Are you making the most of your child’s education fund? Join Paul Sydlansky, CFP® from Lake Road Advisors as he shares expert tips on how parents can best prepare to pay for college using a 529 account. Learn the power of tax-free growth, the benefits of starting early, and the importance of not being too conservative with your investments.
Topics Discussed:
- The importance of using a 529 account
- Starting early and dollar-cost averaging
- Tax-free growth
- Avoiding over-conservative investments
Transcript:
Hi everybody, it’s Paul Sydlansky from Lake Road Advisors. Welcome to Episode 17 of the build, where we’re going to talk about what you can do as a parent to best prepare yourself to pay for college. The best saving vehicle out there for college is the 529 account. And the best advice we can give you about funding that 529 account is to start early. Now, we know not everybody has the ability to put a large lump sum of cash in when your child is born. However, if you can’t do that, start early and dollar cost average, meaning set up monthly deposits to go into the account starting as soon as your child is born. And as you have the ability, increase those amounts.
The reason why the 529 is so powerful is because of the tax-free growth element. If you had invested $20,000 In a regular brokerage account, and that grew to $100,000, you would owe taxes on that $80,000 in long-term gain, probably at a 15% rate on the federal side, then maybe 4 or 5% on the state. However, if that money is invested in a 529, and that $100,000 is used for school, well that $80,000 is tax-free. So you’re essentially saving 15 plus another 5% on that 80,000 of growth. That’s really powerful. In the slide we provide here, you can see how putting in either $250 or $500 a month can greatly impact the total growth of your account over time.
The next point I want to share with you when it comes to maximizing your child’s education fund is to not be too conservative. What I mean by that is if you take a look at this slide, you can see the difference that a 4% versus a 6% return means to long-term growth of an account. In this example, an investment of $100,000 at 4% gets you to about $202,000. However, if you’re able to get a little bit more return, that 6% return would bring you $284,000 Plus, again, a huge difference. So when you’re investing, be very aggressive when your child is young, and even toward the end, when your child gets close to college don’t always move to all cash or all bonds. You still want to take some market risk to get some of that growth.
So to recap, as a parent, invest in a 529 account, start early. A lump sum does much better if you can do it than monthly payments. And also don’t be too conservative. Start out aggressive. Try to get that growth. That growth is the biggest advantage and the benefit you get out of the 529 account.
Thanks for listening. We look forward to seeing you next time on episode 18
Lake Road Advisors (LRA) is a virtual wealth management firm headquartered in Corning, New York, with offices in Ithaca, NY and Portland, OR, founded by Paul Sydlansky, CFP in 2016 to provide financial planning for busy mid-career professionals with young families. LRA partners with couples long-term to build financial plans that allow them to live the life they want while preparing for the future by making smart money moves to grow their wealth. They can be reached by phone at the Corning, NY office at (607) 463-8400, Ithaca, NY office at (607) 438-2914, or Portland, OR office at (607) 292-2172 or at the firm’s website at https://www.lakeroadadvisors.com/
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
