Saving for College: 529 Plans and Investment Strategies

Parents should consider 529 plans for college savings, even with limited time, due to tax benefits and potential growth.

### Saving for College: Navigating 529 Plans and Investment Strategies
* 💰 Vicki inquires about the best approach to saving for college as her oldest child is 14, raising concerns about the **limited time for compounding growth** in a 529 plan.
* 📊 It’s essential for parents to check their state's incentives for contributing to 529s, as some states, like Georgia, offer **tax deductions that can enhance savings** even with a shorter investment period.
* 🌱 The advantage of 529 plans lies in their **tax-deferred growth**, allowing funds to grow **without tax implications** if used for qualified educational expenses, making even **short-term contributions beneficial**.
* ⏳ With an eight-year time horizon when considering both pre-college and college years, investing in a 529 is still a viable option, as it can yield **tax-free returns** even if only funded for a couple of years.
* 📉 Diversifying investments is crucial; while some funds may need to be **more conservative for immediate college expenses**, longer-term investments can afford to be **more aggressive**.
* 🔍 Utilizing age-based investment options in 529 plans can help manage risk, as these **automatically adjust to become more conservative as college approaches**.
* 💡 Ultimately, parents should evaluate their financial situation and risk tolerance, balancing **short, medium, and long-term goals** while considering **diversified investment strategies**.

[Music] okay, we do have a question queued up from Vicki. Ready for it? Yes, ma'am. All right. She says, Is it better to save cash for college once kids reach a certain age? For context, we are finally at the point where we can put money aside for college, which is awesome, but their oldest is 14, so they don't have quite as much time for that compounding growth in, you know, a 529 or something like that. What would you say to parents in that situation? You know, I get this surprisingly. I actually get this question all the time. It makes sense. Yeah. Do I even need to do a 529? Is it even worth it? And this is what I tell people. First of all, Vic, you need to look at your state. Is there an incentive for you to make contributions to your 529s? Like, if you live in the state of Georgia, even if you only have a short time period, you get a state tax deduction for putting money into the 529. So, number one

that's like something you should look at, but number two, why do we like 529 assets? Why are they valuable? Well, because you can put the money in, and it can grow tax-deferred. And if you use it for qualified educational expenses, it's completely tax-free when you pull it out. So, even if you only put it in for one year or two years, and it is even in like a very conservative age-based investment option, and you make 5% or 6%, that's still 5% or 6% that's tax-free. So long as it's not incredibly cumbersome to open the account and pay the money out. And like at 14, you got to think, I've got four years until my kid starts college, but there's also going to be another four years while they're in college. That's like an eight-year time horizon. I would call that like medium to intermediate term. I don't think it's crazy. Now, if your child was 17 or 18 about to start their freshman year, is it

Make sense to fund to 529 maybe not, but I think even with three, four, five years out, I don't think it's crazy to do it. You just got to figure out how much makes sense and how logistically difficult will it be to get the dollars in there. Agree, disagree? No, I thought you covered a lot. You had tax benefits. I was go check your state. Saving for college.com used to be a great resource for that if you're looking for some place to go check it out. The I immediately, and I love that you just did what you said. You said if you add on the four years that they are like four to five years they're in school, you might be at eight to nine years time horizon here. And I don't know if it's a human condition where we always think in binary terms, is it's zeros and ones, meaning that I'm either going to go cash or I'm going to go wide open. That fortunately in finance, you don't have to.

be binary with your decisions. You can actually be what we call diversified, and there's nothing wrong with you. Yes, now with four years, you know knowing that some of that, a portion of that money is going to need to be ready to serve and actually pay for the college in four years. You probably want that to be somewhat conservative 'cause that's definitely short to midterm in its time horizon. But as Bo shared that Junior and Senior year, that's clearly long-term. So why couldn't you have a little diversification going on where you have some equity investments for those years and then every year, but it's got to put you, it's got to give you homework, it's going to be on your shoulders to make sure that you are dialing down that risk profile. Now look, you probably could go ahead, a lot of 529s do have age-based programs. One, somebody in the chat just said, Hey, what if I put the money in and the market

drops 30%. Yeah, and I don't mind sharing that. You know, I put my daughter's, my oldest daughter, is a junior in college now, or rising junior, goes back in like 3 weeks. And it's interesting to me, CU. I did the age-based 529 option for her. It does get pretty conservative pretty quick. I will tell you that. But if you don't feel comfortable taking that, handling that responsibility, you can choose the age base. They're going to dial down the risk appropriately through that glide path. But if you want to look at this, break it into what's short-term goals, what's mid-term, and what's long-term, and invest accordingly through diversification, I think that's great.

Save for College Now or Wait? (Our Oldest Is 14—What’s the Best Strategy?)

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Saving for College: Timing and Strategies

Saving for college is beneficial, even with a shorter time frame, as 529 plans offer tax advantages and potential growth.

It's important to check for state incentives for contributions to 529s.

With an eight-year time horizon, starting to save now can still make a significant impact.

Funding a 529 plan for college, even with a few years to go, can be a sensible option.

It's important to consider the tax benefits and check state resources for guidance.

The time horizon for saving can extend to eight or nine years, and there are flexible financial strategies beyond just choosing between cash or a full investment.

Diversifying College Savings: A Balanced Approach

Diversifying investments for college savings is important, with a portion of the money needed to be conservative for short to midterm needs.

Equity investments can be considered for the Junior and Senior years, allowing for a balanced risk profile.

Age-based programs in 529 plans can also help manage the investment strategy.

Investing for College: A Personal Perspective

The speaker shares their experience with their daughter's college fund, using the age-based 529 option for a conservative approach.

They emphasize the importance of choosing an investment strategy that aligns with short-term, mid-term, and long-term goals.

Diversification is highlighted as a key strategy for managing risk in college fund investments.