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Evaluating the Most Efficient Way to Save for a College Education – Doug’s Quiz Corner

Posted by Doug Hutchinson | CFA®, Director of Research and Trading

August 17, 2018

What Are the Advantages of Using a Roth IRA vs. traditional IRA vs. a 529 Plan When Saving for College Costs?

Consider this Scenario:

Your friends Dan and Ashley have a son who will start college in 7 years. They would like to save some money for his college fund, but they are unsure about the best way to do so.

Right now they have $10,000 in cash set aside for this purpose. Over the next few years, they’d like to continue saving more money for his college education.

To make the most of what they’ve already saved, they’re considering putting the $10,000 into a 529 plan, into a traditional IRA ($5,000 into Dan’s and $5,000 into Ashley’s), into a Roth IRA ($5,000 into Dan’s and $5,000 into Ashley’s) or doing some combination of these options.

Assume that Dan and Ashley will receive a full state tax deduction on a $10,000 contribution into a 529 plan. Also assume that they meet eligibility requirements to contribute $5,000 each into their traditional IRAs and/or Roth IRAs.

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529 Plans Doug's Quiz Corner

How Jobs and Financial Markets Intersect

July 11, 2018
How important are jobs and the unemployment numbers to financial markets? So important that strict rules were put in place over 30 years ago in an effort to prevent the numbers from being prematurely released to the public. Generally speaking, the only people with access to the numbers – before their official release – are the staff of the agency issuing the data, and the President of the United States and his executive team. Since the jobs numbers are considered “market-moving data,” it makes sense that the data should be treated, in a sense, like insider information. Here’s how it works: The Bureau of Labor Statistics (BLS) releases its monthly employment report on the first Friday of the month, at 8:30 AM. But the night before, the president and several senior administration officials — including the Treasury secretary and the chairman of the Council of Economic Advisers — are briefed on the numbers. By rule, no one can discuss the numbers at all before the official release at 8:30 AM. In fact, the data is considered so sensitive that staffers are supposed to wait until a full hour after the release to make any public comments about it. [+] Read More

Plan Now for Education Later: 529 College Savings Plans

June 29, 2017
With the cost of education continuing to rise, and the requirements for minimum workforce entry showing no likelihood of decreasing the importance of a post-secondary education, it’s more important than ever that college costs are considered and incorporated into your budget as early as possible. For all the readers who have children, grandchildren, nieces and nephews who are a constant source of excitement and joy, making sure these children get a world-class education is of paramount importance. But paying for college is a completely different ballgame. [+] Read More

Are You Sacrificing Retirement Savings for College Expenses?

November 30, 2016
If the answer is “yes,” you are among the 67% of parents who said that saving for their kids’ college education is more important than saving for retirement, according to an August 2016 T. Rowe Price Survey. The survey also produced some other insightful, “you’re not alone” data: T. Rowe Price found that 28% of parents have student loan debt (either for their kids or themselves), and 5% have student loan debt for both. The survey also revealed the average amount of student debt for parents that participated in the study was $27,078 – and that’s just for the parents themselves. The average amount of student loans for their kids was $10,768.1 [+] Read More

7 Things You Should Know About 529 Plans

November 17, 2016
Let’s start with the basics: what is a 529 Plan? Many investors may already be aware, but in layman’s terms, a 529 plan is a state or educational institution-sponsored college savings program (also applies to post-secondary education). 529 plans are not for everyone, but when utilized they can provide several advantageous benefits for those hoping to save for college. Here, we try to give you a comprehensive view of those benefits, as well as a few important considerations: [+] Read More

Gifting Rules Associated with 529 Plans

November 7, 2016
In a recent post on 529 plans titled, “Helping You Understand the Basics of 529 Plans,” we discussed some features of 529 plans work and whether they might make sense as part of your comprehensive financial plan. [+] Read More

Helping You Understand the Basics of 529 Plans

November 3, 2016
529 plans are college savings plans sponsored by state or educational institutions. Congress created them in 1996 to provide a tax-advantaged way for people to save for college or other post-secondary education. There are numerous features of 529 plans and a wide variety of options when it comes to choosing one, so it’s prudent to consult a financial planner before making a decision. Below are some questions to help you understand the basics of 529 plans to help you get started. Who qualifies for a 529 Plan? Any U.S. citizen over the age of 18 and of any income level can open a 529 plan, and the beneficiary of the plan can be anyone with a Social Security number or tax I.D. The beneficiary can be a future college student of any age—the plan isn’t necessarily limited to people under the age of 18 who haven’t attended college yet. The owner of the 529 plan may also change the beneficiary (for example, to a different family member) if they wish. How do 529 plans work? Contributions to 529 plans are after tax, but the earnings grow tax-free on the federal level and may also qualify for state tax deductions. Once the beneficiary goes to college or a qualified post-secondary institution, distributions from the 529 plan that are used for qualified education expenses are not subject to federal tax. [+] Read More