College is getting more and more expensive. That’s why it’s important to start planning now.

Local financial professional Ryan Wheless of Allied Wealth joined Owen Conflenti and Amy Davis of KPRC 2 on KPRC 2+ on Friday to share his thoughts on 529 education savings plans. Watch the full interview in the segment at the top of the page.

Here are some of his suggestions:

Q: WHAT IS A 529 PLAN?

  • A 529 plan is a way to save specifically for college expenses, but only 37% of families used this type of plan to help pay for college last year.

  • The money you contribute is tax-free and can be used at any time for qualified education expenses, including K-12 private school tuition, tuition, room and board, books, computers, printers, Internet service, as well as colleges, trade schools and apprenticeships.

  • Anyone can contribute to a 529 plan and the contribution limits are high.

  • I have a 529 college savings calculator on my website, alliedwealth.comto help you get started.

Q: WHAT ARE THE TYPES OF 529 PLANS?

There are two main types of diets.

savings plan

  • This is the most common type of 529 plan.

  • The person who controls the account will deposit money, and the account holder will then choose which mutual funds to invest that money in. Depending on how these funds evolve, your account can either grow or shrink.

  • In addition to using the money for eligible educational expenses, the SECURE Act of 2019 extended 529 tax-free withdrawals. You can now use these funds for registered apprenticeship program expenses and up to $10,000 in student loan repayments.

Prepaid Tuition Plans

  • These plans are only offered in a few states and universities. They allow you to lock in your child’s tuition at current rates if they are out of college for a few years.

  • Like a savings plan, your money will grow over time and is tax-free.

  • You can only use these funds for tuition and they are not available for K-12 education, unlike a savings plan.

Q. WHAT IF MY CHILD DOES NOT COME TO COLLEGE?

  • Sometimes plans change!

  • If your child decides not to go to school or ends up not needing the funds to pay for their education, be prepared to pay income taxes and a penalty for withdrawing the money.

  • There are a few cases where the penalty can be waived:

  • Beneficiary receives tax-free scholarship

  • Recipient attends a US military academy

  • The beneficiary dies or becomes disabled.

  • The portion of the earnings will still be subject to federal and even state income tax.

Q: HOW CAN WE BALANCE SAVINGS FOR OUR CHILDREN’S EDUCATION AND OUR OWN RETIREMENT?

  • If you put off saving for retirement to save for your child’s education, you may regret it in the long run.

  • We recommend that you save 10-15% of your salary in your sponsored 401(k) plan. If you can’t handle that, you need to contribute at least enough to get the company match.

  • At Allied Wealth, our comprehensive retirement planning process gives clients confidence that their retirement savings will last.

  • Just as you encourage your own children to achieve their education goals, we encourage you to achieve your retirement goals.

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