Detailed Summary of "The Clark Howard Podcast" Episode 11.26.24 BEST OF: Saving For College: 529 Plan Update / Upside Down Car Loans

Release Date: November 26, 2024

In this special "Best Of" edition of "The Clark Howard Podcast," host Clark Howard tackles two significant financial topics: updates on 529 college savings plans and the complexities of upside-down car loans in today's fluctuating vehicle market. Additionally, Clark addresses various listener questions, offering expert advice on consumer and financial issues. Below is a comprehensive summary capturing all key discussions, insights, and conclusions from the episode.

1. Saving for College: 529 Plan Update

Clark Howard opens the episode by delving into the evolving landscape of college savings, specifically focusing on 529 plans. These federally approved savings accounts are designed to help families save for educational expenses with tax advantages.

• Understanding 529 Plans: Clark explains that 529 plans allow contributions to grow tax-free and can be withdrawn tax-free for eligible education expenses. He emphasizes the importance of selecting the right state-sponsored plan, warning against those with high commissions and fees that can erode savings over time.

  "529 plans are sponsored by the states. Many of the state plans are much better than they used to be. There are really some great plans now. No commissions, very low costs." [04:10]

• Impact of FAFSA Changes: Recent updates to the FAFSA (Free Application for Federal Student Aid) have made 529 plans even more advantageous, especially for grandparents saving for their grandchildren's education. Clark highlights that previously, funds in grandparents' 529 plans could adversely affect financial aid eligibility. However, the new regulations eliminate this penalty, encouraging more grandparents to contribute without worrying about financial aid repercussions.

  "Now the process no longer discriminates against grandparents saving for a grandkid's college education." [05:15]

• Avoiding Common Pitfalls: Clark warns listeners to steer clear of 529 plans that involve commission-based sales. Instead, he recommends commission-free state plans to maximize the amount saved for education.

  "If you're looking at a plan that's not on our list, do not put your kid or grandkid's money into it." [06:20]

• Converting 529 Funds: For those uncertain if their child will pursue higher education, Clark offers a valuable tip: funds in a 529 plan can be converted into a Roth IRA for the beneficiary once they reach adulthood, providing a safety net without incurring taxes or penalties.

  "You can convert the money over time up to 35 grand under current law once your child's an adult into their own Roth IRA." [03:50]

2. Upside-Down Car Loans in a Volatile Market

The second major segment addresses the current challenges in the car market, particularly the prevalence of upside-down car loans—a situation where the loan balance exceeds the car's market value.

• Market Distortions Post-COVID: Clark discusses how the COVID-19 pandemic disrupted vehicle supply chains, leading to inflated prices for both new and used cars. As the market normalizes, many consumers find themselves owing more on their loans than their cars are worth.

  "Almost one in four are upside down in that vehicle they're trading in, meaning your loan is more than what the car is now worth." [16:29]

• Consequences of Being Upside Down: Trading in a car with a negative equity situation can result in consumers making dual payments: continuing to pay off the old loan while financing a new vehicle. Clark advises against this move to prevent financial strain.

  "The best answer with negative equity is you keep driving." [20:00]

• Reliability of Modern Vehicles: Highlighting improvements in vehicle reliability, Clark suggests that keeping an existing car is often a wiser financial decision compared to incurring additional debt for a new purchase.

  "Cars are so much more reliable than they used to be. Nothing but trouble starts more often at 200 or 250,000 miles on the odometer." [17:50]

• Gap Insurance Insights: For those who decide to take on new loans despite being upside down, Clark emphasizes the importance of gap insurance. This coverage bridges the gap between the car's depreciated value and the remaining loan balance in the event of a total loss.

  "Gap insurance is an additional expense that you can actually shop around for that covers that gap." [21:32]

3. Listener Questions and Expert Advice

Throughout the episode, Clark engages with several listener inquiries, providing tailored advice on diverse financial matters:

a. Electronics Pricing Abroad

• Listener Input: Lawrence from Texas inquires whether purchasing a new phone in Thailand would be more cost-effective than buying the same model in the United States.

• Clark's Response: Clark advises against it, noting that while China-based "white label" phones may be cheaper abroad, brand-name models like Samsung and iPhone often cost more outside the U.S.

  "Brand name phones like Samsung or iPhone are often more expensive abroad, whereas Chinese brands offer cheaper alternatives in places like Thailand." [07:21]

b. Credit Union Account Closure

• Listener Input: Michael and Georgia from Illinois express frustration over their credit union closing their children's inactive savings accounts without prior notification, resulting in forfeiture of funds through fees.

• Clark's Response: Clark empowers them to take action by engaging with the credit union's leadership, attending member meetings, and advocating for better customer treatment.

  "Go talk at a meeting where members [...] bring this up because this is a credit union hurting itself and its future." [09:02]

c. Post-Retirement Investment Strategy

• Listener Input: Joan from Illinois seeks investment strategies to protect her assets and achieve moderate growth beyond traditional savings accounts and CDs.

• Clark's Response: Clark recommends allocating a portion of retirement funds into target retirement funds, which offer a balanced mix of stocks and bonds tailored to the investor's retirement timeline.

  "A meaningful portion needs to be invested. [...] target retirement fund current time 2025 [...] get a return that hopefully will outrun inflation." [11:33]

d. Rebuilding After Car Repossession

• Listener Input: Solomon from Oregon shares his experience of having his high-mileage Mitsubishi repossessed and seeks advice on financial recovery.

• Clark's Response: Clark advises negotiating payment plans with the lender, ensuring all agreements are in writing, and considering purchasing a cost-effective, cash-funded vehicle to avoid further credit issues.

  "If you do have your vehicle stolen, not recovered or totaled in an accident, you're covered for that difference..." [22:09]

e. Regional Car Pricing Differences

• Listener Input: Chuck from Wisconsin asks whether it's more beneficial to purchase a car on the East Coast, West Coast, or Midwest, considering regional price variations.

• Clark's Response: Clark explains that vehicle prices can vary significantly based on regional demand, especially for electric and hybrid models. He suggests using online tools like CarGurus or AutoTrader to compare prices across different regions.

  "Use one of the car tools like Cargurus or Autotrader [...] see what prices are in different zip codes on different models." [24:34]

f. Company Car vs. Car Allowance

• Listener Input: Miranda from Georgia seeks advice on whether her husband should opt for a company-provided car or a car allowance due to increased job-related travel.

• Clark's Response: Clark recommends evaluating the reimbursement rates for personal vehicle use versus the benefits of a company car. He notes that if the mileage rate is favorable, using a personal vehicle might be more advantageous, especially if the car is depreciated.

  "Driving the company car [...] If your husband drives his own car, it would actually usually be the best deal." [27:22]

4. Final Thoughts and Closing Remarks

Clark wraps up the episode by reiterating the importance of financial empowerment. He encourages listeners to take control of their finances by making informed decisions, saving wisely, and avoiding scams.

"Remember, it's about your personal control of your wallet moving forward that you learn ways from us how to save more, spend less, and avoid getting ripped off." [29:00]

This episode provides valuable insights into effective college savings strategies and navigating the current car loan challenges. Through expert advice and responsive listener interactions, Clark Howard continues to empower his audience to make informed financial decisions.