doesn't want to go into considerable debt. Think of alternative paths to get there because you can certainly start at a lesser cost school and ultimately transfer. You can live at home. Maybe it's not the dream to be living in a school and live at home and commute. There are things that can be done and I think families and students really need to be more realistic because it's not just about these two, three, four, five years. It's about the lifetime that the child will live and what the parents quality of life will be later on given whether they do or don't go into considerable debt for that child.

[Farnoosh Torabi]

What do you think is a decent amount of debt? One that's not going to derail you. You talked about $100,000. Took you 20 years to pay it off. And that is, I think, very typical now, a hundred thousand dollars. And it was just hearing about a distant relative who got into college recently. And at first they cast it as this like huge success. She got in on a partial scholarship for a sport where now at this college, she's, she's like an athlete student and she's getting like private tutors on the road when she goes and she competes. It sounded very fancy and oh, wow, there's a scholarship involved and she gets a special nutrition plan and she's having a great time. And then I asked, just curious, how much does the tuition cost and what is that scholarship? They said it's about a 50% scholarship. I said, that sounds great. What is the remainder? And they said she still is going to own about $50,000 a year. So I'm doing the math and my heart sank for this person. I thought, unless, and this is not a sport where she's going to graduate and go play professional in this sport and make a ton of money. And I don't know what she's studying, but can you imagine being 22 years old with $200,000 in debt and you don't have a job yet? And I don't know if you've thought about this, if you're seeing what seems to be like a quote unquote responsible amount of debt that families are taking on.

[Patricia Roberts]

One of the rules of thumb has to do with, first of all, what type of career are you pursuing? I think the answer may be somewhat different depending on what the ultimate end goal is. I studied philosophy and political science. I don't know what number anybody would put on those two degrees. I loved them. I learned so much. I wouldn't trade that education for anything. Certainly it's led to other things with me. Law school was one advocacy, another. But I would say what you're studying really matters and the projected earnings for that field. Now keep in mind, people change their mind all the time. You might be going in and signing that note thinking you're going to be a physician's assistant and then you change your mind. You really like that art major that has appealed to your inner creative. Right. I think you have to think about what the earnings may be. There are calculators or there used to be called. They're called slope calculators. I'm sure a variation of this still exists. Student loan over projected earnings. There was calculators where you could figure out what seems reasonable. I've heard professionals say not to borrow more than what your first year salary would be. I don't know for certain what the rule of thumb is anymore, but I think people really need to think about where they're living. Like we live in New York City. My son has an apartment in Brooklyn, New York. You lived in Brooklyn? Farnoosh. That's not inexpensive. So with or without student loan debt, I think it does matter what you're going to be studying and where you intend to live can be part of it, but certainly not taking out more than. I like that rule of thumb about the first year salary. People figuring out over time what portion of their budget, as you said, would this be eating up and for how long. And I also like the fact that, that parents and students are talking about this well before even touring the colleges. I'd have this conversation well in advance. So that acceptance letter or the acceptance email, as it probably is these days, doesn't come in. And then the conversation begins about can we afford this after those financial aid offers are in. I think everybody needs to talk about up front what this debt seems to be or could be, what level is acceptable to all involved, who is repaying it, who will be responsible for repaying it and what that's going to feel like. It's very hard at 18, 19, 20, 21 to picture what your future is. It sounds like just another bill you'd have to pay. But I'd get really granular on what that dollar amount is and what that's going to mean. And it may mean living at home for five or more years or 10 years after graduation to get it all paid off. And I think students really need to go in eyes wide open. And I feel my heart goes out because I know at 18 you're just so optimistic and so excited about what the possibilities are. But I think a little reality needs to set in early on because that is a tremendous weight that people carry and it can go on for a really long time. It can affect so many aspects of your future. You hear of individuals not taking care of their health because they can't afford to. You hear of individuals staying in jobs that they absolutely cannot stand because they can't make a switch because they need to pay back those student loans. You hear of people delaying marriage, delaying parenthood because they're afraid they're not going to be able to afford a child because of the student loan debt. And you hear of individuals really never being able to purchase a home or an automobile with all that debt on their credit report and all that weight of having to repay. So it's something really to take to heart and think a lot about. And there are fortunately things we can do to prepare.

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[Farnoosh Torabi]

Speaking of, let's go deep into the 529 plan. What is, what is it? People don't even know. And I don't blame them. I didn't know until I was about to become a parent, really. I mean, I knew because I was reporting on it as a journalist, but didn't really value the benefits as much as I did once I was expecting. For listeners who may only know Vaguely the term 529 plan, how do you explain what it does and how it serves investors?

[Patricia Roberts]

Absolutely. And for those listening that don't know much about 529 plans or anything at all, you're in good company because over half of Americans cannot even identify what a 529 plan is. And I saw data recently, I think it was from Vanguard that only like 10 or 12% of American families are leveraging these very valuable advantaged investments, which I will explain to you. So you're learning something today that many people do not know. So I thank Farnooch for educating you through me on this topic. So what are they? First of all, they're called 529 because they're named after that section of the Internal revenue code, section 529. You may have heard of other sections of the code, like 401k, that's a section of the code, or 403b, there are other sections there. But this is a section of the Internal Revenue Code which has created these accounts. They are a specific type of account to save for a very specific purpose. And that purpose is generally education, although they've expanded a little bit further recently. So what happens with 529 college savings accounts as they're called, is that when you put money in to save for this specific purpose, you are having funds that grow on a tax free basis. So while that account that you've established for a future student, you as the account owner, the child, is what we call the beneficiary, when that grows in value, those earnings are not taxed. And that's different than other forms of savings and investing where every year you've got pay tax on your earnings so it's growing tax free. And in fact, upon withdrawal from that account, when used for a wide range of approved expenses, and there are so many that we can talk about, your earnings are never taxed. So that's what makes these accounts special. But there's more. So in addition to that federal tax free growth tax free withdrawals at the state level, 37 states and the District of Columbia offer residents an annual state tax credit or deduction for investing in a 529 plan. That's an added benefit. So this is a form of investing where you can take a state tax deduction or obtain a state tax credit. What else is unique about these accounts is that you, the account owner, control the account at all times. So unlike other forms of saving and investing for children, oftentimes a trust account, something called an ugma, a Uniform Gift to Minors act account or UTMA account, those become the child's funds when they reach the age of majority with the 529. That's not the case. And I like that. The adult who's established the account is always in control of it. The adult, not the child, has access to the money at all times and can decide whether and when to disperse the funds. So if you've got a child going off the rails as they're heading for college, college, they're not getting the access to that money. So these are dedicated accounts for a particular purpose. And there's lots of research around the fact that when you dedicate funds for a particular purpose, you often are a little bit more successful than doing this general pool savings account for a nusch, as some do, and then wind up using it for a roof repair or using it for something else that's needed. This is dedicated for that education.

[Farnoosh Torabi]

How many misperceptions are there though? About the 529. Sometimes people think if I live in Illinois, I have to open the Illinois plan, or this is only for a four year college education. What if my kid doesn't go to college or goes to a trade school or takes a gap year? Does that disrupt my ability to use this like I would normally? So tell us what you're often running up against as people have so many misperceptions about this investment plan.

[Patricia Roberts]

That is true, many misperceptions. Those who do know get it mixed up a lot. So let's talk about those. So first of all, they're called college savings plans or referred to that way. They're not only for college, that's a misperception. So these are not only for traditional four year college, they can be used at two year like a community college, four year graduate and professional studies, trade and technical school, registered apprenticeships. Now, thanks to HR1, that tax reconciliation bill of last July, these accounts can be used even for more purposes they can be used for many non degree credentials. So these are forms of education and training that lead to a state or federal license of some sort or a certification, a recognized certification or some other form of credential. This can be the H vac repair. This can be airplane mechanics. This can be a dental hygienist. This could be lots of different things that are forms of professions but are short of needing a college degree. So the myth that it's just for college is absolutely wrong. And in fact, these accounts can be used for K to 12. And maybe we'll talk a little bit more about that as well. Another, another myth is that it takes a lot to get started. People put it off because they think they need a lot of money. No, most of the state 529 plans allow you to get started with $25 or even less. Another myth is that you have to be the child's parent or need to be related to the child to open the account and manage it on their behalf. Not at all. You don't even need to be related. So you could be a bonus mom, you could be an aunt or uncle. You could be completely unrelated. You could be the godpar that has no blood relation to the child and open an account. And a child can have more than one account established for their behalf. The other myth that's really big is that you're going to lose it if you don't use it. So if the child doesn't go to college, big fears around this. People think that the account owner loses their money. No, you don't. That money belongs to you at all times. And you have many options that are worth considering. First of all, you can keep your money in the account indefinitely. There's not a time limit on 529s. We know when a child says they're not doing it, they're taking a gap year. They want to do something else that they're likely going to at some point in time, come back around and decide they're going to pursue some form of education, particularly given the wide coverage now for 529. So one approach, keep the money in the account, keep it growing without taxes. Another approach is to change the beneficiary to a member of that original beneficiary's family. Very broad definition.

[Patricia Roberts' Colleague or Co-host]

Could be a cousin, it could be an aunt or uncle.

[Patricia Roberts]

Could be yourself if you happen to be related someone else, a sibling could use the money. That's another approach. Another approach is to save it for your children's children someday use it for yourself, as I said, or thanks to a change that came about, I think in 2024, you can now roll up.

[Patricia Roberts' Colleague or Co-host]

To $35,000 of leftover funds to a.

[Patricia Roberts]

Roth IRA for the benefit of that original beneficiary. And there are specific rules around it, as there always are around these things. But you must have had the account open for 15 years. It must be a direct trustee to trustee rollover. You must honor the rules of the receiving investment account. That's the Roth. So if the Roth's only saying they'll accept 7,000 a year or 7,500, whatever their current limit is, you can't put.

[Patricia Roberts' Colleague or Co-host]

All 35,000 in at once, but you.

[Patricia Roberts]

Can do it over time. And then the last thing you can always do if you don't want to.

[Patricia Roberts' Colleague or Co-host]

Do, do any of that, is to take what is called a non qualified withdrawal. You've probably heard that term in terms of retirement accounts, et cetera. That money's yours.

[Patricia Roberts]

So you'll take a withdrawal that's called.

[Patricia Roberts' Colleague or Co-host]

Non qualified because you're not going to use it for any of those purposes. And what's involved there is simply paying tax on those earnings that were never taxed as your account was growing in value.

[Patricia Roberts]

Fair enough. You had all those years of the earnings growing tax free.

[Patricia Roberts' Colleague or Co-host]

Now you're going to pay state and federal tax on those earnings. So if you've deposited it $10,000, it's worth 11. We're talking about only that thousand dollars of growth you're going to owe tax on. And you will also owe a 10% federal penalty on that thousand dollars of growth in my example, which would be $100.

[Patricia Roberts]

I don't think these are significant penalties.

[Patricia Roberts' Colleague or Co-host]

I don't think most people wind up not needing the funds. But those penalties will never be imposed under the following circumstances. Good news, the child gets a scholarship and you don't need the money.

[Patricia Roberts]

No penalty there.

[Patricia Roberts' Colleague or Co-host]

Get your money out, you'll still pay tax on the earnings. No penalty.

[Patricia Roberts]

That's reason for celebration.

[Patricia Roberts' Colleague or Co-host]

The child gets accepted to a military academy and now doesn't need the funds because their costs are covered. No penalty there. And God forbid the child dies or becomes disabled. No penalty whatsoever for not needing the funds for those purposes. But families should know they've got a lot of options and they should not fear a lack of use. The last one I want to mention is, is that financial aid, big myth around it.

[Patricia Roberts]

We're not going to save because it's going to hurt our financial aid.

[Patricia Roberts' Colleague or Co-host]

Well, news flash for everyone unsure of what financial aid is possibly going to be looking like in the future. Financial aid is largely often comprised of student loans. So what you're fearing is eligibility for student loans. The other truth is for 529 I mentioned that the account owner is in control of the account at all times. As a result, it's considered, if you're the parent, it's considered a parental asset. It's counted much less than a child's asset would be. Those monies in those trust accounts that the child has access to get counted at like at least a 20% rate. These get counted at the parent's rate of 5.64%. So in my $10,000 savings example, we're looking at $564 counted. Now that's if you' the parent, if you're aunt farnooshed saving for a niece or nephew, not suggesting you do it, but should you do it, it's not counted at all. Your child's aunts and uncles and grandparents assets are not counted. The federal financial aid formula is not taking into account what other people have. So it's not counted at all. This is for federal financial aid. I will say some schools require the CSS form for financial aid in addition to the FAFSA and that could take into account the 529. But I want to stress that this is not a major worry. Worrying about missing out on aid that you may not ever even be eligible for that may not ever exist, that may actually be student loans is something that should be less of a worry. It's more important to prepare. I think, I think all professionals would agree with that.

[Farnoosh Torabi]

Tell us how the money is invested in the 529. This is not like you're going to a brokerage account and picking and choosing your own stocks and investments. Tell us what's in this portfolio.

[Patricia Roberts]

Sure. I do want to mention every state except Wyoming has at least one 529 college savings plan. And some have multiple plans. Some states have a direct plan and one sold through financial advisors. And I do want to mention you do not need a financial advisor to open a 529 account. If you happen to be working with them. Would make perfect sense to talk to them about this form of investing because it's an important part of your your total financial picture. But many investors, in fact most go it alone. They go to their State 529 plan's website or another state's website. That's one of the other myths. You don't have to invest in your own state's 529 plan. But it's a good place to start to see what would you be missing by investing in another. But regardless, whether you're working with a financial advisor who can guide you or you're going through the materials online, which are quite comprehensive, you will be choosing an investment, one or more investments for the money that you put into the 529 plan. And this can be changed over time. And in fact twice a year if you chose to.

[Patricia Roberts' Colleague or Co-host]

Most people don't.

[Patricia Roberts]

You could switch your investment options for your existing investments and always change your investments for anything in the future. But what are the investments? They are professionally designed portfolios for education purposes. So the most popular design that almost every 529 plan has, and frankly most investors wind up picking is something called age based or target date. You probably know those terms from the retirement world.

[Patricia Roberts' Colleague or Co-host]

So age based and target date are.

[Patricia Roberts]

Really the same thing. The target date is what's the year in which the child's likely to be.

[Patricia Roberts' Colleague or Co-host]

Pursuing that education that you're saving for. The age base is what's the age of the child right now?

[Patricia Roberts]

Is it an infant, is it a five year old?

[Patricia Roberts' Colleague or Co-host]

You've got a 15 year old you're saving for?

[Patricia Roberts]

Those portfolios are professionally designed to start.

[Patricia Roberts' Colleague or Co-host]

At the younger ages with more equity.

[Patricia Roberts]

And investments that maybe could be a.

[Patricia Roberts' Colleague or Co-host]

Little bit more volatile and become more.

[Patricia Roberts]

Conservative as the child nears the time.

[Patricia Roberts' Colleague or Co-host]

At which they would need to use the funds. So those are age based options and they vary by state plan, but every state has details, extensive details about what's comprised in their investment options.

[Patricia Roberts]

They also are required to show performance over past performance periods, one year, three year, five year, et cetera. So you can look back, even though.

[Patricia Roberts' Colleague or Co-host]

That'S not necessarily indicative of the future, you can see how these have performed. That's one option. Another option is a static option.

[Patricia Roberts]

So it doesn't change over time, but it's a design that feels right to.

[Patricia Roberts' Colleague or Co-host]

You in terms of your risk tolerance.

[Patricia Roberts]

And those are often called conservative, moderate.

[Patricia Roberts' Colleague or Co-host]

Or aggressive, another style. So you've got the age based, you've.

[Patricia Roberts]

Got the static option.

[Patricia Roberts' Colleague or Co-host]

Some plans have individual fund portfolios that.

[Patricia Roberts]

A more sophisticated investor could maybe cobble together a few different types of portfolios that sound good to them.

[Patricia Roberts' Colleague or Co-host]

And then a handful of states have stable value options where you know there's some security not fully secured, but some security associated with the volatility in terms of what the investments will exam experience. And then an even lesser amount have FDIC insured options. Those are options where there's very little risk, no risk, they're FDIC insured but very little return as well. And what's important here is to think.

[Patricia Roberts]

Through your time horizon, your objective for what you're saving for and your risk tolerance. How comfortable are you farnooche with knowing.

[Patricia Roberts' Colleague or Co-host]

That your money that there is the potential for loss, but there's also the potential for growth. What I do did personally was put money into the age based option. And then as my son Ben got closer to college, having lived through 99.

[Patricia Roberts]

2000, 2008 like all sorts of market cycles, I thought you know what, I'm going to take 25% off the table.

[Patricia Roberts' Colleague or Co-host]

And put it in a fully insured.

[Patricia Roberts]

Option for those that year or two.

[Patricia Roberts' Colleague or Co-host]

Right before comp as we got closer and I slept better at night doing that.

[Farnoosh Torabi]

Can I ask how did you actually do that though with that insured option within the 529 or was it like you took the money out and put somewhere else?

[Patricia Roberts]

No, it has to be within the 520.

[Farnoosh Torabi]

Yeah.

[Patricia Roberts]

Avoid any tax consequences. And most 529s, while they may not have fully insured options, they could have money market or stable value or something like that. Guaranteed investment fund type of thing where there is clearly through the less risk.

[Farnoosh Torabi]

That's a great tip. Two years before college starts, take what you're going to need for those first two years and put it somewhere really stable. The rest, let it ride the market because we can't always recover so quickly after a one year two year downturn. Takes takes time. Now I want to talk a little bit about if you have multiple children. There's a rule of thumb. There's one school of thought. I'm going to have one giant 529 and I'm just going to adjust it as I go along for my kids based on their time horizon. But is there a limit to how much you can contribute every year to a 529 where that may not be the smartest move even if you are willing to get your hands dirty and do all your own like maneuvering of the risk adjusting and stuff like that. I feel like having individual accounts is just better compartmentalization and can also give you the opportunity to invest more for each child every year, assuming if there are limits.

[Patricia Roberts]

Okay, so let's start with does it make sense to have one big account or individual accounts for future students? I would say it is much better. First of all, 529 only allows in most states one account owner and one beneficiary per account. So even if that account was set up for more than one child, in your own mind, only one child's getting listed. I think it's a really bad idea to do it that way. And I'll tell you why for a number of reasons. First of all, unless you have multiples, you've got twins or triplets or even more that were born on the exact same day, these kids all have different time horizons. Furthermore, these kids may have different talents, they may have different dreams. You may be saving for something very different for each child. Not that you'll necessarily know when they're young, but I think it's important to keep in mind what's your objective and what's the age of this child and when are they going to need the funds because you're going to want to align the investment option with that particular child. Another reason to have individual accounts for each child is that I'd love to talk about the fact that friends and family can contribute to 529 accounts. In lieu of those stuffed animals and toys and games and outfits that are quickly outgrown. It's very nice to have a different account for each child so that when it's Susie's birthday or Brian's birthday, money can go to their specific account. And then the other reason I think it's important that there are different accounts is I really hope that parents will in age appropriate ways start talking to their children about the fact that they do indeed have an account for education after high school and even show them, if you're comfortable, an account statement with their name, their name, not somebody else's name because it's a big pool of money, their name as the beneficiary. I think that can be really uplifting. There's research that shows even small dollar amounts, when children know that someone believes in them, they're saving for their future. They are much more likely to pursue higher education and complete it at a young age when they're starting to think, gee, this is a possibility. Oh, someone's saving for that. Particularly in families where no one's been to college or it's a lower income or moderate income family. So I say separate, separate accounts for all those reasons. Investment options, friends and family, being able to contribute, your employer being able to contribute, the kid knowing and just suitability. Yeah, in what should this be invested is really what's important.

[Farnoosh Torabi]

You mentioned earlier some of the changes, the new news regarding things like now it can be used for non degree post secondary credentials, which I think is really important with a lot of the shifting in the job market. People aren't needing college degrees, traditional college degrees for some jobs. There's also as you mentioned, the expansion for K through 12 use. I'm curious to learn a little bit more about how you might be able to use your 529 potentially to pay off your student loans. Is that true?

[Patricia Roberts]

That is true. What that's been in place for a couple of years now. And yes, over the life of the 529 account, you can withdraw up to $10,000 to repay student loan debt of that account beneficiary or a sibling who's doing that, who wouldn't just have spent the money, why were they. But what we hear from parents sometimes is they want the kid to have or child to have some skin in the game. So they have them take out student loans knowing in the back of their mind that they could actually help them through the 529 or through another mechanism, repay it. But having skin in the game, some parents feel, gets the kid a little more engaged in the academics, feel like they're going to have to be repaying this someday. They better be paying attention or getting that internship or working extra hard. So some do it and it's certainly a good benefit. And do you want to talk about any of the other changes or focus just on that one?

[Farnoosh Torabi]

We've talked about this before, but this expansion For K through 12 use, I can see where maybe high school, private school, a lot of your education plans for your kid might change. You are like public school all the way. And then you realize, oh my kid actually would need to go to a private school for whatever reason.

[Podcast Producer/Announcer]

But.

[Farnoosh Torabi]

But the kindergartners, I feel like a 529. It hasn't matured enough. It hasn't really grown, if any. I think it's just so early. And why would you put that precious investment towards kindergarten versus college? Let the money grow. Is this just like a marketing ploy? Hey, K through 12 exciting lights, flashes. But actually in practice it doesn't quite make sense.

[Patricia Roberts]

Yeah, I can see it being confusing to many. I do believe that most families may not be able to save enough, nearly enough even for college. So the thought of using it for K to 12 or a very young age doesn't seem to make sense. I think the usefulness in this regard are some individuals really thought it was important to help families strengthen the foundation of the child as they prepare for college someday. I think grandparents who maybe couldn't have helped their own adult children through college, but now are in A better financial place, maybe opening accounts, thinking they can help their adult children and their grandchildren pay for something like K to 12. That may be going on. The expansions from July of last year make the ability to pay for K12 from 10,000 now to 20,000 a year, which is quite a jump. It's doubled. But what it also did was add more than K to 12 tuition. Now you can use 529s in those K to 12 years for tutoring outside the home. So it can't be Aunt Susie coming to the dining room table who's good in chemistry and you're paying her out of your 529. No doubt. Must be a real tutoring service outside of the home. You can use it for tutoring, which can be expensive. Test prep those. I barely had enough money to pay for the sat, let alone the psat. Those things are expensive. Test prep, prep those. Test taking fees. Dual enrollment at high school and college sometimes has a fee. So 529 can now be used for that. It can also be used for therapies that a child may need. Occupational therapies, physical therapy, speech therapy. These are all the test prep, the tutoring, the therapies, all are reasons that could help the child be stronger and more confident in their pursuit of higher education. So makes a lot of sense to me and I'm happy to see that. And it'll be interesting to see how many families actually use the funds for that and for curricular expenses as well can be covered. So it's not just that private school tuition. It's a lot more now, and we'll see how that goes. But I get your confusion around who's actually using this. I think it'll be used a lot more now that these uses are broader. Why not help your child? They potentially could have more credits for college with that dual enrollment. They could potentially get more of a scholarship. If they got a higher score on that standardized test or they were stronger in that subject, that made them.

[Farnoosh Torabi]

That's a good point.

[Patricia Roberts]

So I'm a fan of that. And listen, anything that's been done to date to expand529 I feel very positive about because it's raised awareness. I do not think any of this is a marketing ploy. It's raised awareness and it's helping individuals be more prepared for education that will, in my mind, lead to college someday.

[Farnoosh Torabi]

Employers are also getting in the game of helping their staff, their workers pay for college. And you're at the forefront of this with your role. Can you Tell us about the role that companies play, some companies play and how often families might just forget to ask for this kind of benefit.

[Patricia Roberts]

Yeah, this is a great topic and one I'm so passionate about. So I work at a company called Gift of College where we bring 529 education and benefits to workplaces across America. And workplaces of all sizes are getting more interested in this topic. Why are they getting interested in it? They're recognizing that this is an incredible source of stress for their employees. And stressed employees oftentimes are less engaged, maybe less productive. They could be less healthy. We know that finances can really affect health. We also know that when people are stressed financially, they may be looking for positions elsewhere. And turnover can be expensive. So employers had been offering student loan benefits, a small number for some time, but they're now, with my help and others recognizing that the best way to avoid that student loan debt is 529. And educating employees about it is priceless. So employers are doing this and what are they doing? Some are bringing in individuals like myself to educate employees about the existence and usefulness of 529 plans. Others are going further. They're offering payroll deduction through a platform like mine or others 2,9 plan so the employee can take it directly out of their paycheck to, in the case of my company, to any 529 plan in the country. And some employers are even going further and they're matching those contributions or they're giving a one time contribution as well. I'm thrilled about it. And why is this important that it's at work? I think employees are used to learning about financial instruments at work, certainly retirement. I think there's an element of credibility when you're talking about it in the workplace. I think it's an incredible stress reliever when people start realizing, oh, there's something I can do. And I love the fact that some employers are now giving an initial contribution. When a baby is added or a child of any age is add it to the family of an employee, they're giving an initial contribution to a 529 account instead of that $150 flower arrangement or that onesie and teddy bear. There are some companies are using the gift of college gift card. Others are doing it in other ways. I am thrilled to see this happening. So employers are really at the forefront. They can do it. They don't know they can do it. And those that are doing it are feeling very satisfied about it. So I'm gonna keep at it. And I'm Gonna to keep approaching employers across the country and encouraging them to educate people.

[Farnoosh Torabi]

It's so important. I'm so glad to see it's all hands on deck for this college fiscal crisis that we are in. Patricia Roberts, thank you so much. Tell us where we can learn more about you.

[Patricia Roberts]

Sure. My company's website is giftofcollege.com if you are an employer who wants 529 benefits or you're an employee who wants to encourage your employer to pursue 529 benefits, please reach out to me there. I have a called Route 529 A Parent's Guide to Saving for College. This is on Amazon and I'm on LinkedIn. Very active and somewhat active on Instagram. Route R o u t e529 mom. Follow along. I will be glad to help you. Thank you so much for news for this platform and I hope we've given people a lot of information they can use.

[Farnoosh Torabi]

I know we have. And can you teach me how to use LinkedIn?

[Patricia Roberts]

Absolutely. I'll do it. Count on it.

[Farnoosh Torabi]

I'll teach you Instagram and you can teach me LinkedIn.

[Patricia Roberts]

Let's do it. Count on it.

[Farnoosh Torabi]

Thank you so much.

[Patricia Roberts]

My pleasure.

[Podcast Producer/Announcer]

Thanks so much to Patricia Roberts for joining us.

[Farnoosh Torabi]

Her book again is called Route 529.

[Podcast Producer/Announcer]

A Parent's Guide to Saving for College and career training with 529 plans.

[Farnoosh Torabi]

And we have many links where you.

[Podcast Producer/Announcer]

Can find and work with Patricia in our show notes. I'll see you back here on Wednesday. And I hope your day is so money.

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