4 Seasons Podcast

The 529 Plan: Jeff Bingham Discusses Your Child's Financial Superpower

• Jeff Bingham • Episode 17

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What Options Does B&H Offer To Help Plan For College Savings Or Educational Funding?

The weight of college expenses keeps many families up at night, but strategic education funding can transform this burden into a manageable part of your financial journey. Jeff Bingham, President of B&H Wealth Strategies, breaks down the complexities of saving for education in this straightforward, information-packed episode.

At the heart of education funding strategies lies the 529 plan – a powerful vehicle that offers tax-free growth and distributions when used for qualified education expenses. Unlike older education savings options, these plans allow for substantial contributions with impressive flexibility. Parents or grandparents typically serve as custodians, maintaining control while the child is named beneficiary. The real magic happens when you understand how these accounts can adapt to changing circumstances: unused funds can be transferred to siblings, other family members, or even held for future generations, creating an educational legacy that extends far beyond a single student.

The episode explores practical applications for different family situations, including how grandparents can transform required minimum distributions from retirement accounts into meaningful educational gifts for grandchildren. Jeff also highlights complementary strategies like leveraging community college programs such as Tennessee Promise, which can potentially cut a four-year degree's cost in half without compromising quality. This balanced approach acknowledges the reality of rising education costs (approximately $25,000 annually for in-state tuition at the University of Tennessee) while offering actionable solutions that won't derail your broader financial goals.

Ready to develop an education funding strategy that works for your family? Schedule your free 20-minute consultation with B&H Wealth Strategies by calling 423-247-1152 or visiting bhretire.com. Your child's education is too important to leave to chance – start planning today.

To learn more about B&H Wealth Strategies visit:
https://www.BHRetire.com
B&H Wealth Strategies
423- 247-1152

Speaker 1:

Welcome to the Four Seasons Podcast brought to you by B&H Wealth Strategies, serving Northeast Tennessee and Southwest Virginia since 1966. Here we guide you through the ever-changing seasons of your financial journey, offering insights to help you grow, protect and enjoy your wealth. Ready to turn your financial dreams into reality, dare to dream. And now here's your host. President of B&H Wealth Strategies, jeff Bingham.

Speaker 2:

Saving for your child's first semester or planning for grad school education funding can feel very overwhelming. Jeff shares the smart, flexible options that B&H Wealth Strategies offers to help families invest in their future without sacrificing financial peace. Welcome back everybody. Skip Monty, co-host slash producer, back in the studio with Jeff Bingham, owner of B&H Wealth Strategies. My youngest is a junior down there.

Speaker 3:

They've started back. But this is. This is all back to school time right now, as summer ends and we wind into the school year.

Speaker 2:

Thankfully, I'm a little past that personally, but I know there's a lot of my friends and folks. Family are not and they're like you. They got one or two, I had three in college and costs continue to climb. So I can't wait to hear how B&H helps families stay ahead of the curve on that. So take it away.

Speaker 3:

That was a softball toss to me right there. Yeah, I had two, and at one time with my older two, and then I had a and my youngest, juliana, was born 10 years the junior, if you will, my oldest. So I'm. I'm the guy that at college or at high school graduation was like 10 years the junior, if you will, of my oldest. So I'm the guy that at high school graduation was like is that your?

Speaker 3:

grandfather. So yeah, but, like I said, college it's expensive. My daughter is at UT so I can talk about the expense of that and how to deal with that. So there's I think there's some preconceived ideas that are out there and probably some things that might be cleared up. But the primary thing that we use here, outside of some cash flow, that you deal with college education, there's no question about that, depending on what your circumstances are.

Speaker 3:

But 529 plans if the audience out there is heard of and may not be completely familiar with it out there is heard of and may not be completely familiar with the 529 plans are, I think, not only the most used now but really kind of adopted and replaced most of the old Coverdell ESAs and the various things that were out there over a period of time. So the 529 plan has blossomed and allows you to get much more money into those and so there's probably some familiarity out there that people have. But I'll describe as best I can what a 529 plan is and the 529 is just going to be an IRS section code thing to look at, but what it is a way to fund You're putting in, you're not putting. You get no tax break on the way in, when you fund it, and there's some limitations that we'll talk about in a minute of how you can fund it. But you can start it as soon as a child's born, or grandparents can often do these kind of things. But basically you're going to open up an account for your child where either the parent or a grandparent is going to be the kind of custodian for that 529 plan and again, there's no tax advantage on the way in.

Speaker 3:

So you're putting in after tax dollars into a 529 plan but the money grows on a tax free basis, right? So yeah, 529 plans, there are no tax advantages of putting the money in. In other words, you don't get to put in before tax dollars like you do in funding an IRA. And there were some plans that were very limited in their scope in the back that have now been, I think, eliminated. I may be wrong, it may still be available, but don't allow you to put much money in. But you do get a little bit of a tax break in doing it the old ESAs, coverdale IRAs, as they were referred to. But the 529 plan you put in after-tax dollars but the money grows on a tax-free basis and then, as long as you're distributing it for legitimate college education expense, the money distributes on a tax-free basis. So again, a bit like think Roth IRA, right, you put in after-tax dollars, money goes tax-free and it distributes on a tax-free basis. Do you wanna get the tax break on the seed or do you wanna get the tax break on the crop? Is the way that we used to refer to Ross, and the same thing is true with 529 plans. That's how they work, and so it's a very powerful funding vehicle.

Speaker 3:

You start it early for a child you can put in. You don't have to, you don't have to fund it as heavily, just like an IRA. The sooner you start, the better off you are. And the interesting thing too about 529 plans is and maybe I need to point this out again is that you open it up in the child's name. But a parent or maybe a grandparent, depending on who's funding and how you want to do that is going to be the custodian right. So they're going to be, and the child will be the beneficiary of this account, so that child doesn't have anything to do with controlling it right. So it's not something like that.

Speaker 3:

We can talk about UGMAs and UTMAs. There are some other vehicles that are possible to use that have. I think that aren't nearly as powerful and have some drawbacks to them, but you can. If you have multiple children, you can pass. If one doesn't use all of their 529 plan, it can be passed on and change. You can change the beneficiary. You can change to your other children's name, or even if you go to school or you've got nieces or nephews or other people you'd be interested in, you can put it in their name so you can still use it for college funding.

Speaker 3:

If you're fortunate enough to where you've overfunded a 529 plan, let's say, and your child has scholarships and they don't use it up, what do you do with the money? You may have another child that doesn't you may have by the time you do this. You may have grandchildren perhaps or something, and so you can give it. We can get it and put it in the grandchild's name so it can have a multi-purposed 529 plan. It can be passed through the lineage, if you will right there, but it also is something that you can bring back into your own assets.

Speaker 3:

In a 529 plan, skip, if you had one for one of your children and they didn't use it all, and they didn't use it and you didn't have any other way to use it and you needed it or wanted it back into your assets right To use for you and your wife. Then you can bring it back in. Where you have to deal then with the taxation on it right. So with the growth right, You've got a cost basis in it. So let's say you put and I'll just use easy math you put $10,000 into it. It's worth 20 and you claw it back in to your own asset mix.

Speaker 3:

Let's say you want to un-529 it. You bring it back in and you have $10,000 that you invested in. It's now worth 20, you're going to pay tax on that $20,000 and you'll pay a 10% tax penalty, much like you do with an early distribution from an IRA or a 401k plan, that kind of thing. So it's not without cost, but you can bring it back in. It's not the worst thing in the world and you have enjoyed that tax deferred growth on that asset. So it has some flexibility into it.

Speaker 3:

And that's what I would say about a 529 plan. You get some flexibility out of it. And we were talking Matt was giving me the numbers because I'd forgotten what they were you can single fund a 529 plan with $95,000 into it and that's basically you're funding it with five years worth of the max funding that you can do, which $15,000 a year is what you can fund into a 529 plan. But you could do or I'm sorry, I said 50, excuse me, $19,000 is what you can fund with just 95 divided by five is all that is, and I did poor arithmetic the first time I did it, sorry about that. You can, but yeah, so it's. And do you need to put $95,000 into it?

Speaker 3:

Depends on where your kid's going to go to school. What are your education wants? That's a lot of money. You do it early. That's a lot of money that you're going to have in there to do. But college is extremely expensive, I guess the full, you know, just thinking about the University of Tennessee, if you don't have scholarships and the Hope Scholarship and various other ways to do it. Just the cost for education down there it's about 20, and this is not all rounded. It's about $25,000 a year. So that's $100,000. Education that's without room and board, that's just tuition is for something like that at full freight if you will, and there's that state school here and that's not nothing That'll hit your pocketbook a little bit.

Speaker 3:

College is expensive. But if you go to private school, you go out of state, you start looking at those kind of things. Expenses just go up and up. It's in grandparents. We have a lot of grandparents that will fund their grandkids College education. Let's say they've got to take a required minimum distribution, which we've talked a little bit about a couple of times on here.

Speaker 3:

When you get to be the age now is 73 years old. Let's say you get to be 73 years old, you've got an IRA that you don't need any of it or all of the income that has to come out of it. You still have to push that income out because the government forces that distribution at that point in time. And if you've got if that's extra discretionary funds that you have, a lot of my clients then will say we'll talk about, let's fund a 529 plan for your grandchild, and grandparents love doing those things. They love taking care of their grandchildren and they want them to get quality education and it's not so. They do those things for Christmas and other birthdays and things like that, where it's a meaningful gift, something that will endure and pay them throughout their lifetime.

Speaker 3:

When you think of it like that, I mean you think about. What we're trying to do is build these family legacies and use money as efficiently and effectively and as a tool for bettering society as a whole, but certainly bettering your family. What a gift for a grandparent to take a required minimum distribution fund, a 529 plan, for their grandchildren that then can go and get a high quality higher education. It's just, it's a legacy that another way to legacy plan is the way it is and give that gift of knowledge to to the next generation that can be passed again to the next generation as well. It's just multi-generational planning.

Speaker 2:

Very good, Now we've only got a couple of minutes left, but I wanted to ask what your thoughts are on. Is it the and forgive me if I'm not calling this the right thing, but Tennessee Promise? We're using community college, which is free. Yeah, oh no, I mean, what's your thoughts?

Speaker 3:

No, I think, yeah, yeah, using community college, go to northeast state or somewhere. We think northeast state and matt, who's over here who helps me put this production together, matt's wife is a teacher at at northeast. So as we talk about this, just it's just a wonderful way to get started with a college education with little to no expense at all, which is just a wonderful thing. Get your needed credits and then you can move on to whether ETSU or the University of Tennessee or wherever from that. But to get that done, get your feet wet into college, because not everybody is wired to go to college and those that aren't wired to go to college, you send a child that it really it feels like they need to go to college, the parents want to send them to college, those kinds of things.

Speaker 3:

This is the way I look at it. And you're going to stroke check for $25,000 or more that first year and they're like, nah, this isn't for me, that's a pretty, it's a pretty hefty price tag for a. Nah, I'm going to, I need to take them off. So if you can go to a community college like that and you can get that and it's quality, you're getting the knowledge base, the kind of the prerequisites that you're going to need to go on into your junior, senior years and those kind of things as you move through the years. And that's just a heck of a way to do it and certainly depending on what your means are too, as a parent or in the grandparents all those that are trying to help educate the child and think about how much of a savings, of a low cost savings, that is. Let's say it is $25,000. You're just using that in number. You cut a $100,000 bill theoretically in a four year to $50,000. That's a bunch.

Speaker 3:

So I think community college and the things that we've done to create that is a tremendous idea.

Speaker 2:

I encourage you for a lot of our clients to take advantage of that as well. Well, yeah, and I know a ton of people that have, and I think it's a wonderful program, but I wanted to get a professional's advice. So thank you.

Speaker 3:

Yeah, I think again you're getting your baseline stuff. It's not like that's going to be something when you've got a resume showing where you went to school and you're going in and doing an interview and for jobs, depending on what the job is obviously there's, there are I don't think there's a lot of what I would call snobbery around that we're going to lift your nose up. Probably you went to two years of community college before you went to ETSU or to go to Vander. Wherever you go, wherever you land from there and you can go. I don't think that's going to be looked at in any detrimental way. I just think it's a super way for a child to begin to grow up and grow into college and grow into adulthood. Basically is what it allows.

Speaker 2:

I agree. Couldn't agree more. Thank you for that, jeff. Appreciate you making college planning feel a little less daunting. It's still daunting, but that's helpful. Looking forward to next time, as we keep building brighter financial futures at B&H Wealth. Look forward to it.

Speaker 1:

Thanks for tuning into the Four Seasons Podcast brought to you by B&H Wealth Strategies, where your financial success is our priority. Schedule your free 20-minute consultation today by calling 423-247-1152 or by visiting bhretirecom. Take the first step toward making your financial dreams come true. Until next time, remember every season is the right season to plan for your future. Securities and registered investment advisory services offered through Silver Oak Securities Inc. Member FINRA, sipc. B&h Wealth Strategies and Silver Oak Securities Inc are not affiliated.