WCI #463: 529 Plans: How Much to Save and What They Can Be Used For

Summary

White Coat Investor Podcast #463

Episode Title: 529 Plans: How Much to Save and What They Can Be Used For
Date: March 19, 2026
Host: Dr. Jim Dahle
Guest: Tyler Scott, President of Planning, White Coat Planning

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Episode Overview

This episode dives deep into 529 plans—how much to save, what qualifies as a proper education expense, what to do if you overfund, and how new legislation like the 530A (Trump “baby bonus”) accounts fit into the landscape. Host Dr. Jim Dahle and guest Tyler Scott blend physician-focused financial wisdom with personal anecdotes and the latest updates on legislation affecting education savings accounts. The tone is approachable, informal, and loaded with practical advice for high-income professionals and their families.

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Key Discussion Points & Insights

1. 529 Overfunding: Should You Worry?

[05:10–16:00]

• Listener Question (05:10): Parent of an infant worries about overfunding a 529 and possibly tying up funds with restrictions.
• Jim: "By definition, you are overfunding your 529. If you're talking about putting money in now, you're almost surely overfunding it." (05:48)
• Tyler: Emphasizes the good intentions of starting early, citing trauma many physicians have from their own student debt. Compound interest works best the earlier you start, but the unknowns around a child’s educational path make overfunding likely.
• Key Insight: Most overestimate the consequences of excess money in a 529. There are multiple exit strategies and safety valves.

Notable Quote:

"There are so many ways to get the money out, which we'll talk about...I don't think it's as stuck as people realize."
—Tyler Scott (07:39)

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2. How Much Should You Save in a 529?

[08:32–16:00]

• Process: Begin with deciding what % of education you want to fund (100%, 50%, etc.).
• Data Points: Consider public vs private university costs, inflation (~3–3.5% per year).
• Reverse engineer contribution amounts with reasonable investment return assumptions.
• Adjust over time: Families often reduce or stop contributions as children get closer to high school and their aspirations become clearer.

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3. What If You Overfund?

[16:00–32:54]

Qualified vs. Non-Qualified Expenses

• Qualified:
  • Tuition, books, fees, computers, some vocational programs.
  • Up to $10,000 (lifetime) can be used to pay off student loans for the beneficiary or siblings.
• Non-qualified:
  • Transportation, travel, health insurance, extracurriculars, parking passes, etc.
• Hack: Program tuition that includes travel counts (e.g., business major's global trip covered as education).

Penalties and Taxes

• Tax and 10% penalty only apply to the earnings portion of non-qualified withdrawals, not contributions.
• Example Calculation:
  Withdrawing $10,000 when 25% of the account is earnings leads to $2,500 in taxable income, ~$1,000 tax at 40% marginal rate, plus $250 penalty = $1,250 cost. (19:00–20:16)

Other Safety Valves

• Scholarships: Withdraw up to amount of scholarship without penalty (you pay tax on earnings only).
• Grad School: Allows more years for funds to grow tax-free if used for further education.
• Changing Beneficiaries: Can switch to other family members—siblings, cousins, even unborn grandkids (generational compounding).
• 529 to Roth IRA (SECURE 2.0):
  • Up to $35,000 can be rolled over into the beneficiary’s Roth IRA under certain rules (must be open 15 years, max annual Roth limits, recent contributions/growth ineligible).
  • Not an "optimizer hack," but a valuable safety net for leftovers.

Notable Quote:

"There are a lot of ways to get it out, including just taking the money out and paying the tax and penalty. That's not really that bad."
—Jim Dahle (32:54)

• K–12 Education Expenses: OBBA increased annual K12 eligible expenses to $20,000 and expanded qualified costs (standardized tests, tutoring, etc.).

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4. Personal Finance Priorities

[31:32–32:54]

• Always prioritize your own retirement savings over funding children’s 529s. "Put your own oxygen mask on first."
• If forced to choose, it's better to save for yourself than to risk becoming a financial burden for your adult children.

Notable Quote:

"The first job of a parent financially for their kids is to make sure they're not a burden to their kids in retirement."
—Tyler Scott (32:25)

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5. 529, UTMA, and the New 530A (“Trump”) Accounts

[35:16–56:38]

529

• Best for educational expenses, K–12 and higher ed.
• Contributions grow tax-free if used for qualified expenses.
• Multiple exit strategies as discussed above.

UTMA (Uniform Transfers to Minors Act)

• General-purpose gift to a child, taxed first at the child’s rate but subject to "kiddie tax" at a certain size (income over $1,300 taxed at child’s rate, next ~$1,400 at 10%, then parent’s rate for excess).
• Transfers account to the child at age 21 (sometimes 18).
• Works well for a modest “20s fund” for the child but beware of size/tax crossover.

530A (Trump/"Baby Bonus") Accounts

• Originally envisioned as baby bonds: $1,000 deposited by the government for every baby born 2025–2028 (after July 4, 2026, you can open for anyone under 18).
• Investment options restricted to US broad-based index funds (<10bps expense).
• No withdrawals until Jan 1 of the year your child turns 18.
• Annual contribution limit: $5,000 (adjusted for inflation).
  • Potential Growth: $5k/year × 17 years @ 8% ≈ $169k+ by age 18, more with inflation
• Employers (up to $2,500 tax-deductible) and certain nonprofits can contribute.
• At 18, becomes a traditional IRA with non-deductible contributions—Roth conversions possible (massive for high-income families if planned after tax-independence to avoid kiddie tax).
• Not as flexible as UTMA, nor as focused as 529, but powerful for long-term, retirement-focused compounding.

Notable Quote:

"They are non-deductible traditional IRAs without an income requirement that get money thrown into them by the government when you're born."
—Tyler Scott (43:31)

• Strategic Advice: If possible, delay Roth conversions until child is not a tax dependent to avoid kiddie tax; better for family retirement seed, not a big “20s fund.”

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6. New CME & Student Loan Uses for 529

[57:45–64:29]

CME (Continuing Medical Education)

• As of OBBA, 529s can pay for state-required professional licenses, credentials, and the educational cost of maintaining them (like CME or CFP coursework/exams).
• Non-covered: Travel, food, and other “extra” costs.
• Best practice: If you can, use business deductions first; if not, 529 is a backup (e.g., if you’re an employee with no CME budget).

Student Loans

• Up to $10,000 (lifetime) can be withdrawn from a 529 tax-free for student loan repayment for the beneficiary or siblings.
• If your state offers a tax deduction for 529 contributions, you can “run” $10,000 through the plan for an added small tax break.

Notable Quote:

"If you can take something as a business expense, that's generally your best tax break for anything, right?...But if you're an employee, you've already exhausted any CME fund your employer has offered...that's a legit expense now. So as of last summer, just for the registration."
—Jim Dahle (60:44)

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Notable Quotes & Memorable Moments

• On Parent Mentality:
  "So many WCIers are traumatized by their student loans and they've felt the burden of that…and implicit in this desire to fund the 529 early is a good truth..." —Tyler Scott (06:40)

• On Family Planning:
  "Most of the people I talk to...they're pragmatic about it. We don't know if they're going to go to medical school or not...And then we adapt." —Tyler Scott (11:00)

• On Optimizing to the Extreme:
  "If you're optimizing that hard, get a life...Go skiing or something. Go for a hike. You need to get outdoors." —Jim Dahle (25:56)

• On 530A Accounts ("Trump" accounts):
  "The idea behind baby bonds is an economically popular and pretty reasonable idea...It’s at the beginning of your professional chapter, not the end." —Tyler Scott (42:18)

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Timestamps for Major Segments

| Time | Topic | |-----------|---------------------------------------------------| | 05:10 | Listener question: How much to fund 529, overfunding concern | | 08:32 | Calculating college costs and contribution approach | | 16:00 | Qualified vs. non-qualified 529 withdrawals | | 19:00 | Tax & penalty calculation example for withdrawals | | 22:20 | Strategies for overfunded accounts: scholarships, grad school, beneficiary change, Roth conversion | | 24:44 | Secure 2.0—529 to Roth details | | 35:16 | 529 vs UTMA vs new 530A ("Trump") accounts overview | | 43:11 | 530A/Trump account mechanics, investments, rules | | 51:10 | Roth conversion strategy for 530A accounts | | 57:45 | 529 use for CME and student loan repayment | | 60:44 | CME as business expense vs 529 payment |

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Takeaways for Listeners

• Don’t panic about overfunding a 529—there are ample ways to re-purpose or extract funds.
• Be practical, not perfectionist, in how much you save—full optimization is less important than flexibility.
• 529s are for education; UTMAs for broad 20s support; new 530A accounts for long-term generational compounding.
• Legislation is evolving (e.g., 530A accounts), so consult up-to-date guidance and expect more details in the year ahead.
• Always put your own financial health first—don’t risk your retirement to save for your child’s entire tuition.

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This episode is loaded with both technical know-how and humor, making dense financial planning not only accessible but entertaining. For a granular, physician-focused perspective on education savings—and the latest on new baby bond accounts—this episode is a masterclass.

Transcript

[A]

This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.

[B]

This is White Coat Investor podcast number 463. Resolve is the number one rated physician contract team. Reviewing 1000 plus physician contracts every year. They empower physicians with location specific compensation data which leads to unparalleled leverage during the physician contract negotiation process. A physician contract lawyer is included and can negotiate on your behalf, alleviating the stress that can go along with reviewing complex legal terms. Flat rate pricing and flexible schedules are designed for a physician's schedule use code WHITECOAT10 for 10% off.

[C]

All right, welcome back to the podcast. We have a great episode today.

[B]

I'm excited about.

[C]

I am here with Tyler Scott. His title is president of planning at White Coat Planning.

[B]

This is a company we've been starting and it's been ramping up here. This is essentially the financial planning firm

[C]

that I always wanted to see in

[B]

the world and it turned out that the way to see that was actually to create it. So we've been working on doing that for the last few months. It's very exciting. We're not going to spend a lot of time talking about that today, but

[C]

Tyler, welcome to the podcast.

[D]

Thanks for having me. It's been fun to be here in the past on my own. I've interviewed you a little in the past. Now it's fun to take some questions and collaborate together.

[E]

Yeah.

[C]

So this is going to be a good time.

[B]

You guys always like having more voices on the podcast. We got more voices and I couldn't talk Tyler into just arguing with me

[C]

about whole life the whole time.

[B]

So we're actually going to talk about some other stuff like 5 29s, but we're still going to have a good time and maybe we can, you know, argue about something. I'm sure there's something we disagree we have here soon. Okay. It's match week. Right. So from now until March 23rd, if

[C]

you book a consult with the experts

[B]

at student loan advice, all you have

[C]

to do is book it. You don't have to complete the consult

[B]

during this time period, but if you book it between the 16th and the

[C]

23rd, you're going to get fire your

[B]

financial advisor, the resident version for free after you have your meeting with the student loan planner. And so that's pretty exciting. It's a great deal and pays for like half of the cost of the planning session. So It's a wonderful addition. You know, honestly, though, the consultation is worth the price paid for it, right? I mean, it's a professional guiding you through the best options to manage your loans.

[D]

Right.

[B]

These are experienced staff. They have consulted with more than 2,300 borrowers on over $720 million in student loan debt.

[C]

And on average, the average client saves $160,000 on their student loans.

[B]

Now, that comes from a lot of public service loan forgiveness. Obviously, that's what we're trying to help people get, and we're trying to help make sure they're in the right IDR program and figure out exactly how to file their taxes and which IDR program to be in. And all those questions you have about your student loans, just get the right answers. Book a [e-mail] if you book it between the 16th and the 23rd, you get fire your financial advisor, the resident version for free. All right, Tyler, we got to answer some questions here. And one of the things we're going to talk about today, which I'm not happy about, and let me tell you why I'm not happy.

[C]

We're going to talk about Trump accounts.

[B]

And I don't like the name. Let's be honest. I think it's a little narcissistic to name everything after yourself.

[C]

But beyond that, they came out with Trump accounts as part of obbba, right?

[B]

This big tax bill that passed in the middle of last summer.

[C]

And I wrote an article about it, everything we knew about it at the

[B]

time, and published that article. I don't know, July or August or something.

[C]

It was literally everything the world knew about Trump accounts at the time. It was totally accurate and up to date. And since then, I get questions every

[B]

other day about Trump accounts.

[C]

People are super excited about Trump accounts, despite the fact that for months we didn't know anything else besides what I put in that blog post and besides the fact that nobody can contribute to a Trump account until July.

[B]

Right.

[C]

You can't put a dime into a Trump account until July. But I get questions every other day about Trump accounts, and they have updated

[B]

some of the information out there. The government put an update out, I think, in December, and I'll confess I haven't yet read it.

[C]

And that's because you can't put any money in a Trump account until July. So all these people writing me, I promise I'm going to write a blog

[B]

post in the second quarter and put

[C]

it out there before anybody can fund a Trump account. With all the updated Details.

[B]

But now I've been pinned down with the Trump account question on the podcast. So we're going to wade into these.

[C]

Tyler's actually read that document and knows the answers to all your hard Trump

[B]

account questions because everyone wants to know exactly how they work and all the exact details. So we're going to get into that today. But let's listen to the first question of the speak pipe, shall we?

[F]

Hi. We have an infant daughter, and we were discussing how much to fund her 529. We're concerned that if we overfund may be hard to use those funds in the future and they would get tied up. I'm wondering what your thoughts are about overfunding 529s and if it's better to invest that money elsewhere or it might be more flexible. Thank you.

[C]

Okay, great question. I love that it's only 25 seconds long.

[B]

Did you guys hear that?

[C]

You don't have to use all 90

[B]

seconds to leave your questions here. But the best part about this is we can spend the next hour fighting about this.

[D]

Oh, yeah, no, there's content here.

[C]

This is a great. This is a great question.

[B]

Okay.

[C]

You have an infant. By definition, you are overfunding your 529. Almost surely. If you're talking about putting money in now, you're almost surely overfunding it, in my view.

[B]

And I've got four kids. I have two in college.

[C]

I already have four overfunded 529 accounts, and I don't have anywhere near as much as a lot of white coat investors have in their 529s.

[B]

I am. I'm not going to say I'm the world's expert on 529s, but I got 36 529s. All right?

[C]

I got a 529 not only for

[B]

each of my kids, but for all my nieces and nephews.

[C]

I have contributed money to them. I. I have withdrawn money from them. I have closed the accounts because I withdrew everything from them. I've used a 529 account. I know about 529 accounts.

[B]

I know about the cost of education. And I think anyone who's like, I

[C]

got an infant and I'm gonna fund a 529 is gonna overfund their 529. That's just the truth of the matter.

[D]

I think you're right. Especially members of our community. And let's talk about why that is. It comes from a good place, which is so many wciers are traumatized by their student loans and They've felt the burden of that and how heavy that is to get their young adult life

[E]

launched under those loans.

[D]

And implicit in this desire to fund the 529 early is a good truth, which is the longer compound interest works for you, the less money you have to put in the market hopefully is going to do more of the heavy lifting for you. So I like the nature of the question.

[E]

I like where it's coming from in people's heart.

[C]

And what if she told you she's

[B]

got $250,000 in student loans and wants

[D]

to start at 529 for your infant? I'd say that's a lot of trust in the future academic acumen of that infant that we don't know yet of

[E]

going to Duke and going to medical school.

[D]

But I don't think people should fear overfunding a 529 too much that there are so many ways to get the

[E]

money out, which we'll talk about.

[D]

Even if you take the money out subject to taxes and penalties, I've noticed that most clients overestimate or overstate what

[E]

those taxes and penalties are. We'll go through a little math example

[D]

here, but I want to support the ethos of the desire to start early. Try to prevent your child from having as much of that student loan trauma as you can. And also implicit in the question is an understanding that there's rules that this 520 million money is meant for qualified education expenses. And if we don't have enough of those qualified expenses, the money can be stuck. Well, I don't think it's as stuck as people realize.

[E]

And that's what people think.

[D]

Yeah, and that's what I want to

[E]

talk about, ways to get out of it.

[C]

Tyler has like five pages of notes for this question.

[B]

You should be aware. I mean, he has really dug into this.

[C]

But I think the first question people

[B]

come up with when they start talking about this, well, how much money should I put in a 529. I got my 3 month old, I got my Social Security number for him. Now I can start a 529.

[C]

How much did I put in there? I heard I can put in like

[B]

five years worth of contributions.

[D]

Well, yeah, let's talk just briefly about some people come to us and say,

[E]

I want to max out a 529. You've written extensively that that would be

[D]

literally a billion dollars. In short, there is no max. You could open one in every state,

[E]

put 500,000 in every state.

[D]

So don't worry about maxing it in

[E]

the way we Talk about our 401ks or Roth IRAs.

[D]

But the question is a good one. And one of the things we do with white coat planning clients is ask them, well, what percentage of your child's

[E]

education do you want to fund?

[D]

And some people say 100%, some people say 50%. They want their kids to have some

[E]

skin in the game and they don't want to cover it all. So that's the place to start is how much do you want to cover?

[D]

And then do you think you're going to aim for a public university or a private university? And we have data on what the average four year cost is for a

[E]

public and private university.

[D]

And then we can put in an inflation assumption.

[E]

It's about 3 to 3.5% on average for education.

[D]

So I can say, well, if you want to fund 80% of your infant's public education 18 years from now, here's the average cost, inflate that 3.5% and I can say it's going to cost roughly X dollars and you want to cover 80% of that. And there's a number. So now we know what we're aiming for. And then you can reverse engineer the

[E]

math based on a reasonable investment return assumption to say, well, then you should

[D]

start putting in $450 a month and do that for the next 18 years

[E]

and you'll be prepared to cover roughly 80% of their public cost.

[D]

So that is a conversation that is worth having that usually is followed by

[E]

this question, what if we put in too much? What if they don't use it all? What do we do with it then?

[B]

Right, but before we get to that,

[C]

right, I mean, these are parents who are thinking about the education of their infant.

[B]

Right?

[C]

So in their view, this infant is not only going to Yale, but is then going to go to the top rated most expensive dental school in the country.

[B]

Right.

[C]

So they need like $800,000 in their 529 in the view of these new parents.

[D]

Sometimes. Yeah.

[C]

And the truth is most people don't go to dental school, right?

[E]

Yeah.

[D]

And I have opinions about that.

[C]

But for those who aren't aware, Tyler

[D]

is a recovering dentist, still act in the recovery. So, you know, but most of the people I talk to, Jim, when I actually get into a meeting with someone,

[E]

you know, if it was, you know,

[D]

they work here and in Salt Lake

[E]

with us and they, they're like, I

[D]

just want my kids to go to the U. What, what, what would it cost to cover 70% at the university of Utah, because we don't really know. They're, they're pragmatic about it. And we don't know if they're going

[E]

to go to medical school or not.

[D]

And there are those who are the optimizers.

[E]

Right.

[D]

And a lot of those people call

[E]

in here and want to do what you said.

[D]

But most of the people I talk

[E]

to in the real world, they're, they're practical about it.

[D]

And we can give them a reasonable

[E]

amount to put in to cover two thirds of the cost at the University

[D]

of Utah, and they feel good about that. And then as we go through the planning process now, the kid, fast forward 12 years, they're in middle school, and

[E]

now we have a sense of, you know, is this someone that might be headed to follow in my medical footsteps or are they expressing interest in something else?

[D]

And then we adapt all the time with clients. We turn off the 529 contributions once

[E]

the kids hit middle school or high school. And that becomes clear.

[D]

And I've never had any of those

[E]

people be regretful that they started when they were babies and they've made those contributions early, the market provided good returns,

[D]

and then they can just stop the

[E]

contributions if they realize they're on track to overfund.

[B]

Okay, here's the first one you've met, apparently. All right, so I didn't have any money when my first kid was a baby, right. I was a resident. We didn't have any money to put in a 529. So she was a few years old before we put any money in a 529. Even then it wasn't very much money. And then somewhere in high school she starts talking about medical school and I start going, we don't have that much in a 529. We better put more in. And so we actually put in the gift tax amount for the year for several years, for two or three or four years or whatever it was. I don't remember thinking she'd go to medical school. And so by the time she enrolls at an incredibly inexpensive university and she goes to those pre med classes and she goes to whatever it is, Chem 105 or something, and she's like, wow, this is kind of hard. And then she goes over to the business building and they're giving out free food in the business student lounge, well,

[C]

within a month or two, she's a business major. She's no longer pre med. And I'm like, why did I put all that money in a 529?

[D]

Right.

[C]

I mean, maybe she'll go get a

[B]

really expensive MBA or something and use a good chunk of it. But the bottom line is the school selection, the educational selection, what your program

[C]

is, is the most important factor.

[B]

It's the most important factor by far.

[C]

And you have no idea what that is when you have an infant.

[D]

No. And to your point, maybe not even

[E]

when they're in high school.

[B]

Right.

[E]

And you didn't know if Whitney was going to go to BYU for not much or if she was going to go to Georgetown for a whole bunch. And yeah. So it's hard.

[D]

And that, that sort of leads us to our listener's question, which is implicit

[E]

in there, is like, what are my options?

[D]

What ha, what can I do if

[E]

I overfund the account?

[D]

Okay. And, and I think that, I think

[C]

we can get into some very practical

[B]

things you can do when you overfund.

[C]

But my point is if you're starting this early and you're talking about, you know, the five year super funding, right.

[B]

Because you can put basically a five year contribution into a plan,

[C]

you have

[B]

gift tax exemption and your spouse can do it too. And if you wanted to use up some of your estate tax exemption, you

[C]

could fund them in every 529 in the country. Right. There's no limit. You can put all kinds of money in there. But if you're starting to think about those sorts of things, just recognize that

[B]

you're probably going to have an overfunded

[C]

529 most of the time. Not everybody.

[B]

Some of your kids are somehow going to go to a $80,000 a year college and not get any scholarship whatsoever. And then they're going to go to medical school and pay the going rate for it.

[C]

And maybe they will burn through a

[B]

3 or $400,000 529, but most kids aren't. And you got to recognize that if you're on a path to have more than 100, 150, $200,000 in a 529,

[C]

you're probably going to be overfunded and

[B]

you're going to be dealing with some of these issues. So let's talk about overfunding. What are the options?

[E]

Yeah.

[D]

So the first thing we want to discern between is what is a qualified expense and what's not a qualified expense. Because if we're worried about money getting stuck in the 529, the real question is, am I going to have to

[E]

take a non qualified withdrawal? And then, and what are the costs of that?

[D]

So the things that are covered are the things you'd think.

[E]

Right?

[D]

So tuition, books, fees, computers. Even if the school doesn't require the computer, you can get them a computer apprenticeship program.

[E]

So it's not just universities. Right. You can. You can go get, you know, vocational

[D]

degrees, and then you can use up to 10,000 of it once in your lifetime for your student loans or for your siblings.

[E]

Student loans. That's cool.

[D]

So, yeah, there's. There's some even with.

[B]

Even without changing the beneficiary of the 529. Yeah.

[D]

Which I think was designed like, you know, if I have a 529 for Lucy and one for Rose, and Rose ends up with student loans, but Lucy doesn't.

[E]

I could use Lucy's, my oldest daughter's 529 to pay Rose's student loans off. Right. So you can use it for your sibling in that way.

[B]

It's 10,000 total or 10,000 each.

[D]

10,000 total, lifetime.

[B]

Oh, okay.

[E]

Yeah, yeah.

[B]

Not 10,000 total. Per what?

[D]

Per beneficiary.

[B]

Per beneficiary.

[E]

Yeah, yeah, yeah.

[B]

So per beneficiary and per account owner.

[D]

Right.

[B]

So your spouse could do 10,000.

[D]

No, no. If it is.

[E]

Sorry.

[D]

If it is Whitney's 529, she could use $10,000 total to pay off student

[E]

loans for her or her siblings.

[B]

If she's the owner or she's the beneficiary.

[D]

If she's the beneficiary. That's my understanding.

[E]

Maybe someone will write in and give me a correction.

[C]

But probably you guys like to write us in. Correct. Tyler, too.

[B]

So it's not just me making all the errors.

[D]

Call me out. That's my understanding. So that's qualified expenses. So it's kind of the things you think. Well, what's non qualified expenses?

[E]

Expenses.

[D]

And this is good education. So the most common one I get is, well, my kid needs a G wagon to drive.

[C]

Yeah, it's transportation. Everybody thinks transportation is included. It is not. My daughter tried to send me a parking pass. No dice.

[B]

Right.

[C]

That cannot come out of the 529. Gas doesn't come out. Airplane tickets doesn't come out. If it's transportation, doesn't come out.

[D]

No travel, no transportation, no health insurance, no extracurricular activities.

[B]

Although Whitney found a workaround.

[D]

Did she?

[B]

Well, I told you this around the world trip.

[E]

Yeah, right. Yeah.

[C]

So she's a business major and she takes a spring term for, like, I

[B]

don't know what it was, 12 credits or 14 credits or something.

[C]

It's an around the world trip.

[B]

She went to 15 countries and visited Toured businesses in all these countries.

[D]

Right, That's a good hack.

[C]

That was paid for. But because, because the program was, you

[B]

know, you paid tuition for the program, the program paid for all the travel

[D]

and that's fair, that makes sense to me. But to fly to Georgetown, to fly,

[E]

fly to D.C. to get her there, where that's not going to be covered.

[D]

Okay, so then what happens if I

[E]

take a non qualified withdrawal?

[D]

I think we've talked a lot about on the podcast. Oh, you owe taxes and penalties. And that's usually where I hear this podcast conversation on many podcasts end. Oh, you owe taxes and penalties. And once you throw taxes and penalties

[E]

at the public, they.

[B]

Yeah, nobody wants that.

[D]

Oh, panic. Oh, worst thing ever.

[B]

We didn't like taxes to start with and penalties are worse.

[D]

Ugh. So now everyone's just, we're probably going to jail.

[B]

That's probably what the penalty is.

[D]

There's anxiety, there's frothing at the mouth and I find that people overstate that. So here are the rules. If you take a non qualified withdrawal, you owe ordinary income tax on the growth, on the growth only. So your basis, your original contributions, those are coming out tax and penalty free. So it's only the growth amount.

[E]

That's the first area I see. People make a mistake.

[D]

Oh, I got 200,000 in there. I'm going to pay all this tax on 200,000.

[E]

No, no, no.

[D]

A lot of that's contribution, some of that is growth. Same thing on the penalty, pay 10%

[E]

penalty on the growth. So that's all we're talking about.

[D]

Here's a math example of that. Let's say it's a $20,000 leftover in the account and 15,000 of that is contributions. 5,000 is growth and we're going to

[E]

take 10,000 out as a non qualified withdrawal.

[D]

How much would I owe in taxes

[E]

and penalties on that $10,000 withdrawal from the $20,000? 529.

[D]

Well, the first thing is you got to know that what percent of it is earnings? Well, we said 25%. 5,000 of the 20 is earnings. So 25% are quote earnings ratio then. So on the $10,000 withdrawal, 10,000 times 25% is 2500 bucks. Okay, what's your marginal tax rate?

[E]

Let's say it's 40%.

[D]

So 2500 times 40%. Thousand bucks.

[B]

Right.

[D]

We owe a thousand dollars of income tax and now we owe a 10% penalty on the 2,500 and that's an extra 250 bucks. So I took a $10,000 non qualified withdrawal with my stuck money and it cost me 1250 bucks in taxes and

[E]

penalties to get out.

[D]

That stinks a little bit. It's not like the most optimal, but it's not the worst thing ever.

[B]

Right?

[D]

That's not like so bad. We don't have to move heaven and

[E]

earth to avoid 1250 bucks in taxes and penalties.

[B]

Especially when you consider you got something out of the account in the meantime, you got tax protected growth.

[E]

Right.

[B]

That money was not taxed as it grew. So it grew a little bit faster than it would have with that tax drag and that offset some of that 1250.

[D]

Yeah, it's like reasonable. It's like the thing grew tax free. You got growth on it, you pay some tax we talk about all the time. Taxes aren't the worst thing. You pay taxes means you made money somewhere. So it's just I want to get

[E]

that out there that it's not the worst thing to just take the money out.

[B]

So option number one for an overfunded

[C]

529 is take the money out, pay the taxes and penalties on the earnings.

[D]

It's really simple and it's just not that bad. But let's say you don't want to do that and you're looking for ways to avoid it. Well, one thing I want to talk about is scholarships. So if your kid's sharp, they get some kind of scholarship, you can take the scholarship, the amount of the scholarship out of the 529 and you do not owe the penalty on that. That 10% penalty goes away. You do owe ordinary income taxes on the scholarship withdrawal. And for best practices, maybe you can speak to this.

[E]

I don't know if this has happened for any of your family, but you

[D]

should try to match up the scholarship

[E]

year and the withdrawal and show those in the the same year possible.

[D]

Has that happened for any of your nieces or nephews?

[B]

I've got a kid on a scholarship. We didn't pull the money out.

[D]

You left it in.

[B]

We left it in. Okay. I mean we could have pulled it out penalty free and we would have had pay taxes on it. And this way we can just leave it in there to continue to earn. So we chose not to pull it out on the kid that got a scholarship. So that is an option.

[D]

You don't have to take it out.

[B]

But it is an option if you're worried you're going to be overfunded and you might need that money for something else. Because this is an important part of the conversation right if you don't need the money for anything else, you can just leave it in 529.

[E]

Yeah.

[D]

And that's where we're going with this next.

[C]

Let's go to the next option, which

[B]

is probably the one we're going to use for our kids. Right.

[D]

Because you didn't need the few thousand

[E]

bucks of whatever the scholarship was. That wasn't the cash flow difference for you guys.

[D]

Okay, so let's say we leave. We don't want to do that. Let's leave it in. Well, first, a lot of your kids listening are going to go to grad school. Grad school is not free. It's not cheap. So.

[B]

Right.

[D]

You can use it downstream for more educational expenses.

[E]

It doesn't have to be undergrad.

[D]

You can change the.

[C]

And the best part, if you're going

[B]

to use it for med school or

[C]

dental school, you got four, five, six more years for it to grow.

[D]

Yeah.

[C]

You know, it might double again.

[D]

Let that compounding keep going. And so grad school is always, you

[E]

know, that's a common safety valve.

[D]

You can change the beneficiary to another family member.

[E]

Family member defined very broadly in this category.

[D]

Spouses, kids of any kind, step kids, adopted kids, step siblings, parents or ancestors of parents, brother and sister in laws, step parents, parents in laws, the spouse of any of those people, first cousins.

[B]

They do actually have to be related, though. You can't just change it to some random person.

[D]

No, but the definition of family is

[E]

pretty broad, so you can get it and help someone else with a qualified education expense.

[B]

So what's the obvious family member that most of these get changed to? You think so?

[D]

Siblings is the one I see most often. Hey, this kid didn't, you know, Whitney didn't end up going to medical school. Put all this money in there.

[E]

Maren's gonna go to medical school. Okay, let's now transfer it over there and use it for a sibling.

[D]

But the one that I see that clients actually like the most is I say, hey, if you've got it in there and there's too much, just leave it for the unborn grandkids.

[F]

Right.

[C]

That's my plan.

[D]

That is the most common answer.

[C]

Right. 30 more years of compound interest. We're talking about maybe doubling four times.

[D]

Right.

[C]

So if you got whatever, 50 grand

[B]

left over and it doubles four times before the grandkid comes along. Right. That's 100, 200, 400, $800,000. That probably covers medical school.

[E]

Yeah.

[D]

That's generational wealth for your yet to be born grandkids.

[C]

That's my favorite option.

[D]

Clients love that from a cash flow point of view, using it for other siblings. But once we talk about that in

[E]

the way you just did. There you go.

[D]

Oh, suddenly there's no more overfunded 529 fear. The notion of taking care of those

[E]

grandkids generation is really appealing.

[D]

So that's really popular. Since we're in the deep dive, we should take a moment to acknowledge the Secure 2.0 act, the 529 to Roth conversion option, which I think everybody's excited about this one.

[C]

I don't think it's awesome.

[D]

It's a great. I like it as another safety valve. I do not like it as some

[E]

sort of optimizer hack out there.

[D]

This is not a way to fund your own retirement. This is not some new optimization strategy. But it is a great option if you've overfunded the 529 a little. A little bit by $35,000. So the limit is well less than

[C]

that because it's growing while you're waiting for the next year to make your next contribution.

[D]

Oh, sure, yeah. You mean.

[C]

I mean, in reality, if you're overfunded by more than about, I don't know, 2025, you probably can't use this option.

[B]

Yeah.

[D]

Because I've had people. So to be clear, the Secure 2.0 act allows $35,000 of unused 529 money to make its way to the kids Roth IRA. And that's not indexed to inflation, so

[E]

that's going to stay the same.

[D]

And so I've had clients say, ooh, let's plan on. Hey, Tyler, I want to over. I want to fund 100% of their public.

[B]

Plus 30.

[D]

Plus 35.

[B]

Yeah.

[C]

These optimizers out there.

[B]

Right?

[E]

Yeah.

[C]

If you're optimizing that hard, get a life. Right. That does not get a freaking life. Go skiing or something. Go for a hike. You need to get outdoors.

[E]

Cheers to that.

[D]

It's not going to make the difference. So that's not the utility of this. But if you have a little bit left over in there, it's a nice option. And so the rules are, the 529 has to be open for 15 years. Any contributions in growth in the last five years cannot be converted.

[B]

Any growth in the last five years?

[E]

Yeah.

[D]

So contributions and earnings on those over

[E]

the last five years are not as

[B]

the earnings on contributions made in the last five years, not necessarily earnings for money you contributed 20 years ago. Right, right.

[D]

And you can see why.

[B]

Right.

[D]

They don't want you scrambling last minute

[E]

to make use of this or that's how I imagine the policy.

[D]

So now there's some uncertainty about the 15 year thing. Like I opened accounts in Oregon where

[E]

we used to live for the girls. And then when we moved here to

[D]

Utah five years ago, I closed the Oregon account. Did you restart the clock?

[C]

Nobody knows.

[D]

So yeah, just want to say I don't know. And the conversion still subject to the annual Roth IRA contribution limit.

[E]

So 7,500 bucks in 2020 and the

[B]

requirement for earned income.

[D]

You have to have earned income. Kind of hard for some 18 year olds to.

[E]

Unless they're working in the summers. So you still have an earned income requirement.

[D]

Happily though, you do not have an income limitation like normal Roth contributions.

[E]

Right. Once you make over a certain amount,

[C]

there's no backdoor Roth 529 to Roth conversions.

[E]

I'm so happy they didn't do that.

[D]

So you can come out as an orthopedic surgeon making 800,000. And if you've got money left in

[E]

your 529, you could still do this.

[B]

Direct Roth IRA contributions.

[E]

So that's nice.

[D]

And it is tax free. At the federal level, this is considered

[E]

a tax free conversion.

[D]

But not in every state. So just know that there's eight states plus Washington D.C. that consider that a

[E]

taxable conversion at the state level.

[D]

Three states that are still waiting to decide.

[B]

I'll bet New Jersey and California are on the list, aren't they?

[D]

California is shockingly. New Jersey's not.

[C]

That is amazing, actually.

[D]

Well, New Jersey, look awaiting decision.

[C]

Yeah, yeah, trust me, New Jersey's going to tax it.

[D]

New Jersey is one of those awaiting a decision.

[B]

Did you know New Jersey taxes like 457?

[C]

I just learned this on the blog

[D]

post today I saw. Yeah, Ricky wrote it.

[C]

457 contributions.

[E]

New Jersey's the worst.

[C]

Are subject to New Jersey. You haven't even gotten the money yet. You gotta pay taxes on it. And then it grows, right? It grows for whatever, 10, 20 years. And you take it out and you gotta pay taxes again on it. It's like the worst. New Jersey hates you. They deserve no doctors in New Jersey if they're gonna treat us that badly. Seriously, it's terrible. But if you have a 401k, that's okay.

[D]

Yeah, but not a 403 B 457.

[B]

Or a 457.

[E]

Yeah, yeah.

[C]

Or the federal tsp.

[B]

Yeah, right. Yeah, it's.

[C]

It's wild.

[D]

California and New Jersey, you guys they don't treat 529 contributions.

[E]

Well, they don't treat HSA contributions.

[B]

They hate. They hate your HSA too.

[E]

That's where we're coming from with that.

[B]

Yeah. Okay.

[D]

So we like leaving it for the.

[B]

Seriously, though, don't leave New Jersey. They need doctors, too. California is a beautiful place to live. There's a lot of fun stuff to do there. Don't leave just because they're going to tax your HSA growth. Both. But you can.

[C]

If you're having trouble reaching your financial goals.

[B]

Geographic arbitrage is real. Yeah, yeah.

[D]

And those are lovely states.

[E]

We love those states.

[D]

Just as financial planning nerds, it makes us sad that they're not treated, you

[E]

know, the same way the rest of our friends are.

[D]

So that's the 529 to Roth safety valve. It's not for optimizers.

[E]

It's a nice safety valve.

[D]

We like leave it for the unborn grandkids. That's really popular. Some people ask me about gift tax and generation skipping tax in those cases. Remember that? That's a smart question. But you guys, those have $30 million

[E]

lifetime exemptions, so don't get too bound

[B]

up about and index to inflation. Yeah. Under current law, at least. I mean, they could change at any time.

[D]

But we're not fretting about.

[C]

Yeah, I mean, if you change the beneficiary.

[B]

What we're talking about is if you change the beneficiary from your kid to your grandkid, that's a state taxable event. Right. You're going to burn some of your. Actually, you're not. I looked into this. You're not burning your estate tax exemption. You're burning your kids.

[D]

It counts against theirs.

[C]

It counts against theirs, Right.

[B]

Well, there you go.

[D]

Who cares? Then it kind of makes sense. You helped them. I didn't know that.

[E]

That's a good nugget.

[D]

And then just the last little safety valve is you can use it for yourself. When we say you can change the beneficiary, that includes to you. And so if you've got $10,000 of student loans left over.

[B]

Right.

[D]

Use it for that. We're going to talk a little later about CME Medical. CME as a 529 use.

[B]

I hope there's not a lot of people out there that still have their own student loans and are using a 529 for their kid.

[C]

I mean, as a general rule, you

[B]

help others from a position of strength. Right. This is why the classic line when it comes to financial planning is you save for retirement first, even though retirement's after college and college second, because when your kid gets to college, when you're 50 or whatever and your kid's going to college, you can stop saving for retirement if you've done a good job

[C]

and you can redirect all that cash flow to college. 529s are not the only way to pay for college. You can actually cash flow it if

[B]

you make enough money and you know you can use your taxable account to pay for it.

[C]

You can use all kinds of other

[B]

resources to pay for college. You don't have to use a 529 and you don't have to pre save it all 15 years early or anything. So keep that in mind. There's a lot of flexibility there.

[D]

And that's a great note to end on for this question that you've got

[E]

to put your own oxygen mask on before assisting other passengers.

[D]

And that is really the. If there's a hard conversation I have with planning clients, it's that they get really hyper focused on protecting their kids from student loan burden and they will fund these 529s and not establish an adequate savings rate for their own work optional goals. And that I don't push back really hard on many things. I push back on that one and say, for the reasons you just said, Jim, there will be other ways we can solve for this. We don't know what your kid's going to do for college.

[E]

We don't know what their goals are.

[D]

We know that you're an OB that's

[E]

starting to burn out and you want

[D]

to be able to take less call and less shifts. We need to get your savings rate in a place where you can cut

[E]

back and retire in a way that supports you.

[D]

The first job of a parent financially for their kids is to make sure they're not a burden to their kids in retirement.

[B]

Absolutely.

[D]

So we've got to put our own

[E]

oxygen mask on first.

[D]

So 529 is a great option, but it comes downstream quite a ways in

[E]

the planning process when it comes to

[D]

what should I do with my money, It's a great option, but when in doubt, save more for yourself first.

[E]

And we can always ramp up later or use other options later.

[D]

But if you end up with an overfunded 529, there's a lot of ways to get it out, including just taking

[E]

the money out and paying the tax and penalty. That's not really that bad.

[C]

If you really want to avoid having

[B]

an overfunded 529, send your kid to private K12.

[C]

That'll take care of it. Now you're not just spending for four years, you're spending for 17.

[D]

And that's one of the qualified withdrawals I kind of skipped over and which the new oba.

[E]

That's what we call the tax bill

[D]

from last summer for short.

[E]

Obba.

[D]

OBA increased the amount you can use for K through 12. It used to be 10,000, now it's 20,000. And it's not just tuition anymore, but it's tutoring, it's standardized exams. It's a whole basket of things around

[E]

K through 12 education.

[D]

So that's another safety valve is for the overfunded 529.

[B]

You can use it, start burning some of it in high school.

[D]

Yeah, use it now.

[B]

Okay, we should probably get on to another question.

[C]

Before we do, let's do a quote of the day. This one's from Dave Ramsey.

[B]

He says earning a lot of money is not the key to prosperity. How you handle it is. That's a good quote. Yeah.

[D]

But let's be honest.

[C]

This game is a lot easier when

[B]

you earn more money.

[D]

I'll take the problem, the first problem,

[E]

and solve for the other part.

[C]

This is actually a legitimate problem among

[B]

all a lot of physicians, because a lot of physicians, they know they're being paid well. They feel bad negotiating contracts or they don't get the contract reviewed as we recommend so often. And the range of physician incomes is dramatic in the given specialty. Even for the same amount of work, it's amazing how much less somebody might be paid.

[C]

And I'll tell you what, paying off

[B]

your student loans, saving up for your dream house, saving for retirement, saving for your kids, College in a 529 is

[C]

way easier when you're making 30, 40, 50, $60,000 more a year.

[B]

It just is. So make sure you're being paid fairly. Earning a lot of money helps a lot. Let's be honest, the quote's accurate. Totally. But earning more money helps a lot.

[D]

Start with the problem of earning a lot of money. Then we'll solve for the problem of

[E]

how to handle it.

[B]

Well, that's the fun thing about the white coat investor, right?

[C]

I mean, 90% of Americans have an earning problem.

[B]

That's what they're working on.

[C]

They don't make enough money.

[B]

But almost everybody listening to this does or will soon. So we're working on the other 10% of problems rather than the big problem that most people in America are working on. And frankly, the problems we're working on are more Interesting. All right, our next question.

[F]

Hi, Dr. Dali. Thanks for everything you do. I'm an early career radiologist with two young kids and currently uses a mix of 529 and UTMA to prepare for their future. I recently heard about the new 538 account, also called a Trump account, and I'm very confused about the rules and how to use in comparison to 529 and UTMA account that I already have. Thank you so much for what you do.

[C]

Okay, another great question. That one was only 30 seconds, right? Still less than 90. Anyway, I'm going to take the first

[B]

two accounts because Tyler did the research for the Trump accounts.

[C]

I've got a great blog post about it with everything we knew last summer

[B]

about Trump accounts on the blog, but I have not yet updated, I confess. So let me tell you about the first two 529s, right, 529s for education. Don't put more money in there than you think you're going to use for education. You can use their UTMA account, you can use your taxable account for their education.

[C]

You get old enough, you can even use your retirement account. In fact, even if you're not that old, there's some education exemptions for your

[B]

retirement account to pay for education. But for the most part, that's what 529 money is for, is for education, K12 as well as college, grad school, medical school, whatever. A UTMA account is kind of what we refer to in my household as a 20s fund in Utah.

[C]

When you turn 21, Vanguard calls up your father and says, we're going to move this account to your kid's account. Ask me how I know this, and all of a sudden you have no visibility into that account anymore. It really is their account and they

[B]

can withdraw it and spend it all on cocaine and new cars and trips around the world or whatever they want to spend it on. So you've got to be okay with that. It is a gift to them when

[C]

you put it in that account.

[B]

It must be spent on them. Now, you can still spend it when they're 15 on their summer camp, but it has to be spent on them. You cannot pull it out and buy yourself a snowmobile. I guess you could pull it out and buy them a snowmobile, but you

[C]

can't pull it out and buy yourself a snowmobile.

[B]

It's their money. You gifted it to them when you put it in the account, so you got to be okay with that when it comes to a utma. Now they can still use it for college. The reason people tend to use utmas, I mean it's a good way to teach your kid, give some money to your kid and maybe teach them something about investing. But mostly people are trying to have it grow with a little bit less tax consequences because the first and it's indexed to inflation, so it goes up every year. But it's about the first 1300 or so, 1400 or so in income that that account makes is not taxed. And the next 1400 or so that it makes is taxed at the kids rate, which usually means 10%. Okay. So that's the advantage is until it gets to a certain size, you pay less taxes on the income from the account. Now once it gets to a certain size, what's called the kiddie tax kicks in, which is where you're paying on the income from that account at your rate.

[C]

So you're really not saving anything.

[B]

You might as well put it in your own taxable account at that point.

[C]

And in general, if you invest it

[B]

pretty tax efficiently, you kind of cross over there like maybe around $100,000. If you've got much more than $100,000 in a utma account, you're probably not saving much in taxes, especially if it's not invested very tax efficiently. You might hit that amount of income long before you get to $100,000 in the account. But for a relatively small amount of money that you want to transfer to your kid in their 20s. Right. In some states it might be as young as 18, but in most states it's 21 when they get control of that account. A UTMA account, you know, formerly known as a UGMA account. Very subtle differences between the two. They're essentially the same thing. Works really well for that. So that's 529. That's a UTMA. Both great accounts to give money to your kids and get a few tax advantages with and a little bit of asset protection as well. Very state dependent. But it's not your money. Right. So they can't really take it away from you. Now let's talk about the. What's the number on this one?

[C]

438.

[D]

338. 5:30a.

[C]

5:30a. It would have been a lot better

[B]

if it was a 338 account.

[C]

Then I'd connect it to a rifle or something. 530aMaybe we should call it that so

[B]

we don't feel like we're contributing to narcissism.

[D]

Yeah, there's a reason I refer to the affordable Care act and not Obamacare.

[E]

I will be calling these 530A accounts, not Trump accounts. It's nice to remain neutral on those. Very well.

[C]

Tell us, where does this fall in the mix? What's the point of a Trump account?

[D]

Yeah, let's get into that. So the short answer is that these 530A accounts are probably not as good as other accounts meant for the same purpose. They're not as good at paying for College as a 529. They're not as good at giving your

[E]

kids a start in their 20s as a UTMA.

[D]

So that doesn't mean they don't have any utility. But that's kind of my short answer to clients is there is some application and it's worth knowing the rules. But if you're looking for a quick answer, it's it, if you're going to do it, it's going to come way down at the end of what we

[E]

call the tax efficient waterfall.

[B]

Right.

[D]

It is way towards the end of

[E]

trying to optimize your, your finances.

[D]

But it is, there's a lot of interest in it. The super bowl was totally unwatchable this

[E]

year as a game.

[D]

The game was terrible. Most interesting part of the super bowl for me was the commercial about the Trump accounts.

[E]

And that got my attention.

[D]

And so I think that's infused some interest lately as well for people that saw that. So this was part of OBA as well. They're originally called MAGA accounts but they got renamed. So, you know, 5:30 a is where we want to live and Oba.

[C]

I'm trying to decide if I like MAGA account better. Maybe it's better, I don't know.

[D]

I have no comment on this topic in this forum.

[E]

The.

[D]

There is $15 billion in OBA set

[E]

aside for, for these 538 accounts.

[D]

So that's where they came from. That's how they're funded. Zoom out a little. And you and I haven't talked about this.

[C]

Well, let's, let's talk about where that

[B]

15 billion is going. Yeah, I mean, that's, I am not totally against these 530A accounts.

[C]

I like the idea of a baby bonus account.

[B]

I mean, that's what it is, a baby bonus account.

[C]

And I love the idea.

[B]

It encourages, you know, families. It helps, you know, families with something that's really challenging. Right. It's expensive to have kids and you get a little bit of money from

[C]

the government for having a kid.

[B]

Essentially it's a baby bonus account.

[C]

So I'm not totally against that. Part of it?

[D]

Not at all. You don't have your reading glasses on so you couldn't read my notes. But that's my first note here that says the idea behind baby bonds is an economically popular and pretty reasonable idea. There's many countries who utilize baby bonds with the intent of democratizing wealth in some way of promoting savings. We do that here in America. We democratize wealth. We provide an inflation adjusted pension to our older generations. Very popular program in Social Security meant to help you at a really pivotal stage of life. Baby bonds are the same thing, except the stage of life they're trying to help you at is not retirement. It's at young adulthood.

[E]

It's at the beginning of your professional chapter, not the end.

[D]

And so I totally agree that the idea is excellent and I support it as an economic concept. By and large, the 530A accounts do some of those things. Well, they do some of those things

[E]

kind of clunky and that's what I

[D]

wanted to zoom in on. So how do these work? And for the financially literate out there, I will say these accounts, what they really are, they are a non deductible

[E]

traditional IRA with no income requirements.

[D]

That's what they are.

[E]

I'm going to say that again.

[D]

They are non deductible traditional IRAs without an income requirement that get money thrown

[C]

into them by the government when you're born.

[D]

Well, yeah, so let's talk about that maybe, and only a little bit. So what do I mean by non

[E]

deductible traditional IRA with no income requirements?

[D]

The money that goes into these is going to be after tax money. You do not get a tax deduction

[E]

for making the contribution.

[D]

Anytime we're talking about tax protected accounts,

[E]

we're always talking about three points in time.

[D]

Do I get a tax deduction today?

[E]

Do I get tax free growth? Do I get tax free withdrawals?

[D]

The answer to 530A accounts is you

[E]

just get the middle one.

[D]

You only get tax free growth. You do not get a deduction.

[E]

You do not get tax free withdrawals.

[B]

So it's kind of like an annuity that way. It's kind of like a non deductible IRA that way.

[E]

Yes.

[B]

It's like making after tax contributions into your 401k step one of the mega backdoor Roth IRA without ever getting a step two.

[D]

I must have been listening to you a long time because my second note says it's like if you do the first step of a backdoor Roth IRA and forget the conversion step, you put non deductible money in your traditional ira and now that's going to enjoy tax free growth. But you're going to end up with a mix when you go to withdrawal. And that's true for these Trump accounts. You're going to have after tax basis

[E]

that you can withdraw tax free and

[D]

then you're going to have taxable growth. And that example I gave in the last question about the 529of calculating the earnings ratio and what part's taxable, that's

[E]

what's going to happen with these accounts

[B]

and calculating what the tax withdrawals come out prorated.

[E]

Yeah.

[D]

And so that example I gave, people are going to have to get good at that or the custodian of whoever they choose to manage this is gonna have to really keep good records, depending where you read in the forums. Robinhood has the inside track allegedly to be the.

[B]

And you get confetti when you invest.

[D]

So that's gonna be, that's totally worth it. It's gonna be a joy. Okay, let's talk about your free money thing. So babies born anytime in 2025 through 2028 are gonna get $1,000 put into

[E]

their 538 account from the government.

[D]

That's what's got people.

[B]

Thousand bucks, man. You want to have a baby?

[D]

Thousand bucks.

[E]

Let me.

[D]

I'm here from the future to tell you it costs more than that. Don't do it for that reason. But that's what's got a lot of energy.

[E]

Like that's what was talked about on the super bowl commercial.

[D]

You cannot open the account until the 4th of July, 2026. So if you've had kids born, you know, and you're looking for your thousand

[E]

bucks, you can't open them till this summer.

[D]

You can open the accounts this summer for anyone 18 and under, or I should say under 18.

[B]

Excuse me, starting July 4th.

[E]

Yes.

[D]

That was one of the questions was

[E]

like, well, my kid wasn't born in that age range. This isn't for me.

[D]

No, all of my kids were born before 2025. I will be able to open an

[E]

account for all of them this summer.

[D]

One thing I really like is they must be invested in a US broad based index fund with a, with an expense ratio of 10 basis points or less, market weighted.

[C]

I love that part of it.

[D]

Love it. That's so great. It's taking fees and educating the public that fees matter. Market cap indices are allowed, so you could go all small cap value if

[E]

you want, but you can't do industry or sector weighted investments.

[D]

You cannot Mess with the account at all until January 1st of the year your kid turns 18.

[B]

What do you mean mess with it? You mean change investment?

[D]

You can't withdraw from it. You can't do anything other than what

[B]

if I want to day trade it? If I want to swap between indexes every other day?

[D]

I think you can do that within the allowed index.

[B]

You can change the investments, but you can't withdraw from it.

[D]

Right. And you can't say, hey, I've done it for 10 years, my kid's 10, I want to invest in individual security.

[B]

Right.

[E]

That's what I mean by mess with it.

[D]

So you've got a 17 year old. It's January 1st with your 17 year old now, you can change the investments

[E]

if you want at that moment.

[B]

But Also, is it January 1st after they turn 17?

[D]

No. So they're not 18 yet. It's the year they're going to turn 18.

[B]

Okay.

[E]

Yeah.

[D]

So that's when you can start to change it. But at that same day, you can no longer contribute.

[E]

That's when contributions stop is on January

[B]

1st, because you can contribute to it all along. How much can you put in there?

[D]

$5,000 total. The annual contribution limit.

[B]

I mean, that's a lot of money. I mean, if I pull up Excel here and I put in $5,000 a year for 17 years. Yeah. I got to put on my glasses to do this part.

[D]

What are you going to give it an 8%?

[B]

It's got to be.

[C]

Let's go an 8% return.

[B]

Let's go 17 years. $5,000, right? Yeah. That's $169,000. Yeah. I mean, that's a heck of a start.

[D]

And that 5,000 is adjusted for inflation. So if you actually.

[B]

So it'll be more than.

[D]

Yeah, It'd be over 200 more than that.

[B]

Yeah.

[D]

So it's not an inconsequential amount of money. 2,500 thousand.

[B]

And it's all growing tax free over these 17 years. It's not like your utma. There's no tax drag on it, Right? Yeah.

[D]

So it's more efficient in that way. Your employer, should they so choose, can put in $2,500. That counts towards the $5,000 limit. And that is tax free to the employee. And the employer gets a tax deduction for that. If they put in more than 2,500, that excess is considered taxable income to the employee.

[B]

What if you're the employer?

[E]

Yeah.

[D]

So you get a 2,500. You can deduct 2500.

[C]

I'm the employer.

[B]

I'm also the dad of the kid with the account.

[D]

So my note on here is yeah, wciers are going to want to know. I'm a dentist with an S Corp. Can I put in 2,500 bucks? Take the deduction at the business?

[E]

The answer is we don't know yet that clarity.

[C]

But if you're going to do it,

[B]

you have to do it for all the employees too.

[D]

These things tend to apply how much premonition testing?

[B]

Almost surely that's.

[D]

Now there are some big employers. JP Morgan Chase and BlackRock have come

[E]

out and said they will do the 2500.

[D]

Now notably that's 2,500 per employee, not per kid. So if you were going to do it here at White Coat for me and Meg, it would. We'd have to take the 2500 and

[E]

divide it by three for our three girls.

[D]

So it's 2,500 per employee is the

[E]

amount they can put in tax free.

[D]

And that $5,000 limit is generally true. There are a couple exceptions. The thousand dollars the government gives you not included in the.

[B]

You can put 5,000 in your first year even though the government put in a thousand.

[D]

So 6,000 can go in that first

[E]

year for those babies.

[D]

There's also something called qualified general contributions

[E]

that don't count towards the limit.

[D]

Basically this is like non profits.

[E]

And governments can put in money for certain demographics. Maybe they're in underserved areas or they're a demographic they're looking to help.

[D]

An example of this is the Dell

[E]

family, like of Dell Computers, Dell Technologies,

[D]

they just contributed 6.25 billion to Trump accounts. They're going to put 250 bucks into 25 million accounts for kids who live

[E]

in zip codes where the median income is 150,000 or less. And that 250 bucks does not count towards the $5,000 limit for that kid.

[D]

So okay, that's all interesting. Where the rubber meets the road for me where I think about being a financial planner and would I recommend this? Would I do it for myself, for

[E]

Megan and our girls?

[D]

The burning question is can you convert it to a Roth IRA when the kid 17, the year they're gonna turn

[C]

18, can you do a Roth conversion of some kind? This is what everybody wants to know and I get this question every other day.

[E]

It appears the answer is yes.

[C]

And that because it becomes an ira,

[D]

because it becomes a traditional ira, it

[C]

is now just a traditional IRA with

[B]

some non deductible dollars in it. So, so you should convert it because you got these non deductible dollars in it.

[E]

Yeah.

[D]

So now let's think, you know, I've got some math on that. And you did plus.

[B]

Plus you're 18 or you're going to be 18, 19, 20, you're not going

[C]

to have any income. What a great year to do Roth conversions. Roth conversions, yeah.

[D]

So let's, you know, I had similar math to you. So my hypothetical is you do it 5,000 a year for your kid. You end up with, in my example, 190,000 in the account.

[E]

100,000 of it is growth, let's just say.

[D]

And so you've got 100,000, that's the

[E]

part that's taxable because it was tax

[D]

free growth, the 90,000 tax free return of basis.

[B]

Right.

[E]

So we're not worried about the taxability of that.

[D]

So let's say the kid's gonna have

[E]

four years of low income coming up.

[D]

Well, let's move our $100,000 of growth. Let's do it 25,000 at a time. Well, what's the standard deduction right now as we sit here for a single person?

[B]

16 something.

[D]

$16,100 tax free. So now we've got 9,000 left over

[E]

that we need to pay tax on

[D]

at what's the lowest tax bracket?

[E]

At 10%.

[D]

So I've moved 25,000 of growth plus

[E]

some prorated tax free return of basis

[D]

over to a Roth IRA for 900 bucks. And we do that three years, four

[E]

years in a row.

[D]

We pay our 3,600 in taxes in total. And now my 22 year old has a $200,000 Roth IRA and we paid

[E]

3,600 bucks to get it there.

[C]

That's okay. Optimizer. Did you hear that? You don't even have to be like hardcore optimizer to want to do this. This sounds like a great deal that,

[D]

that now we're on to something, right?

[C]

I mean this sounds, It's a traditional IRA though.

[B]

So they got to pay 10% penalty if they pull the money out in their 20s.

[D]

Yes, it appears that way.

[C]

Maybe doesn't work great for that 20s

[B]

fund, but it's a huge jumpstart on their retirement.

[C]

I mean they're going to have four decades, right?

[B]

So this money's probably going to double four or five, six times. $200,000.

[C]

Doubling four or five, six times. That's their entire retirement. You're basically saving for their retirement before they turn 18.

[D]

You and I have talked and written about the HSA family contribution for your non tax dependent adult Child and same thing. We were like, hey, you can basically have a million dollars tax free for

[E]

your 65 year old if you do that.

[D]

This is another one of those things.

[B]

So the rich families have an extra

[C]

five grand per kid per year.

[E]

Yeah, yeah.

[B]

Are getting another benefit and the poor families get a thousand bucks.

[C]

You originally wrote, politically speaking, that's what's happening.

[D]

And you originally said in your article this summer you were like, look, I'm not really into these, but I think they're good for two groups of people,

[E]

the really wealthy and the really poor. And you just kind of recapped that again.

[D]

Now, one, I'm glad you mentioned kiddie tax earlier because you got to be a little careful around kiddie tax for

[B]

this because a lot of those kids are dependents.

[E]

Yeah, yeah, yeah.

[D]

So you may want to weigh optimizers. You got all excited when I said that you may want to wait until the kid has established tax independence from

[E]

you to do your Roth conversions. Otherwise, if they're considered a tax dependent, we're going to be back in kitty tax.

[C]

For many of you, you want to

[B]

do this as soon as possible, right? You want your kids independent of you

[C]

because you're not getting any benefit for

[B]

claiming that dependent on your taxes anyway because you make too much money. And the reasons why you want them independent is number one, so they can start doing this Trump account thing. And number two, so they can make those HSA contributions, family size HSA contributions to their own HSA because they're on your family HSA.

[D]

And reason three, two great reasons.

[E]

What else?

[D]

Reason three is if you have UTMAs and now once the kids reach tax independence, you're not subject to kiddie tax.

[B]

Good point, good point.

[D]

So I often find that CPAs try to keep the adult kids as dependents, right?

[C]

Because that's the right thing to do for low earners.

[D]

And so I'm telling people all the time, it's like CPAs also tell people

[C]

to roll their 401ks over IRAs, right?

[D]

And so clients look at me a little cross eyed sometime and like, we gotta get these adult kids off of your tax return. They're like, wait, wait, don't I get a deduction? And I put it in $. I'm like, it is inconsequential amount of money relative to these benefits. The benefits for high earners to get

[E]

their kids tax independent is a post one of us should write. Valuable thing I think for our audience to understand.

[D]

But anyway, yeah, that's 530A accounts TBD. If you're listening to this. In the future, feel free to write in corrections. We're still waiting on some clarity that Jim's got his post coming out, Q2

[B]

next year that I haven't started yet.

[C]

It's Q2 this year. I got to write in the next couple of months. But I mean, we don't even know who's going to. Can you go to Vanguard and open them? Can you go to Fidelity and open them? We have no idea. Apparently Robin Hood's the place to go.

[B]

We're going to have confetti and confetti and baby bonus accounts. So it's going to be great.

[D]

So, great question. Thanks for your 30 second question. That turned into a.

[E]

Whatever that was. 20 minute discussion.

[B]

Thanks for doing the research on the updates. There were a lot of questions last summer about Trump accounts and a lot of those got answered in a publication the government put out in December that I haven't read yet. So Tyler looked at it and I think we've covered all the important points and most of the important questions about it. Okay, let's get on to the next thing here. This is Another question about 529s, I think. Yeah. And given we've covered them pretty extensively,

[C]

hopefully we can answer this question pretty quick, but. Oh, this is great. This one's only 30 seconds long too.

[G]

Thank you, Dr. Daly, for all you do. I am a sports medicine employed private practice physician in the Midwest and have a question regarding use of 529 accounts. I was wondering if I could potentially use money that I put into a 529 account for CME as I'd also be using this account to put $10,000 in to max out this for paying off of my student loans. Thank you for all you do.

[C]

Okay, great question.

[B]

We didn't cover this deliberately. We didn't cover this. Huh?

[C]

When does this Podcast drop, Megan? 19th of March, before WCICON. This podcast drops. So I know the burning question you all have is whether you can use your 529money to come to WCICON. That's what you want to know. Really?

[D]

So how we're framed.

[C]

Tyler, you want to answer this question for me?

[E]

Yeah.

[D]

I mean, the short answer is yes, the oba again, this tax bill from the last summer expanded the use of 529 money as we've been talking about in these other cases. And you can use your 529money now to obtain a state required license or

[B]

credential, like a medical or dental license,

[D]

and to maintain it.

[B]

And so, yes, including the education required to maintain it, which for most of you is 20 or 25 or 30 hours a year of continuing education.

[D]

Now, not for travel to get there, not like optimized. Yeah, not for the food you're eating like. So just pump the brakes a little bit before you get too big of eyes for this. But legitimate credentialing maintenance is covered. Also selfishly for me, like the CFP exam and coursework is now covered as well in this broader definition of vocational training and licenses. So those of you out there that want to leave dentistry and become a financial planner, you can use your 529money to take the CFP coursework for five

[E]

or six thousand bucks and take the

[D]

$1,000 examination and to get your CFP license.

[E]

Those kind of things are now covered.

[D]

Important to note, we spent some time before this trying to look up chapter and verse of exactly, you know, is AMA Category 1 and covered. And we couldn't quite pin that down. So any of the listeners out there,

[C]

if you have details, but everything we see suggests that if it's legitimate CME, it counts and WTicon is legit CME. So we think you can use your 529 to pay for it.

[B]

Not for the hotel, not for the airfare, not for the food, but the conference fee, you can use 529 to pay for it.

[D]

Now, do you want to take a minute and help people understand the difference between CME and business expenses?

[E]

Because that's the other area where I think people will go with this and like wait.

[D]

Because I think a lot of our listeners, they categorize CME and they start

[E]

thinking scrubs and stethoscopes. And right.

[B]

First of all, recognize the CME is not scrubs and stethoscopes. So that's the first point, right? You can't go buy your scrubs with 529 money. Okay, so let's make that really clear. Sometimes you're better off taking something as a business expense than using your 529 to pay for it.

[C]

I mean, really, we already talked about this, right? Save the 529 from the grandkids for the grandkids. It's going to be like a bazillion

[B]

dollars in 30 more years. But if you can take something as

[C]

a business expense, that's generally your best

[B]

tax break for anything, right? All business expenses are paid for with pre tax money. You don't have to pay payroll taxes on em, you don't have to pay

[C]

state income taxes on em. You don't have to pay federal income taxes on em.

[B]

Anything that's a legitimate business expense, I guess. Food. There's a little restriction there. You can only deduct 50% of food, but anything, you know, scrubs, stethoscopes, CME, that sort of stuff you're buying with pre tax dollars anyway.

[C]

So if you're self, this is probably

[B]

not the way to pay for your cme. But if you're an employee, you've already exhausted any CME fund your employer has offered. You still want to come to WCICON?

[C]

You got a 529 left over. Or you want to change some of your kids 529 into your name.

[B]

That's a legit expense now. So as of last summer, just for the registration. Actually, when does it start? Did it kick in? The legislation passed.

[C]

Yeah, that was it retroactive back to

[B]

the beginning of 2025.

[E]

I don't know on that. Some of them were. Some of them started January 1st. I don't know.

[D]

I know that's true.

[E]

Right.

[B]

Got a correction on this podcast for one of those that I missed. I don't even remember what the deduction was, but I screwed it up. I said it was 2026 and it kicked in retroactively to 2025. I wouldn't be surprised if this one does too.

[E]

The standard deduction last year changed kind of retroactively.

[B]

But nobody thought to use their 529 for this stuff before Obva anyway.

[D]

And when we say Wcicon, it's just if the registration for the conference is

[E]

2,000 bucks, that's the part we're talking about.

[D]

Thank you.

[C]

Or if you want to come virtually, it's like half that much. And there's no hotel anyway. Right.

[D]

Good shameless plug. And so that's the part we're talking about. And then again, just word to the optimizers who heard you on the business

[E]

expense piece, you can't double dip.

[D]

That's the. Right.

[B]

Right. Excellent point. Excellent.

[D]

It's one or the other. We're not going to pay for it with the 529. And now listed as a business expense. If it seems too good to be true, it is.

[B]

That's a general rule for all taxes. Keep that in mind. If you feel like you're getting a double break somewhere, you know, you're getting a, you know, education credit, you know, for sending your kid to college. And you're also paying for it with 529. That doesn't fly either. Right. You can't deduct it on schedule A if It's a healthcare expense. And then use your HSA to pay for it. Right. You get one or the other, you don't get both.

[D]

One thing he tagged on there just in closing, you know, he said, I'm

[E]

going to use $10,000 of it to

[D]

pay for my student loans.

[E]

Like we mentioned earlier, right?

[D]

If you get a tax break, a state tax break, from making a 529 contribution and you still have student loans, you can run $10,000 through one time. It's not much like here, you and I in Utah, we get 500 bucks. Yeah, we get a couple hundred bucks.

[B]

I wouldn't even be that much, would it? It'd be 200 bucks.

[E]

Yeah.

[D]

No one's getting rich on this. But if you're going to do it anyway, if you're going to pay off 10,000 of your student loans and you've

[E]

got some optimizer tendencies and you're in a state with a state tax break,

[D]

go ahead and put the 10,000 in the 529 for yourself, take it out

[E]

the next day and pay your student loans off, and then on that year's tax return, you can claw back a few hundred bucks.

[C]

This is a great move for a

[B]

lot of you paying private K12 tuition. Right. You might as well run it through the 529 to the level that you're getting a state tax break. And some states are pretty generous. Some states will give you a tax break on up to $10,000 a year, run through a 529. So, you know, I mean, might not help that much if you're paying 30 grand for high school tuition, but it's better than a kick in the teeth.

[C]

Okay, we have waxed eloquent today, Tyler,

[B]

and no surprise, you put two hosts on together and you end up with a longer episode. And I hope it's been helpful to you guys. We jumped into the weeds a little bit, but we covered some burning questions you guys have out in WCI land and hopefully clarified some things and made some interesting content. If not, let us know. Tell us that Tyler ought to be doing all these podcasts from now on. I shouldn't do any of them. That's okay. Feedback to send in. And we do appreciate the feedback you guys give and the corrections you send in. We try to get into the weeds. That means we screw up a lot. And your corrections help us to at least be accurate. Our sponsor for this episode was Resolve. They're the number one rated physician contract team. They have reviewed 1,000 plus physician contracts every year. They empower physicians with location specific compensation data, which leads to unparalleled leverage during the physician contract negotiation process. A physician contract lawyer is included and can negotiate on your behalf, alleviating the stress that can go along with reviewing complex legal terms. Flat rate pricing and flexible schedules are designed for a physician's schedule use code WHITECOAT10 for 10% off all right, don't forget we've got that Match Week promo we told you about. If you book a [e-mail], we're going to throw in fire your financial advisor the resident version for free, so be sure to check that out. All right, thanks for leaving us five star reviews. They do help us to spread the word about this fine podcast. A recent one came in from an SC who said, excellent. Best personal finance podcast there is. Listening to this for six months is probably going to be worth millions over the course of my career. Thanks for making this outstanding podcast five stars. We appreciate that.

[C]

And thanks for making it a five star review too, unlike the one we

[B]

had a few weeks ago.

[C]

That said lots of nice stuff, but

[B]

it was only a one star review.

[C]

So thanks for actually hitting the fifth star.

[B]

We appreciate that.

[C]

All right, keep your head up and shoulders back.

[B]

You've got this. We'll be here to help every step of the way. Thanks so much for what you're doing. See you next time on the White Coat Investor Podcast.

[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.