Andy Wang was quoted in CNBC article by Sarah Li Cain.
How 529 college savings plans work and why you should consider one over a high-yield savings account
With the cost of college rising year over year, it’s hard to even imagine what the tuition sticker price will be when babies born in 2020 start college in the fall of 2038. And with all the competing expenses the average American family juggles, it’s impossible to offer a one-size-fits-all answer to the question of whether and how to fund your child’s college education.
But if you are beginning to think about your baby’s future, you’ll want to take a closer look at 529 college savings plans, so you can fully understand their benefits and drawbacks.
A 529 plan, even with its contribution limits, can help save parents a lot of money, says Andrew Wang, a financial advisor and managing partner at Runnymede Capital Management.
“You can think of a 529 account like a Roth IRA account, except it’s for education purposes instead of retirement” he says. “You can save money by not paying taxes on your earnings and when you withdraw it for qualified education expenses like tuition and textbooks.”
In addition, parents and guardians have the potential of earning more compared to sticking their money in a savings account. While growth isn’t guaranteed, many 529 plans show an average rate of return that’s higher than what you’d find with deposit accounts.
Another option is opening a brokerage account, which may offer similar growth rates depending on your investment portfolio. Parents may like the fact that these types of accounts don’t necessarily have contribution limits, says Wang, compared to 529 plans, where individuals can contribute up to $15,000 (or $30,000 for married couples) annually before the gift tax exclusion phases out.
“Parents need to understand that a brokerage account is an investment account that doesn’t have any special tax breaks,” Wang says, so you gain flexibility but lose the savings. “You can withdraw the money at any time for any purpose [with a brokerage account], but you’ll also be taxed on your earnings.”