3 Ways to Help Your Kid Invest - 529 Plan

Video Transcript

Hey, this is Chris with Money Burst, and investing it can be one of the most intimidating things that we take on. And I think this is why so many of us end up putting it off, and then we regret starting so late in life. But what if you could help your kids avoid that mistake and become an investor today? I think it sounds pretty good, right, so there are three accounts that I want to tell you about that you can use to get your kid investing.

Today let's talk about the 529 plan. So, a 529 plan is like a combination savings account/investment account that's used specifically for education-related expenses. And the money that you're putting into this account, it gets invested and then you also get some great tax benefits. So, first of all there are over 30 states that will offer you a state tax deduction on the money that you put into the plan, which is already great, but the big benefit that you hear most people talk about is the fact that you can take this money out of this plan and use it for any education-related expense tax-free. So, it doesn't matter how much it's grown to be, that money gets to come out tax-free. And, you know, it's not as restrictive as it sounds. Just because it's education-related expenses doesn't mean that it doesn't cover a wide range of things. So, obviously, college tuition is in that category, but also books, room and board, and even computers that your kids are going to need to study and get ready for school.

Now one big misconception about 529 plans is that it can only be used for universities, but there's actually a pretty broad use case for the funds in these accounts. You can use up to $10,000 of this money for K through 12 tuitions if you send your kids to a private school. It can also be used for vocational programs and continuing education.

If you're someone who's concerned about whether or not your kid's going to end up going to college, right, because you have no idea what path they're going to choose with their lives as they get older, there have been some recent changes to 529 plans, thanks to the Secure Act 2.0 that have loosened things up and give you some other options.

So, the big one that I'm going to talk about here is the fact that you can now send up to $35,000 from a 529 plan into a Roth IRA in your child's name. And this is a great benefit because say for example your kid gets some big scholarships, and so they don't need as much money. Or maybe you were just really prepared and you saved too much. You have a great option to move some of this money into a retirement account and help your kids get a jump start on that.

You've also always had the option to transfer the 529 plan to a relative of your beneficiary. So, it could be their sibling's, aunt or uncle, first cousin, even a spouse. And there's a few other people, as well, that qualify to have the 529 transferred into their name, so don't feel like the money is going to be stuck. You do have some options on what you can do with these funds, even if things don't go exactly how you thought they would.