Using a 529
episode
DIY Money | Personal Finance, Budgeting, Debt, Savings, Investing
13 min
5 speakers
2 chapters
transcribed 1 month ago
Transcript
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Transcript generated automatically by AI and may contain errors.
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Hey, this is Allie, and thanks for listening to the show. Give us a five-star review where you listen and share this episode with someone who might need to hear it. Now, enjoy the show.
Welcome back, ladies and gentlemen. You're listening to another edition of DIY Money.
DIY Money. Hey, Howard. What do you want to talk about?
I don't know. Listen. What's new? Nothing. Let's skip all the nonsense. Let's move right into this stuff.
Okay.
Various odds and ends. This podcast sponsored by Jewel Financial. J-O-U-L-E. Financial.com. Visit us on the web. We also have a lot of new listeners. We are so appreciative of you. Thank you for sharing this show with friends and others. Also, give us a five-star review. Hit us up on all the social. If you are still on Facebook out there, which millions of people are, hit us up on the DIY Money Tribe. And we need questions. Audio questions. Send a podcast at DIYMoney.org. That's podcast at DIYMoney.org. And if we use it on the show, we will give you a $25 Amazon gift card. All right. We got a great question today. Before we do, let's pause for our sponsors. All right. Thank you. We've got a question from Mark today.
Mark, what do you got?
D.
Hey, DIY Money. This is Mark from Independence, Kentucky. My wife and I have seven kids. Our youngest is six and the eldest is 20. We are committed to paying for 30 credit hours of their college through dual credits while they're in high school. Right now, we're just paying the tuition out of our savings account. I'm wondering if there are any tax advantage options, like a 529, that we can utilize. Thanks for all you do. Go Cats!
Go Cats.
Let's go. Yeah. Hey, Ortega Owe. Staying at Kentucky. I can't wait. Oh.
I loved him.
He is great. He is great. It's going to be an exciting year. Can't say that much for football this year. We'll just have to see. All right.
Move on.
Nothing to see here. Moving on to the question.
Moving on.
Okay. Did he say seven? Kids? Oh, I was like seven. I think he did. Wow. In Independence, Kentucky.
Independence, Kentucky with seven kids.
We should have done that question first today.
Bravo to you, Mark. That's phenomenal. All right. So I think what you're asking, and I'm going to let Allie break down some of the nuances here, but a lot of people look for... Tax breaks like credits, like, oh, if I invest in an IRA, I get a deduction or I don't get taxed on that money. So, for example, 401k amounts are pre-tax. If you take it in your paycheck and then you go ahead and make an IRA contribution, you get to take that as a tax credit or deduction, if you will, off your tax return. And so it sounds like you're like, is there any tax favorable? Because you have this in your savings and you've been paying for this and you're, again, thinking maybe there's a better, more tax-efficient way.
The answer is there's not, unfortunately. There's no mechanism by which you put money in and then therefore you get a tax break for you investing in something for your children to use for education. So, unfortunately, no, there's not. However, what that's often confused with is a tax favorable way to save for college through what's called a 529 plan. Now, 529 just stands for the IRS code. that governs educational savings accounts. Now, I say that, and then I just thought to myself, well, it's not really an ESA, because there's an actual other thing called a Coverdell ESA, and that's not what we're talking about here. We're talking about 529 college savings plans. And that's also a little can be confusing because now they can also be used for private education like primary school or secondary, whatever, like non-college private schools.
You can use the 529 monies for as well. So it's not just college savings anymore. But those are taxpayers. favorable ways to save for college but don't confuse it with putting money in and like you have an IRA you get a deduction for it that's not what you get you put money into that and it basically is never taxed again so if you put a thousand dollars into an account when your child is first born and and it grows to $25,000 by the time they go to college, and you take that $25,000 and you use it to pay for college, you are not going to pay any capital gains tax.
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