White Coat Investor Podcast Episode Summary
Episode: WCI #432: 529s and Spending for College
Release Date: August 14, 2025
Host: Dr. Jim Dahle

Overview

In episode #432 of the White Coat Investor Podcast, Dr. Jim Dahle delves into the intricacies of 529 plans and effective strategies for spending these educational savings accounts to fund college expenses. The discussion is enriched with listener questions, expert insights, and actionable advice tailored for medical professionals and other high-income earners aiming to optimize their financial planning for education.

Spending from 529 Plans

Dr. Dahle begins by sharing his personal experience with 529 plans, managing eight accounts for nieces, nephews, and his own children. He outlines a streamlined process for disbursement:

1. Identifying Eligible Expenses: Only qualified expenses can be paid from a 529 plan. For example, while tuition and rent are eligible, transportation deposits are not.

2. Withdrawal Procedure: Upon receiving a request for funds, Dr. Dahle:

   • Transfers the specified amount from the 529 account to his bank.
   • Requires a receipt from the beneficiary to ensure compliance and for tax purposes.
   • Quote: “You have to have receipts to cover all your 529 withdrawals, or they're not eligible withdrawals and you'll end up having to pay tax and penalty on them.” [10:45]

3. Timing of Withdrawals: Funds must be withdrawn in the same tax year that the expenses are incurred. Unlike HSAs, you cannot defer withdrawals for future years.

4. Prioritizing 529 Funds: Dr. Dahle advises using 529 funds before tapping into other sources. If funds remain after educational expenses, beneficiaries can either become new account owners or transfer up to $35,000 to a Roth IRA.

Investment Strategies for 529s

Dr. Dahle discusses his aggressive investment approach within 529 plans, emphasizing the balance between growth and risk:

• Aggressive Growth: His 529 accounts are heavily invested in stocks, including international and small-cap value stocks, to maximize long-term returns.

• Market Downturns: He acknowledges the risks of market volatility but mitigates them by relying on alternative cash flow sources to cover short-term needs, allowing the 529 investments to recover over time.

• Adjustment Near College Start: While some may advocate for shifting to more conservative investments as the beneficiary approaches college age, Dr. Dahle maintains his aggressive stance, believing in the benefits of higher returns accumulated over time.

• Quote: “The benefit of investing aggressively is you tend to get the higher returns over the long term.” [18:30]

The Four Pillars of Paying for College

Dr. Dahle outlines a comprehensive framework for financing higher education:

1. College Choice: Selecting a school that aligns with financial capabilities is crucial. Options range from high-cost institutions to affordable community colleges.

2. Savings: Utilizing 529 plans or other education-specific savings accounts to accumulate funds in advance.

3. Student Contribution: Encouraging students to contribute through scholarships, part-time work, or personal savings to foster financial responsibility.

4. Cash Flow: Leveraging current income streams to fund education costs, reducing reliance on borrowed money.

He emphasizes that undergraduates can often complete their education debt-free by effectively balancing these pillars.

Listener Q&A

Changing 529 Beneficiary and Gift Tax Implications

Question from Listener: Steve from Texas inquires about the tax implications of changing the beneficiary of a 529 plan and whether it constitutes a gift from the plan owner or the current beneficiary. [03:14]

Dr. Dahle's Response:

• Treatment as a Gift: According to Michael Kitces, changing the beneficiary is treated as a gift from the current beneficiary to the new one.
• Gift Tax Exemption: Up to $19,000 annually can be gifted without triggering gift tax. Transfers exceeding this may utilize the unified gift tax exemption.
• Practical Implications: For most, especially with multiple beneficiaries, spreading out transfers can mitigate gift tax concerns.
• Quote: “If you're going to die with more than $30 million indexed to inflation, so $30 million in today's dollars, you're not going to have an estate tax.” [13:50]

Student Loans Guidance

Question from Listener: Samantha seeks advice on managing student loans amidst recent legislative changes and her eligibility for Public Service Loan Forgiveness (PSLF). [20:22]

Dr. Dahle's Response:

• Consultation Recommendation: Strongly advises booking a consultation with Andrew at [email protected] for personalized advice.
• PSLF Status: Encourages maintaining the PSLF track, especially given her eight-year tenure at a 501(c)(3) institution.
• Current Challenges: Addresses the uncertainty surrounding the Savings on a Valuable Education (SAVE) program and suggests considering Income-Based Repayment (IBR) as a more stable option.
• Quote: “Don't be afraid, don't be pennywise and pound foolish. If you need a consult from someone who really knows this stuff in and out, get Andrew on a call and get it sorted out.” [22:10]

Financial Literacy Partnerships

Question from Listener: Travis, a dentist and educator, inquires about partnering to enhance financial literacy among dental students. [25:59]

Dr. Dahle's Response:

• Appreciation and Support: Praises Travis's efforts and encourages the continuation of integrating financial education into medical and dental curricula.
• Available Resources: Offers access to financial education slides tailored for different student levels and promotes the Financial Educator Award.
• Alternative Engagement: Highlights the annual student webinar as an accessible option for group learning.
• Quote: “It's not that complicated. Write down a reasonable plan, follow it long term, and fund it adequately.” [35:40]

Investment Philosophy and Political Considerations

Dr. Dahle touches on maintaining a stable investment strategy amidst political and economic fluctuations:

• Static Asset Allocation: Advocates for a consistent investment plan that balances risk and growth without reacting to short-term market or political changes.
• Resilience Over Time: Emphasizes that long-term adherence to a well-structured plan yields better results than frequent adjustments based on external factors.
• Quote of the Day: “Be fearful when others are greedy, and greedy only when others are fearful.” – Warren Buffett [28:15]

Final Thoughts and Recommendations

Dr. Dahle concludes by reinforcing the importance of disciplined financial planning:

• Long-Term Success: Encourages listeners to stick to their financial plans, invest wisely, and avoid reacting impulsively to market or political news.
• Financial Independence: Reminds high-income professionals that effective money management can lead to financial freedom, allowing them to focus on their careers and personal lives without monetary stress.
• Community Appreciation: Acknowledges the hard work of listeners and the broader white coat community, highlighting the mutual goal of achieving financial stability and success.

Closing Quote: “This stuff's not that hard. You can do it. Thousands and thousands of white coat investors before you have done it. You can do it too.” [40:50]

Key Takeaways

• Effective 529 Management: Utilize 529 plans strategically by ensuring withdrawals align with eligible expenses, maintaining proper documentation, and prioritizing these funds before other savings sources.
• Investment Strategy: Adopt an aggressive investment approach within 529 plans to maximize long-term growth, while preparing alternative cash flows to navigate potential market downturns.
• Comprehensive Planning: Incorporate the four pillars of paying for college—college choice, savings, student contribution, and cash flow—to achieve debt-free education.
• Professional Guidance: Seek expert advice for complex financial situations, such as changing 529 beneficiaries or managing student loans amidst legislative changes.
• Consistency Over Reactivity: Maintain a stable financial plan despite political and economic shifts to ensure long-term financial success and independence.

For more detailed insights and personalized advice, listeners are encouraged to visit White Coat Investor and register for upcoming financial crash courses or consult with financial experts featured on the podcast.