The Five Ws of 529 Plans
Welcome to the Schmoozeletter Blog. Your source for weekly water cooler wisecracks from the world of finance. If you have an opinion different than mine or a topic you want to hear about, let me know!
This week, Mr. Market goes on a tear, closing Friday 5% higher than the previous Friday close price. The monster week is brought to you by cooler-than-expected inflation data and the easing of the trade war with:
To make the market happy about trade deals, all we had to do is put up a ridiculous and unsustainable triple-digit tariff, feed everyone lies about how isolationism is viable, and tank the market for a few months. Then investors will rejoice that the tariffs are only up 30–84% from the last administration.
The current US-China breakdown is:
United States is making Americans pay taxes for Chinese goods at:
30% on all Chinese goods
PLUS
25% on steel, aluminum, and auto
parts
50% on solar cells
54% on packages under $800
China is making Chinese people pay taxes for American goods at:
10% on all US goods
PLUS
10% on coal and liquid natural gas
15% on crude oil and agricultural
machinery
10-15% on agricultural products
(China buys 1/5 of US
agricultural exports)
Additional concessions from China:
No longer banning rare earths
Easing trade sanctions on US
companies
Stop sending fentanyl to US
“They’ve agreed they’re going to stop that.” – Trump
Lolz.
I think that’s it, but if I’m wrong it doesn’t really matter as this will most likely be outdated by next week.
But enough mumbo jumbo. The only tear-riffs I care about are quips about Jason Tatum. Hi-yo!
Today’s topic hits quite close to home at Schmoozeletter World Headquarters. It’s…
The Five Ws of 529 Plans
Who?
You!
This is pretty Pennsylvania-specific. If you want to go over the particulars of 529 Plans for your individual state or situation, I am at your service.
What?
529 Plans have two benefits:
1. Pay for college
2. Save on taxes
When?
18 years from now. Maybe sooner if the kid takes after their mother. Maybe later if the kid takes after their father. We’ll go with 18 years from now.
Luckily for us, the state of Pennsylvania projected the annual college tuition costs by then:
Where?
We’re talking about the Keystone State here.
In PA, you’ve got two options:
· GSP: Makes more sense if you think the cost of education will increase faster than your investments.
· IP: Makes more sense if you think your investments will increase faster than the cost of education.
We are going with IP because there is more flexibility, and higher education can’t possibly keep increasing at double digits per year… right? RIGHT?!
Why?
Good question.
Let’s skip to:
How?
Always start top down. Let’s assume the future hellraiser is a real smarty-pants and is headed for the Ivy League. Eh, scratch that. He’ll be fine at American InterContinental University.
117,000 * 4 = 468,000
We’d need about $500k in 18 years. Sheesh.
Which fund to pick, and what’s its expected rate of return?
After an initial investment of $3,000, contributing $1,000 monthly would mathematically get to the $500,000 needed to rub elbows with Zuckerberg’s underachieving nephew.
Obviously, $12,000 per year is a lot—especially with newfound expenses like diapers, daycare, and balloon animals.
But the most important thing, like with all investing, is getting started. TIME is the investor’s best friend. The earlier money is invested, the more it compounds on itself year after year after year after year after year after year after year after year after year after year after year after year after year after year after year after year after year after year.
Final Thought
Just kidding Celtics fans. Wishing you many years of full health and second-round playoff exits.
