MtoM #258: Student Gets Full Ride to Medical School and Financial Boot Camp: 529s

Summary

Episode Overview

Podcast: White Coat Investor Podcast – Milestones to Millionaire #258
Host: Dr. Jim Dahle
Guest: Jacob (second-year medical student, full-tuition scholarship recipient)
Date: January 19, 2026

This episode celebrates the remarkable milestone of Jacob, a medical student who received a full-tuition scholarship to medical school. Dr. Dahle also dives deep into 529 plans during the Financial Boot Camp segment, offering crucial advice for high-income professionals planning for educational expenses. Core themes include strategies for minimizing educational debt, cultivating sound financial habits early, and the role of generosity and giving back.

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Key Discussion Points & Insights

1. Jacob’s Full Tuition Scholarship Journey

• Nature of the Scholarship

  • Jacob is one of four students per year at his medical school to receive a full tuition (and fees) scholarship, funded by a donor’s endowment.
  • Not a “service commitment” scholarship (like military or NHSC) – there is no repayment or post-graduation obligation.
  • The scholarship is not advertised separately; recipients are selected from among all applicants using their med school application.

• Jacob’s Reaction & Experience

  • He was unaware such a scholarship existed at his school until he was notified as the recipient.

  • Jacob initially planned to fund medical school entirely with loans, so the scholarship was life-changing and deeply moving.

  • Memorable story: Jacob recalls receiving the phone call from the foundation while studying biochemistry in the library, initially suspecting it might be a scam (08:00–08:30).

    “I got pretty emotional because, I mean, I was planning to pay off $250,000–$300,000 worth of loans. … It was pretty awesome.”
    —Jacob, 07:53–08:28

2. Financial Strategy Before and After the Scholarship

• Pre-Scholarship Planning

  • Before proposing to his (now) wife, Jacob mapped out his projected loan burden and repayment plan on a sticky note to share with her (06:32–06:50).

    “I actually wrote on like a sticky note how much I planned my loans to be, how I plan to pay them off... felt like that was probably relevant information for her to know before we got married.”
    —Jacob, 06:36–06:46

  • Used approximately $10,000 from a grandparent’s 529 plan for undergrad expenses, and worked part-time but still needed undergraduate loans (07:05).

• Life and Money During Med School

  • Jacob’s wife, a nurse working in a children’s emergency department, supports them, enabling him to avoid further loans for living expenses (10:12–10:26).

    “She works at the children's emergency department. So don't plan to take out any more loans. Hopefully that can get us through and we live pretty frugally.”
    —Jacob, 10:16–10:25

  • Remaining loans are solely from undergrad (~$40,000), which he intends to pay off within months of finishing residency (10:34–10:51).

3. The Emotional and Practical Impact of the Scholarship

• The scholarship removed a significant mental burden, freeing Jacob to consider more career options or specialties without being tied by debt considerations (09:06–09:57).

  “It really just takes kind of a weight off your shoulders... it was a big stress for me. That’s actually why I started reading your stuff…”
  —Jacob, 09:06–09:25

• Dr. Dahle reinforces that, even without scholarships, medical school is a worthwhile investment if managed wisely—“Medical school’s still a good investment. Even if you got to borrow the whole sum … as long as you learn how to manage money, it’s going to work out.” (09:40)

4. The Role of Paying It Forward and the Importance of Giving

• The scholarship donors requested recipients commit to community service, such as a “day a month of kind of like pro bono work” (11:18–11:40).

• Jacob feels inspired to help future students, reflecting on the life-changing impact such generosity can have.

  “Because it's, you know, it's changed my life. So hopefully I can do that for somebody else.”
  —Jacob, 11:53–11:57

5. Early and Ongoing Financial Education

• Jacob began studying personal finance as soon as he realized the likely burden of med school debt—bought Dr. Dahle’s course, reads his books, follows podcasts.
• He plans to keep learning and apply the lessons when he starts earning.

6. Mindset: Money and Medicine

• On whether doctors should focus on money: Jacob believes good financial management is foundational to being a better doctor, as it reduces stress and frees you to focus on patient care (13:06–13:52).

  “I think better. … It helps you be a better doctor. If that's the only thing in your mind, that's bad. But it should definitely be a priority.”
  —Jacob, 13:06–13:52

7. Advice for Medical Students Without Scholarships

• Jacob emphasizes that paying off even large med school loans is possible—if you get through school, match, complete residency, and work in typical physician jobs, the loans are paid off within a few years out of training.

  “If you're making $350,000 a year, it really isn't a very large portion of your income you have to put away for these loans. … So it is possible. Just, you know, work hard, get through med school, get through residency.”
  —Jacob, 14:31–14:57

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Financial Boot Camp: The Basics and Nuances of 529 Plans

Timestamps: [15:10–23:36]

• What is a 529?

  • Tax-free growth and withdrawals for eligible educational expenses.
  • Some states offer a deduction or credit for contributions (15:43–16:21).

• Selecting a Plan

  • If your state offers a tax deduction, use your state’s plan; if not, shop around for the best plans (Utah, Michigan, Ohio, Nevada, NY).
  • Plans have improved over the past decade—most are now “pretty good.” (16:32–17:09)

• Contribution Limits & Strategies

  • There’s no absolute max; can “superfund” with five years’ worth of annual exclusion contributions, but don’t need to over-complicate (17:16–18:13).
  • Don’t stress about maxing it out or starting before a child is born.

• How Much Should You Save?

  • Don’t overfund. Multiple options exist for paying for college (scholarships, work, choosing more affordable schools, paying from cash flow).

  • The real benefit is tax-free growth, not tiny state deductions.

    “The real value is in the federal tax-free growth and the federal tax-free withdrawals. … That's where the real value is. It's not in the little deduction you get up front.”
    —Dr. Dahle, 18:56–19:15

• Investment Approach

  • Two schools: reduce risk as college approaches vs. investing aggressively throughout.
  • High-income families may choose aggressive (100% stock) allocations, even during college years, relying on cash flow flexibility if needed for downturns (19:47–20:24).

• What If You Have Leftover 529 Funds?

  • New option: “Rollover” up to $35,000 to a Roth IRA for the beneficiary (limitations apply; must have earned income; takes multiple years) (20:25–21:03).

  • Change beneficiary to another child, self, or grandchild for generational compounding.

  • Withdraw and pay taxes/penalty as a last resort.

    “If your kid has a big huge 529 because they got a big huge scholarship, you can actually take the money out equal to the amount they got in scholarship...you don’t have to pay that 10% penalty.”
    —Dr. Dahle, 22:02–22:13

• Non-College Uses

  • Can use up to $10,000 per year for K–12 private school in many states (but not state-tax free everywhere—see California, NJ, NY, IL) (22:26–22:36).

• Parental Guidance

  • Don’t overfund. The primary virtue is tax-advantaged growth, but there are multiple fallback options.
  • 529s are a “great way to show your kids you care about them” (23:20–23:26).

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Notable Quotes & Memorable Moments

On finding out about the scholarship:

“I got pretty emotional because, I mean, I was planning to pay off $250,000–$300,000 worth of loans...It was pretty awesome.”
—Jacob, 07:53–08:28

On paying it forward:

“Because it's, you know, it's changed my life. So hopefully I can do that for somebody else.”
—Jacob, 11:53–11:57

On mindset:

“I think better. … It helps you be a better doctor. If that's the only thing in your mind, that's bad. But it should definitely be a priority.”
—Jacob, 13:06–13:52

On the real value of 529s:

“The real value is in the federal tax-free growth and the federal tax-free withdrawals…That's where the real value is.”
—Dr. Dahle, 18:56–19:15

Advice for med students with loans:

“If you're making $350,000 a year, it really isn't a very large portion of your income you have to put away for these loans. … So it is possible. Just, you know, work hard, get through med school, get through residency.”
—Jacob, 14:31–14:57

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Timestamps for Important Segments

• 04:14–05:36: Jacob explains the scholarship’s origins and selection process

• 07:30–08:39: Jacob recounts his emotional reaction and how he found out

• 09:06–09:57: Discussion of how the scholarship impacts career decisions and reduces stress

• 10:12–10:51: Jacob and wife’s financial strategy during school, impact on loans

• 11:18–11:57: Role of generosity and community service in response to scholarship

• 13:06–13:52: Does focusing on finance make you a better or worse doctor?

• 14:03–14:57: Advice to students facing debt; big-picture loan repayment strategy

• 15:10–18:13: 529 plan basics: selection, contribution limits, strategies

• 19:47–20:24: Investing approach for 529s

• 20:25–22:13: Options for leftover 529 funds (Roth rollover, change beneficiary, withdrawal rules)

• 22:26–23:36: Non-college uses of 529s; state-specific K–12 rules; final guidance

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Conclusion

This episode is a compelling exploration of the power of generosity, sensible personal finance—especially for aspiring professionals—and the value of early financial literacy. Jacob’s story is both inspiring and practical, showing how a windfall can enable new freedoms, but also emphasizing that, with the right approach, even large educational debt is manageable. The detailed exploration of 529 plans provides up-to-date, nuanced advice for anyone planning for their own (or their children’s) educational future.

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For more financial education: whitecoatinvestor.com

Transcript

[A]

This is the White Coat Investor Podcast, Milestones to Millionaire. Celebrating stories of success along the journey to financial freedom.

[B]

This is Milestones to Millionaire podcast number 258. Medical student gets full Tuition Scholarship if you're a high income physician, you already know how hard you work for every dollar.

[C]

The question is, how much of it.

[B]

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[C]

Do the same, whether they're working on.

[B]

The same milestone as you or a different milestone. But the beautiful thing about it is to get your voices on the podcast. This podcast really is centered on you. We want to encourage you to be successful because we think if you're financially successful, you actually become better. You become a better partner, you become a better parent, you become better at your job. If you're a doc, you become a better physician or dentist or whatever. When you don't have to worry so much about money and you can concentrate on your family, your wellness, your patients, your clients, the things that matter most. So please work on your milestones. If you feel like coming on and celebrating it with us, we appreciate that and we'd welcome you to do so. Right now, we've got a promo going for Expert Witness Startup School. This is run by Dr. Gretchen Green. We've been working with her for years. We've had a number of White Coat investors go through this startup school. It's not the cheapest thing on the planet, but expert witnesses also get paid very well. So if it can get you into that sort of a side gig. It only takes one case to pay for your education as an expert witness. Launch and build an expert witness business in four weeks to quickly build another source of income while still doing what you do best, being a doctor. With physicians charging a typical range of $500 to $900 per hour. For expert work and a typical retainer of $2,500 to $3,500 per case. The course could pay for itself with one case and is generally tax deductible as a business expense or using CME funds. We're going to bribe you to sign up for it. If you sign up for it, you know, and take the course. We'll give you a free white coat investor course with enrollment. We're going to give you Continuing Financial Education 24 with that gives you 37 hours of material. You get up to 16 CME credits. Right. Sign up for all this. Whitecoatinvestor.com ExpertWitness that promotion again runs the 14th through the 26th of January. All right, so we're right in the middle of it if you're hearing this right. As it dropped. We've got a great interview today.

[C]

I think you're gonna like it.

[B]

Let's get Jacob on the line.

[C]

My guest today on the Milestones to Millionaire podcast is Jacob. Jacob, welcome to the podcast.

[D]

Hey, Dr. Daly, thanks for having me.

[C]

So tell everybody where you're at in your career.

[D]

I'm a second year med student.

[E]

Okay.

[C]

And what milestone are we celebrating today?

[D]

I got a full tuition scholarship for all four years of med school.

[C]

Full tuition. That's pretty awesome. Not full ride then. Nobody's paying for your room and board or anything, Just full tuition.

[E]

Right.

[D]

Well, wife's playing for my room and board.

[C]

Okay, so you got two sources going on there, both of which are pretty awesome.

[E]

Yeah.

[C]

Okay, now this is not that common right now. The first thing I think about when I hear I got a scholarship for medical school is I think about the quote unquote scholarship that I got for medical school, which was not really a scholarship. It was a contract.

[E]

Right.

[C]

The military paid for my schooling and I paid them four years after I finished my training. Is that the sort of scholarship you have or you indeed, you finished medical school and you don't owe anything for tuition?

[D]

No, I don't owe anything. Yeah, it's actually through the foundation, through my school, through a donor. So they donated a bunch of money and it's actually a relatively new program and they give. I think it's four students per year at our school, A full tuition scholarship.

[E]

For all four years.

[D]

So no tuition. They actually paid my fees too, which I don't know if they know about that, but whole thing.

[C]

But it's four students per year at your school?

[D]

Yes.

[C]

All from the same donor, do you know?

[D]

Yeah, yeah, it's from the same donor. He Was a him and his wife. They. They did a lot of business and they were. They close ties with the school and they actually passed away. And when they passed away, they gave a very large sum of money and they actually told us that the interest that they make from that money just basically pays for those four students tuition.

[E]

Yeah.

[C]

So it's an endowed scholarship. They endowed, it sounds like basically 16 scholarships with. With their estate when they died. Pretty awesome. Okay, well, there's more than four people in your class I assume, right?

[D]

Yeah, it's like over 200.

[C]

Yeah. So why'd you get the scholarship?

[D]

Oh, I don't know. That's a good question. They actually didn't advertise even when I applied. I actually applied to one school. I did early decision. I didn't really advertise a scholarship. I don't know if that's on purpose or the reason, but I think they just used my med school application as kind of a scholarship application as well. So when you apply to my specific school, you don't really apply for specific scholarships. They just use their med school application. They kind of just apply it to all of them and their system. So as to why I got it, that's still a mystery to me. I guess they like my application.

[C]

Did somebody. You didn't apply for this scholarship?

[D]

No, no.

[C]

Did you even know this scholarship existed before you got it?

[D]

I had no clue. No clue.

[C]

Okay, well, it's hard to call this an accomplishment, but it's pretty awesome nonetheless. So that's pretty cool. And hopefully becomes more and more and more common. Obviously there's a few schools now that have some sort of free tuition sort of thing. That's obviously not your whole school. But it's still 2% of the students a year that are getting this because of this generous donor. Okay, so tell me how you felt when you found out you were getting this, because how were you planning to pay for scholarship for your medical school?

[D]

So actually, before I proposed to my wife, I actually wrote on like a sticky note how much I planned my loans to be, how I plan to pay them off, that kind of stuff. Because I felt like that was probably relevant information for her to know before we got married.

[C]

So you thought you'd put it on a sticky note and leave it on the fridge or what?

[D]

Yeah, I mean that was my plan. That was my financial plan as of then. But I mean really it was just all loans, even undergraduate. My grandpa actually had a 529 for me is I think like 10,000. So I paid for like room and board, my first year of undergrad and the rest, you know, I did take out loans.

[C]

So you do have some loans still?

[D]

Yeah, I do have loans from undergrad just because. I mean, I work part time, but tuition, cost of living. I still have some loans, but it's nowhere near where it would be, so. Yeah, it was just. It was just all going to be loans.

[C]

Okay, so what's the timing of the marriage here? Were you married when you received this scholarship?

[D]

No. So I actually got married last June.

[E]

After first year?

[D]

Yes. Yeah.

[E]

Okay.

[D]

And I actually got the scholarship. I'd actually already taken out money for first year.

[C]

You'd already taken out the loans?

[D]

Yeah, I'd already taken out the loans. I remember I was studying biochemistry in the library, and my phone's always do not disturb. And so I look at my phone, I have a missed call and a text, and it said, it's going to use a fake name. Here, Amy from the foundation, we have some news for you. If you could give me a call back.

[C]

And I was like, that's a fun call to make. Yeah.

[D]

Yeah. And so I was like, is this a scam? What's going on? So I looked up her name, looked up the foundation, and it was her name. So I was like, okay, I'm going to call him back. And, yeah, she told me, and I was like. I was shocked. I was like, what do you mean, like, me? And she said, yeah. And I. I got pretty emotional because, I mean, I was planning to pay off $250,300 worth of. $300,000 worth of loans. And she said, yeah, it's one of my favorite calls to make every year because I get to make it, I bet. And, yeah, it was pretty awesome. So I called my now wife, and she said the same thing. She's like, is this a scam? What do you mean? What's going on? And I was like, no, it's for real. So I went and told my parents, and it was awesome.

[C]

That's a pretty fun way to run a scholarship program, actually.

[E]

I like that.

[C]

All right, so what, has that changed for you? Has that made you maybe consider other career paths? Other specialties that maybe you weren't considering? What does this mean for you to know that, you know, you're coming out of medical school, you know, $300,000 ahead of your peers? I mean, granted, you're still a second year. I don't know that you locked into a specialty yet, by any means, anyway.

[D]

But, I mean, it really just takes kind of a Weight off your shoulders. Because it was. It was a big stress for me. That's actually why I started reading your stuff, was I got accepted early decision in September of my senior year or something like that. And then it kind of hit me. I was like, this is a lot of money. I'm going to have to pay. I was like, how am I going to pay all of this back? So then I read your book, started listening to podcasts, and it made me feel a little bit better to know that you will be able to pay this off. It'll take a long time.

[E]

Yeah.

[C]

As long as you learn how to manage money, it's going to work out.

[E]

Right?

[C]

I mean, that's the bottom line. Medical school's still a good investment. Even if you got to borrow the whole sum, so long as you complete it, match into residency, complete that, get the average job for your specialty, and work full time for 5 years, it still works out as a good decision, even if you've got to borrow it for sure.

[D]

Yeah, exactly. But still, it's a big weight off your shoulders.

[E]

Yeah.

[C]

All right, so let's turn to your other source of income during this typical, you know, zero income time of life, which is your spouse. So you got married, you said, after your first year?

[D]

Yes.

[C]

And she's working or what's going on there?

[D]

Yeah, she's a nurse. She works at the children's emergency department. So don't plan to take out any more loans. Hopefully that can get us through and we live pretty frugally.

[C]

So you're living under nursing income.

[D]

Yes.

[C]

Yeah. Pretty awesome. So you should come out basically just your undergraduate debt.

[B]

Yep.

[D]

That's.

[C]

How much do you owe from undergraduate?

[D]

I think it was like I took out, like 10,000 a year just to cover. I mean, I lived on 1,200amonth. You know, it was rent and food was pretty much what I had. I think it was around $40,000.

[C]

40,000. $50,000.

[B]

Okay.

[C]

So how long is it going to take you to wipe that out when you walk out of residency?

[D]

Oh, a few months. Don't plan to drag it on for long. I really want to pay it off. Then there's PSLF and all that I had. I felt like, because I was blessed with a scholarship, I really maybe not feel obligated, but I think I can pay off the rest.

[C]

Okay, so having been the recipient of such largesse, how does that make you feel about the role of giving, generosity, charity in your life?

[D]

They actually told us when they gave it that the donors, their goal for the scholarship was that each recipient, they do, I think a day, a month of kind of like pro bono work, go work in a homeless shelter or something like that, and care for people who maybe couldn't afford health care. So definitely plan to do that. And then I definitely plan to donate and hopefully help maybe not just medical students, but also my wife's nurse, nursing students, other healthcare profession students to hopefully just reduce their debt burden as well. Because it's, you know, it's changed my life. So hopefully I can do that for somebody else.

[E]

Yeah, pretty awesome.

[C]

Okay, so you started financial planning when you found out you got into medical school and it was going to be really expensive and you're probably going to.

[E]

Pay for it with debt.

[C]

How far have you gone? I mean, how many years ahead do you think you've really planned at this point? You just kind of getting through medical school and then sorted out as an intern? Or do you have some lifelong plan already mapped out?

[D]

Maybe not lifelong, but I did buy your student course. I was on the podcast every week. I think I have, I think of two year books on my shelf right here. I'm always reading about financial stuff now. Yeah, I don't, I don't think I have lifelong things, but it's definitely just, you know, I feel like you can never learn too much. So I try to just learn as much as I can and then, you know, once I start actually making money, I'll have the knowledge to handle most of it myself.

[C]

Now, some doctors out there say, you know, anybody who talks about money or thinks about money or focuses on money is a bad, bad doctor, that they're money grubbers or whatever, you know, adjective we want to use. What do you think about this focus on finance from the beginning of your career? Do you think it makes you a worse doctor or better doctor?

[D]

I think better. I feel like it's kind of a, maybe a privileged point of view to say that you shouldn't talk about money, you shouldn't care about money, money doesn't matter. You know, I don't come from much money and I can tell you it matters. But also I, I kind of get the sentiment that it shouldn't be your number one priority. And you've said this before too. It should be maybe top five. But yeah, I think it makes you a better doctor. I think if you're not stressing about money if you don't have to, if you're not rushing through patients in clinic and trying to see people just because you need to make a car payment or A mortgage. It helps you be a better doctor. And if that's the only thing in your mind, that's bad. But it should definitely be. It should be a priority. And it's a big part of your life, like financial planning.

[C]

Now, there's a bunch of medical students out there listening to this podcast. Most of them have not been as fortunate as you with regards to their method of paying for school. About 75% of docs come out with student loans.

[E]

What advice do you have for them?

[D]

I mean, I think kind of just what you said and what you say all the time. It's if you get through med school, you match in residency, you get through residency and you work full time. Granted, if you didn't go to Harvard, some private school, and then your pediatric endocrinologist, you can pay off your loans. And I had a plan, too. I kind of made my peace with that. But it is possible. And when you run the numbers, if you're making $350,000 a year, it really isn't a very large portion of your income you have to put away for these loans. If you're looking at your whole career, so you're paying off these loans for three to five years and then those are gone, and then that's it. You can do with that money what you want. So it is possible. Just, you know, work hard, get through med school, get through residency.

[C]

All right, well, thank you so much, Jacob, for being willing to come on the podcast to share your story and maybe inspire some others to do well while doing good in their lives. Thank you so much.

[D]

Thank you.

[C]

Okay.

[B]

I hope you enjoyed that interview. There's lots of ways to pay for medical school. Some people might have a 529, which.

[C]

Is what we're going to be talking.

[B]

About in financial boot camp in a minute. Other people, of course, take out loans. About 75% of medical students take out loans. Some people use a contract like I did, military contract, National Health Service, Corps, Indian Health Service, MD, PhD, those sorts of contracts. But however you do it, please pay attention to your finances. Just put a little bit of attention into it and you'll be amazed how much better it makes your life.

[E]

A 529 is a college savings plan. Probably the best college savings plan. The way it works primarily is that it gives you tax free earnings and tax free withdrawals when you spend the money on an eligible education expense. Some states also give you a deduction or a credit for putting money into the account. Not all states, but some states do. So you want to Be careful which plan you use, because every state offers at least one 529 plan. If your state gives you a deduction.

[C]

Or a credit, you should probably use.

[E]

Your own state's plan. If your state doesn't give you any deduction or credit or gives you the same deduction or credit, no matter what plan you contribute to, you can look.

[C]

For the best plan, which is usually.

[E]

Found in places like Michigan and Utah and Ohio and Nevada and New York. Those tend to be the better 529 plans in most rankings that they do every year. Truthfully, there's lots of great 529 plans over the last 10 years. I would say the vast majority of plans are good now, whereas I would have said 10 years ago it's only a minority of plans that are really good. The expenses have come down, the investments have gotten better, and most 529s are pretty good these days. Lots of people want to max out their 529s. Quit doing that, okay? There is no maximum on a 529. You can literally open a 529 for every one of your kids. Both you and your spouse can open a 529 for every one of your kids in every state.

[C]

You can literally put billion dollars into.

[E]

529S if you want. So you really can't max this thing out. It's not like a 401k that way. So stop trying to max it out. The amount that's generally can be contributed to them is typically the gift tax limit for the year. Because the problem is if you start putting in more than that, you got to start filling out gift tax returns, and that's a pain.

[C]

Not entirely true.

[E]

You can actually superfund them for five years worth of contributions. But it's a little bit of a pain, frankly, people trying to do this or trying to start these in their own name before their kid's even born. I think you're looking beyond the mark in New Testament speech, right? This is probably not a great idea. Wait until the kid's born. Wait until you have a Social Security card for them. Don't bother putting in more than 19,000 a year or whatever the year's annual gift tax limit is.

[C]

That's going to be enough.

[B]

All right?

[E]

You don't have to have hundreds and hundreds of thousands of dollars in a 529 for your kid to go to college, right? There are other ways to pay for college. They can get scholarships, they can work in the summers, they can work during the school year, you can pay for it from your current cash flow. They can choose a cheaper school. Right. And there's even student loans still available out there. Don't really recommend you use those for undergraduate school. But the point is, you don't have to save it all up in advance, so you don't have to put a gazillion dollars in there. All right. Another thing to consider with these is a lot of people get fixated on the state tax deduction. The real value is in the federal tax free growth and the federal tax free withdrawals. Now, you typically also get state tax free growth and state tax free withdrawals. That's where the real value is. It's not in the little deduction you get up front. I think in my state I get a deduction of 5% of the first $4,000 that goes into the account per beneficiary. And 5% of $4,000 just isn't that much money. It's a couple hundred bucks. That's all it is. It's not something you need to rearrange your entire financial life to get. Okay, Now a lot of people wonder what investments should they choose? Well, there's two schools of thought here. One is to make it less and less risky as your kid gets closer to college. And I think that's a reasonable school of thought for people for whom not having a certain exact amount of money in that account at time of enrollment is a big deal. I think for most white coat investors, that's not a big deal.

[B]

Right.

[E]

If there's a big stock market crash the year before your child starts school, well, they're going to be in there for four years anyway. Maybe you cash flow the first year and then use the 529 for the other years to give the stock market a little bit of time to recover. And if you're in that sort of a situation where it's not critical that you have the exact amount in there right when they enroll, I think you can invest very aggressively. In fact, we invest our 529s very aggressively even while the kids are in college. We leave it invested in 100% stock portfolios. And so I think that's fine as long as you can take care of the downsides of a nasty stock market downturn.

[B]

Okay.

[E]

Now the bigger problem that I think more and more white coat investors are dealing with is what do you do with leftover 529 money? And there's a lot of options. There's a new one that came out of the Secure Act 2.0, which is the, the rollover to the beneficiary's Roth IRA.

[C]

Now they still have to have earned.

[E]

Income just like they would if they were contributing their own money to the Roth ira. And you can only put the amount they're allowed to contribute that year into it. But the total amount that you're allowed to roll over is $35,000. So that's probably going to take something like five years to actually clean out that $35,000 out of the 529 into the Roth IRA.

[C]

But that's a good option if you're.

[E]

Only a little bit overfunded in the 529. If you got $200,000 too much in there, that plan is not going to work. Now that might be because they chose, you know, not to do the schooling.

[C]

You thought they were going to go to.

[E]

You know, because you can always use this for grad school or something. Probably the best option if you have a very overfunded 529 is to change the beneficiary. You can change it to yourself, you can change it to their sibling, you can change it to their cousin. Probably most frequently you change it to their kids. That gives you another 30 years of tax free compound in that account. And now you've not just paid for your kids schooling, but you paid for your grandkids schooling without having to make any additional contributions. So I think that's probably the best option. You can always take the money out. Not only are you going to pay the taxes at ordinary income tax rates on all your earnings, but you're also going to pay a 10% penalty in addition to that. So this is not a good place to invest money for retirement or, or anything other than education.

[C]

If your kid has a big huge.

[E]

529 because they got a big huge scholarship, you can actually take the money out equal to the amount they got in scholarship. You do have to pay taxes on the earnings at ordinary income tax rates, but you don't have to pay that 10% penalty for the amount that is equal to the amount they had in scholarships. Other uses of 529s is not just college and grad school.

[C]

You can actually use it for K through 12.

[E]

Your kids in private school you can use $10,000 per year from the 529 for private school. But there's a lot of states that don't allow you to do that. Okay. And some of them are states where there are lots of white coat investors. California, New Jersey, New York and Illinois. It's not state tax free. It's still federal tax free, right? If you take the money out and you pay for private school with it, but it's not state tax free. So when you pull that money out, you're going to have to pay tax on the earnings at relatively high California and New Jersey and New York and Illinois tax rates. So keep that in mind. 529s are probably the best way to save for college education. Put an appropriate amount in there. You don't have to have the entire cost of your kid's education in there, but it's a great way to save and have your money grow tax free for that purpose. It's a great way to show your kids you care about them. They really do appreciate it. I've got a child right now traveling the world using 529 money for an international business degree and she's thanked me multiple times for it. It's a wonderful thing to do, but just be careful not to get too overfunded in there to the point where you don't have a great option for the overfunded.

[B]

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[A]

The White Coat Investor Podcast is for your entertainment and information only and should not be considered financial, legal, tax or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.