BiggerPockets Money Podcast - How to Create Huge Tax Savings Funding Your Kid’s College (& FIRE on Time!)

Episode Date: May 9, 2025

Paying for college is one of the biggest financial hurdles families face—even as you’re chasing or approaching FIRE. What’s the smartest way to save for higher education while also securing your financial future? Scott, Mindy, and Amberly are breaking it all down on today’s episode! Welcome back to the BiggerPockets Money podcast! There are several ways to fund your child’s education, and if you’re actively building wealth, you likely have even more options at your disposal. We’ll show you how to find “free” money through government grants and scholarships, but since these could be off the table for those who are pursuing financial independence, we’ll also compare popular college savings accounts—like the 529 college savings plan and UTMA (Uniform Transfer to Minors Act) account. If you want to limit your tax liability, one option reigns supreme! We know this is a personal decision, and you shouldn’t be guilted into one direction or the other. Whether you’re saving for your own children, your grandkids, or just curious about how to balance college tuition costs with FIRE goals, we’ll equip you with a practical roadmap for funding education on your own terms—one that keeps you on track to retire early! In This Episode We Cover How Scott, Mindy, and Amberly are funding their children’s college education The pros and cons of 529 college savings plans versus UTMA accounts How to uncover “free money” to help pay for college tuition costs State-specific tax benefits to keep in mind when contributing to a 529 plan Securing your financial future before saving for higher education And So Much More! Check out more resources from this show on ⁠⁠⁠⁠⁠BiggerPockets.com⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠https://www.biggerpockets.com/blog/money-639 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email ⁠⁠⁠⁠⁠[e-mail] Learn more about your ad choices. Visit megaphone.fm/adchoices

College debt and paying off that debt is a huge part of many of our guests' money stories. Scott, Amberley, and I each have two children, although they vary widely in age. Amberley and Scott have kiddos who are under three years old, while I have one heading to college in August and another heading there in another three years. Want to hear the kicker? I technically don't have anything set aside for my kids' college. Today, we're talking about paying for college and several different ways to go about it. Hello, hello, hello, and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen.

And with me today, not only is my college planning co-host, Scott Trench, but also Amberley Grant is joining us too. Thanks, Mindy. Great to be here. We look forward to laying out the textbook approach to planning for college, for your children, college savings. Bigger Pockets is a goal of creating one million millionaires. You are in the right place if you want to get your financial house in order because we

truly believe financial freedom is attainable for everyone, no matter when or where you're starting, including if you want to fund the maximum. the most expensive college education that exists for children at any point in the future. Amberly, thank you so much for joining us today. We look forward to learning from you. You are an expert on FAFSA and the 529 and all the tools for saving for college. Thanks for joining us again today. Thank you. I had the privilege of having to experience all of this firsthand and so and working in the financial aid office. So I'm quite versed. All right. Before we get into the show, I've got a quick question. How many hours do you?

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money. Before we get into this conversation, I want to add a disclaimer for today's episode. As you will hear in the episode, we several times mention EFC. After we recorded this conversation, I chatted with a friend and found out the EFC has actually been replaced with the student aid index S-A-I. What are the really important distinctions between these two? Not much. Okay, let's get into it with that in mind. Okay, guys, I am super excited to get into this topic of funding my kids college. All right, Amberley, you are one of the most knowledgeable of the three of us. I know that you can fund college and that's about it. I think Scott is second most knowledgeable. I want you to brain dump all of the things that you know about funding my kids college.

I mean, someone's kids college. Go. Well, you first have to create an account, Mindy, if you want to fund your kids college, and I'm not doing that for you. Okay. When it comes to university, there are two ways of thinking, well, three ways of thinking about it. You can get funded by the government grants, which is going to be considered free money. You can be funded by government loans, private loans, of course, as well, or your parents or you as a student can foot the bill.

When I think about paying for college, the first thing I think about is how do I get those free grants? And so I want to talk a little bit about assets and how those are applied to both you as an adult or your child. So the FAFSA is what matters. FAFSA stands for free application for federal student aid. My child, because of my net worth, does not qualify for any federal student.

aid of any kind. I filled out, you have to fill out the whole form, which is really annoying when you already know that you're not going to qualify. So we filled it out. And you have to fill it out honestly. You can't just like make stuff. I mean, I guess you could. What are they going to do? No, it's a federal form. Yeah, it's like mortgage fraud. So Mindy, you have strong opinions at mortgage fraud, I believe. I have very strong opinions against mortgage fraud. Don't do it. So I guess you have to fill this out and like to the best of your knowledge. And at the end of this very lengthy form, then they tell you, yeah, no way, Mindy, which was nice, but I already knew that. So, Amberly, give us an overview. What, what are the ways, how do you, what, what are these

kind of cutoffs and how do you start, how do you ballpark whether you'll be able to qualify for some of these, these, uh, student aid programs? Well, first I want to say what FASA's for. FASA's not just for, um, free money, for grant money. It's also to determine what your kid will need for a federal student loans. And that's important as well. And you need to, you need to, um, you need to, fill out FASPA for a lot of scholarships that you can apply for as well. So, so though you are forced to fill out that form, you need to for multiple reasons. And I actually come from this as a perspective of fire perspective because most people who are working towards becoming a millionaire are not going to be able to fund or the government isn't going to give them free money for their kids college, right?

There are things you need to pay attention to and structure your accounts appropriately so that you can decide what the waiting is. And maybe, just maybe you might actually get some free money. So one thing to note, I'm just going to go over just what is available there. And then we can talk about the numbers. When a child has assets, they're weighed very heavily in the eyes of the government when it comes to what's called an estimated family contribution or an EFC. For a child, if they have a $100,000 house that you have gifted them before they went to university, the government is going to say 20% of that asset is going to be able to be used to pay for college every single year. meaning that that $100,000 asset, $20,000 of it is going to go towards, you know, the amount that the government is calculating that you have to pay for university.

As an adult, your personal assets are also weighed to see how much the government is going to allow you to taking grants and or student loans, etc. And for you as an adult, it's 5%. And this is where that conversation around UTMA or a 529 account comes into play. A UTMA, which is a uniform transfer to minors act, is a child asset. So some people use that to fund the university. But the thing is you have to remember that that is now going to be weighed. Any dollar in that account is going to be weighed at 20% for any grants or, like, student loans that your kid can get, which is something to pay attention to. Also, for a UTMA account, it is automatically transferred to your child at 21.

So if you've got like $100,000 in there and you have an irresponsible child, they are going to get all that cash at, you know, at 21 years old in one lump sum. And so it's something to pay attention to, again, with that specific account. Then there's what's called a 529. This one is state specific in regards to, you know, what you can put into it. If you get tax deductions for it, in Colorado, we can use this. any amount we put in there we can put as a tax deduction on our yearly taxes, but a 529 account belongs to me, the parent. And my child is just a beneficiary of the account. Therefore,

it's only weighed at 5% when we're looking at, you know, your estimated family contributions for your FAFSA application. Any over contributions for your child as a beneficiary can be used and moved into, I mean, use the word moved into, but a Roth IRA if they've been the beneficiary for 15 years up to about $30,000 is the limit right now. So those are just the two accounts that you can fund a child's college. And both of them will be used for the government to understand if you can get free money, quote unquote, from a grant. Or you just use that money to pay for college.

Like Scott, you were saying, you know, you're going to anticipate that your income and assets are going to be so high that your kid will not actually qualify for any grants. But those are the two accounts that people are talking about. And those are just the differences between the accounts. My dear listeners, we want to hit 100,000 subscribers on our YouTube channel and we need your help. While we take a quick ad break, please hop over to YouTube.com slash bigger pockets money and make sure that you're subscribed to this channel. We'll be back with more right after this.

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Kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at audible.com slash BP Money. Thanks, Mindy. Looks like we added 529 listeners during that break. To everyone who's listening to the Bigger Pocket Money podcast, welcome back. The UTMA versus 529, it sounds like UTMA is not really what I want to do. Is there a use case ever for the UTMA over a 529 plan? I haven't seen one.

I'm sure there's one. And I'd love for our listeners to tell us what they see that use case for. I do not see a use case for it. Okay. It doesn't sound like a good idea when it's weighted 20% versus 5%. And they get it at age 21, like you said. they could be very irresponsible. Thinking back to a 21-year-old Mindy, of course, I was perfect, but I can see how that would not quite like 21-year-old Scott, I bet was a little more wild than 21-year-old Mindy.

Nah. I never won a fraternity case race, for example. You weren't the captain of every sports team that you played on. Yeah, those days are long gone now. I live a very suburban life, Mindy. Well, let's go back to this discussion here because I'm going to use it from a personal standpoint. I asked for this particular podcast out of selfish reasons. I want to think through this decision now that I've had a new baby daughter on this.

And I'm super privileged to learn from you, Amberley, as an expert on these items. I start with a couple of really high level assumptions, right? I have a two and a half year old and a one month old at this point. And my belief is that a couple of items. One, I do not wish to transfer wealth to either of them heavily in advance. may change my mind at some point in the future, but I do not want to do that now and begin the process of an tax-advantaged way doing that. That may be a mistake later in life, but that's just not my intent at this point. So I'm a little versed to that UTMA gift

in the context of that philosophy. Second, I want to pay for college for them. And that includes up to and including them attending a very expensive private university, if that's what they choose, covering full room board of tuition and some pocket spending money. Some people may criticize or call that lavish, but that is my choice, and that's what I want to plan for in the context of my child's education. I also don't want to overfund a 529 plan, for example, and have too much allocated to college savings, because I believe that while there's every reason to believe that college could cost just as much or more relative to inflation, I'd actually bet.

frankly, that it's going to cost less relative to inflation than it does today, college. By the time my children are of college age, because I believe that some shakeups are coming to the federal student loan program, and people are getting smarter about the ROI of college in a general sense. So those are the kind of the starting assumptions that I have for this. What are your reactions to those assumptions? Do you agree or disagree with them, or do you challenge or push back on any of them? I wouldn't be paying for my entire kids' college.

I also think that the room and board, I want my kid to have a job, like in college and beyond. And I find it's a very interesting thing when people want to protect their children through university to only be quote unquote students because I don't actually think that prepares them for the real world. So I am also funding university for my kids, but I'm doing it up to a certain amount that I've decided on. And it's not actually reflective of necessarily the college that they're going to go to because I know that some of it they can reuse for a Roth IRA if they need to. and I think that's a really nice, flexible way of using a 529 account. But I have lived in college towns. I have partied with college kids, and I noticed that the kids who have everything paid for,

I lived in Tucson, Arizona. I worked at Frog and Furken, which is the college bar. I worked in the office of student aid at the community college. And I find the kids who have everything paid for room, board, food, are some of the most irresponsible, not only students, but also, with money in general. So I hesitate when I hear you say that, I think, uh-oh, you may be setting them up for failure. My parents paid for college, room and board. I worked during the summers

on there, but that's what happened for me. And, you know, I certainly behaved irresponsibly in college and some of the opportunities from college also set me up for, I think, things later in life that kind of led me to the career trajectory that I had there. So I can see it both ways there. I think it depends on the individual on there. And again, like, I completely respect and understand that. And I think that that's a conversation that happens in so many households here with so many different conclusions being arrived at by different folks. I love it.

I'm going to say you're an anomaly, Scott. Why is that? I think more people are of Amberley's example. They, if they are, if everything is paid for, they don't have any skin in the game, they're not going to appreciate it as much. they're going to take it for granted. You are, because I know you. I know you for 10 years. You are just an anomaly in general.

Well, look, I think that it's fair to say I took it for granted in college to a certain degree on those items in there. And that certain of Amberley's criticisms are correct there. They might be correct for some of my friends as well. I want to speak for them. But then I look at it and I see folks of all different types and backgrounds succeeding in a variety of ways. I can point to friends that are doctor.

doctors, lawyers at big firms in there, and all in between. And so again, I think, I think it's a wonderful debate on it. That's just, I just have a, I would just push back and say, and say, there's multiple ways to think about each of these circumstances. And, you know, I, I would like to plan for the option to pay for the entirety of my, my girls' college education on there. And that is my plan. That may change at some point in the future, but that is, that is the base case that I have going into the planning process on it. So I think it's a great pushback and discussion, completely respect it while still maintaining my stance that I want to plan on that. So let's talk about how you would actually fund that, right? And I do want to give credit to people

in general. I think we all have our wild days and then we all, you know, settle down into good lives, whatever that looks like. So I should give some people some credit here. Not everyone did. Not everyone. Yeah, I know. I've got the example. to you. I've got the doctors, the lawyers, and then the people who just never got out of it, right? But I guess what I'm really trying to say is that I like that you work through summers. I think that's a really important thing because university is just not about payment, but it's about life experience. And so I think as long as we can set our kids up for life experience, as well as the education process, that's great. So let's talk about how you can fund that.

First of all, you have to decide what you think university will be worth in that time frame. So our case, we decided that when each child is born, we're giving them $10,000 to start their account. And in Colorado, since you live in Colorado, college invest is the way that you're going to do that. It's a specific website that you need to use so that you can actually get those tax credits. Turns out I didn't know that in the beginning. I did it through Fidelity through 10 grand in there. And I cannot claim that, unfortunately, on my taxes because you have to go through this one specific website. And from there, I have determined that I'm going to fund each college, each child's college up to $85,000 because my children have the option of going to college in Canada, as well as the United States.

So I figured that's a good amount to cover four years at CU Boulder in the business program just for the, like just the university part, not room and board because I figured that will be something else that we can determine later. And so then now I'm putting $1,500 a year on top of that $10,000 until they're 20 years old. And that will cover the up. That will be the $85,000 I'm going to need to cover what I'm willing to cover for both of my children. And that's how we did the calculation is essentially what's that future value we want it to be around $80,000 to $100,000. And then we worked backwards with a lump sum because I like lump sums. I like to just throw it all in there and then slowly accumulate after that. What do you think, Scott?

Yeah, I think that that makes, I think that makes sense. I would say the $529 maximum is, is $29,000 for a married couple to contribute to a single child. So you could do that each to each child there for each child. And I believe you can contribute up to five years at once. You cannot contribute then for the next several years on that, but you can contribute up to five years on that. So that's a big pile of mine. It's almost 150 grand. On top of that, that program that you discussed Amberly, the college invest, I believe gives you

a $1,000 match for the child for five years, or at least they were doing that with my first child. I don't know if they're still doing that today, which is an awesome, awesome benefit. And what makes sense to, so I want to back into basically a, a, let's call it a $75,000 per year estimate for fully burdened tuition and room board and books per child at an expensive private institution. I want to be able to be able to fund that on there. I believe that will be overkill. But if I was planning on that, that would be what, like 300 grand, a little bit over 300 grand. So I would want to put in, you know, they'll double every seven and a half years. So I want to put in about 75 on day one, essentially, and just let it rip for the next 15 years because the

advantage of the 529 is the tax-free growth. So max it out all at once, boom, done. in there. What do you think about that? Is that the right plan? Is that, is that the right way to think about it in your opinion, Amberley? Again, I love lump sum. So yes, except for one thing to think about, you may have a kid that you realize is really not going to go to university. So you don't know your kid's full personality yet. We can kind of see them right, like from the beginning. But that's something that you want to be careful of is if you're going to do that huge lump sum in the beginning and essentially let it ride, you might go 10 years in and realize you have a kid who's super, handy with plumbing because they're helping you with house rentals, whatever it might be.

And that university might not be the way for them. So you might want to back off of contributing those extra years to that account. But I don't see any problem with that because, again, I like the lump sum method and then slowly, you know, putting money towards it afterwards. It just depends on how you are okay with not using that money. And the great thing with the 529 is you can transfer it to someone else. say your one daughter is like, you know what, dad, I am going to become a plumber and I'm not going to do this. You can use some of it towards a vocational school. So maybe she uses about $75,000 of it.

But then you've got the other $225,000. Maybe you save it for their, like her children or you give it to a cousin or something like that. Or you go back to school yourself. But just know that it may be overfunded with, especially with that large of an amount. Okay, a couple, couple other questions. Can I use, let's say, let's say, you know, I, I, I love my debt funds, right, and hard money lending on here. I know that most people are like, what the heck, I'm not ever going to touch that.

But let's say I put, you know, 75 or 100 in into these accounts. And I'm able to put it into a debt fund or private note that generates 10% simple interest. Can I use that interest to pay for preschool, for example, or summer programs or those types of things on an interim basis with tax-free dollars? Yes, so you can send them to preschool. You can use 529 to send them to preschool. I'm sure there's a whole list on the government website. I don't want to speak out of turn on what you can and can't use it for. I just looked up, can you self-direct a 529 plan?

And I'm seeing no everywhere. Okay, so no. But I would have to find some sort of other investment that was reasonably available via publicly traded securities or standard brokerage investment accounts. But I could conceivably use simple interest proceeds from that and something fairly safe and use that to fund. preschool or after-school activities in some capacity or summer camps or those types of things during that period as well, which would also be a tax advantage way to fund some of those

things on an interim basis leading up to college. Is that right? 529 plans can be used for college and secondary education, elementary or secondary school K through 12 tuition and fees, books and supplies, student loan payments, room and board, things that a student would need like a computer or internet or things like that. I am looking at looking for a list of all of these things that you can use it for. It's not just limited to college. And Mindy, when you're talking about room and board, we have to be very careful with that because there's not room and board like what we think. Oh, it's a $3,000 apartment. We got this. It's going to be out of the 529. It's legally what the college states, what room and board should be based on their area. And the university sets that price. So you can't just go ball out. You can only take out what the university says is appropriate for room and board. The other thing, though, you have to remember, Scott, that you can just take that money out. Say you overfund it. We're going back. Your kids a plumber and you overfund it. You can take your contributions out, but it's the growth on the contributions that you're going to pay a penalty

on. And if that 10% penalty is no bother to you because you want the cash, then you just take it all out and you go do whatever you want with it afterwards, right? So just remember that with all of these things, though, there's tax advantages to keeping it and growing it in these accounts. We still have access to our money. We just have to pay for it. Okay. And that's just on the gain.

So if I put in, you know, 75 or 100 grand and it becomes 300,000 later in life, I can pull out the 100 grand and use the 200 gain to pay for all of the college expenses, for example. I believe that's the case. All right. We've got to take one final ad break and we'll be back with more in a moment. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like

most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your taxed refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code Pock. What I personally like is that Monarch keeps you focused on

achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves the needle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple. Use the code pockets at monarch.com for half off your first year. That's 50% off at monarch.com code pockets. You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed. When it comes to hiring, Indeed is all you need. That means you can stop struggling to get your job notice on other job sites. Indeed's sponsor jobs helps you stand out and hire the right people quickly. Your job post jumps straight to the top of the page

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Employees also have the opportunity to grow their skills and their paycheck by enrolling in free skills training programs for in-demand fields, like soft. development and information technology. Learn more at aboutamazon.ca. Welcome back to the show. I want to point out right here that every state is different. We have 50 United States plus Washington, D.C., which has its own set of rules. So all of these things that we are talking about kind of apply loosely to all states, but also the 35,000 or 38,000, Scott, that you said. That's specific to Colorado.

We have a document from a link to a Fidelity article that talks about all the different, all the different states and what the benefits are. California has no benefits, no tax deduction, no income credit, nothing. Colorado for 2025 has a $25,000 deduction or if you're single or $38,000 if you're married filing jointly. So it looks like Colorado is one of the best states to be contributing to a 529 plan in. And Colorado has reasonably high taxes, too. It's a flat tax of 4.55% on income and capital gains in there. And I did look this up. You cannot use, in most cases, the 529 plans to pay for preschool for the most part.

So it's really only for private K through 12 tuition. and the things that I think, I think the spirit of it, regardless of what the letter might say in many cases, is it's got to be for tuition, essentially, or the directly related things to tuition for educational expenses. I was not lucky enough to have a 529 plan. How I ended up paying for college was out of pocket, applying for 20 scholarships and using, you know, the FAFSA grant money, because I was 24 years old. And that's the other thing to note for kids is that once you're 24 years old, you are no longer dependent of your parents. So Scott, in your situation, maybe your kids like, hey, I'm going to go travel the world for a couple of years. Maybe dad, you can help fund that. And then they're going to go to university a little bit later.

At 24, all of a sudden now, it's only my assets that are going to be used towards my contributions for university. And that's something really great to note. But here's a thing. A lot of people are like, well, I'm just going to emancipate myself from my parents at 18. and then I can not use their income on the FAFSA application, but that's not easy. The only, some of the only ways you can really not be considered under your parents for FAFSA under 24 is if you've been in the foster care system, if you're homeless. So you need to have a really good case for, you know, being removed from your parents' income. And it is super hard because I looked into it when I was going to university at like 22.

I started it. I stopped it. And then I went back at 24. And that was the thing that I no longer needed any contributions for my parents, which were zero anyways. So it didn't matter. But that's just something to note for people that if you go a little bit later, you no longer are tied to your family. Makes sense. And I think most people listening to this podcast, I'd imagine, are thinking about how to fund college in a nearer term setting with the, you know, with facing the reality that because they're listening to a show like Bigger Pockets Money, they're likely, more likely than not, to not qualify for a lot of FAFSA at that point in time. And so it's planning to pay the full price and how do you mitigate those things. There's so many options around it, around state

schools and community college credits and all these different working through there on there, having a clear decision with that. I'm starting with the most extreme kind of, yes, I am planning years in advance to be able to have the option to fund private school tuition, but believe it's unlikely to come to that. And by the way, I don't think I will go all the way to that $75,000 per child in there. I think I'll start with something like closer to $35 to $50 because I believe that there's another risk of overfunding the account because of all those other options for college. And I believe that if I just don't use those funds for that, I can just buy real estate or

something else with that, not quite get the same level of perfect tax advantages in terms of being able to sell the assets that, you know, from educational purposes, but have a lot more flexibility with that wealth later in life anyways. On that note, it's always important to give people permission. You do not need to pay for your kids' university. You don't need to pay for their room and board. You need to secure your retirement because they can borrow against university. You cannot borrow against your retirement.

And I think that's just a big thing, especially in the United States, that people feel very guilty about. And you shouldn't. Like you said, Scott, you saw people succeed with, college being funded without it being funded. I've seen people succeed with college being funded without it being funded. I'm an example of that. You're an example of that. We're both on this podcast and we had very different routes to getting here. So I think it's really important just to remember that there is no right way of doing this. Absolutely. And I love that. And I think a lot of

people out there, I think a lot of people will completely agree with what you're saying. And I think a lot of people will share my mentality of I would delay my retirement in order to fund my kids college education if it would have been them getting into the best school or the best opportunity that we thought was available at that point in time and not everybody shares that but a good chunk of people do I think and that was that was the way I was raised and and and and the privilege my parents gave me and that's something that I would I would absolutely sacrifice and delay for if it came to it on that I think that that's a requirement for many people's planning but not everybody's. Mindy, what are you doing with all this? Your kids are much closer to college age, and this problem is right around the corner for you.

It's nice that you called it a problem, Scott. You are absolutely right. I was living in Illinois when my oldest daughter was born. And then we moved to Wisconsin where my youngest daughter was born. And in Illinois, I started doing research on their 529 plan and either misunderstood or misread what was going on or maybe their rules changed. I read it to be, if you put money in and you. you don't use it for college, you lose it all. You can keep the contributions, but the growth was all wiped out. And I have since been told that that is not true. And I was very happy that that wasn't true. But then, you know, my kids go into college in August. So this is a bit more of an immediate concern for me. Although Carl and I have done very well with our investing, so we can absolutely afford to pay for college for her. I do have a friend who told his kids, I will pay for your college. And then his kids didn't apply for any scholarships or grants or anything. And he was kind of stuck footing the whole bill. So I have shared with my kid that I am going to pay the equivalent

of C.U. Boulder, which is about $30,000 a year. That is what I will pay for you. And anything above is coming out of your pocket. And she heard that to be, okay, fine, I'll just, you know, I'll get scholarships or grants or whatever loans and I'll pay it off when I get a job. And one of the colleges she was looking at was $80,000 a year. Her chosen major is, she needs at least a master's, maybe a doctorate in it. And she, when I showed her, you know, you're willingly taking on $50,000 a year in student loan debt.

when you graduate with your four-year degree, you're going to have $200,000 in student loan bills. And she's like, well, yeah, but I'm going to get a job that pays $100,000. I'll be able to pay that in two years. And I'm like, I know you listen to me, talk about money all the time. We never had the conversation about what is FICA? You know, she's not had a traditional paycheck yet. And that was really eye-opening for her. And it changed the way that she looked at college.

Am I going to end up paying for her college? Most likely. But I wanted her to choose a college that wasn't $50,000 extra in bills. I currently have as much saved for my kids' college as you have saved for my kids' college, Scott. So great big fat, zero dollars. Amberly, you're going to double what we have saved. And we have all collectively saved $0 for my kids' college. I think, like, let's just zoom back out here, right?

We're all, we're all in bigger pockets of money. Everyone listening to this is listening to bigger pockets money by definition. Brilliant breakthrough insight by me on that particular point. And this, but, you know, like, you know, the, the obvious solution here is the pursuit of fire gives you options to spend general, the wealth you build in a general sense, however you want. And there's not real, like if you, if you build multiple millions of dollars in net worth, you can buy a mountain home or you can buy a college education, right? So from it. And I think that that's the point I'm, that's actually the problem I'm grappling with. here is because overfunding the 529 plan comes with a penalty on it. It's not, it's not the end of the

world, it's 10% penalty from a withdrawal that's not for those purposes, plus the tax, plus the realization of the gains or the income on that. But it's a penalty. It's an issue there. And you don't want to overfund it by a huge amount because the alternative is just building wealth in a general sense, right? You could take a loan, you could buy a rental property, pay it off like Brandon Turner came up with a couple years ago and just refinance it. And you have no taxable event at that point, for example. So there's other ways to fund college here. And the 529 is more powerful than even that strategy because it's truly that the income is

truly not taxed on that front. When depreciation runs out, whatever, you can still still use the gains tax free to pay for these qualified education expenses. But again, there is an issue of overfunding it. And the best solution is to just have so much wealth that you can easily afford paying for that and your fire list out, which is where you're at, Mindy, on there. So I do think that's such an obvious breakthrough, an obvious insight, but also the, you know, fundamentally part of the strategy.

Well, yes, but it's tax deductible depending on your state. There are some states that have absolutely no benefits, Alaska, California, Florida. It says they're not tax deductible. You don't get a tax credit for contributing to the 529 plan. As I'm reading this, and please correct me if I'm wrong, it's been established. several times on the show that I do not know what I'm talking about when it comes to a 529 plan. But with regards to this, it seems to me that it makes more sense for you to put this money someplace else in a different type of account than to put it in here if it's not tax deferred. Does it just grow tax deferred in all 529 plans?

It's post-tax contribution and it grows tax deferred. I don't think it's all post-tax contribution. There's no tax deduction in Alaska. There's no tax deduction in California. On the state level, there can be state tax deductions, right? But the federal level, the federal one is like all the planning for me, 80, 20, the planning is on federal taxes. I pay way more to Uncle Sam than I do to the state of Colorado, right or wrong on that. And so that's the strategy.

The strategy is how do I avoid paying Uncle Sam for this stuff? And the 529 plan is an excellent way to do that for educational expenses. So the goal is to fund exactly the right amount or just under the right amount needed to fund all future educational expenses for my children and then whatever, whatever, if the future years bring additional generations, whatever, that those are funded and available for it, but not, so, not to

the point where I am foregoing the ability to use that wealth productively and other aspects of my life, either for my enjoyment, my kids' enjoyment, charitable donations, whatever around there. That's the goal, I think, of all the college planning. Yes, but I'm on Fidelity's website right now and it says tax benefits to contributors. 529 plan contributions are removed from their taxable estate.

In 2025, contributors can give up to $19,000 a year without counting against a lifetime gift tax. But with the superfunding or accelerated gifting strategy, a contributor can give up to five times that yearly limit in a single year without triggering the gift tax, as long as they don't surpass $95,000 in contributions over five years. But while 529 contributions are not tax deductible federally, many states offer tax benefits on state income tax return. It seems to me that there's still a benefit for creating a 529 plan, but depending on what state you're in, those benefits are significantly reduced. Like Colorado is a great one. We're all three in Colorado. It's an awesome state for us to be funding our 529 plans. Here's a question. Maybe

Amberly knows the answer to. If I create a Colorado 529 plan, can that money be used for a California college. Yeah. The reason why Colorado matters is because it's for those tax deductions. And like we said, you know, Colorado offers a state tax deduction so that, you know, anything you contribute up to a certain amount that you can then deduct it. The thing with the 529 account is that it grows tax free. Like you don't get tax on it when you take the money out for college specific needs, right, that are outlined, and we talked about before and outlined on the government website. And so that is, it makes sense, Mindy, when you're saying, if you're in California, maybe it doesn't make sense to contribute to a 529, but it does because you're going to have

benefits down the line for it, not at this moment in time. So you might not want to overfund it there because you're not really getting anything for it in this day and age, but like Scott said, maybe getting to the limit or putting some money in and then us as fire people because we have a bunch of cash behind us, then we just throw cash at the problem later on, right? And then we're not worried because we are over optimizers. And so Scott's sitting there twirling his sons being, is it going to be $300,000 or $330,000? I don't know. So instead of doing that, you can say, hey, I'm going to make it $300K, put that the limit and then, you know, anything that comes above that, I can also contribute in that year that I need to pay it. I think you need to have, I have to

check that one actually out that there may be some sort of wait time between what you can contribute and what you take out. But anyways, you can still contribute when you're getting closer and you know what university they're going to go to and then you can fund it a little bit more then for those tax advantages. If you have them, you just might not get the growth. I mean, the Colorado benefits are nice, but the big one is the tax-free growth on a federal basis for the games, right? Like that, if I invest $50,000 now, and by the time they're in college, it's worth $200,000, that $150,000 cap gain is tax-free, right, both at the federal and state level. So that's, that's at the highest bracket, a 25% boost to that, that wealth there.

And that's why this is important. And that brings me back to the whole philosophy of the ideal strategy in, it's a privilege and to be in this position would be to just put, plot 50 grand in, as soon as your kid's born, and maximize that amount of time. to compound and never put another dollar in at that point and time it perfectly with the amount you need at college, right? Obviously, that would assume that college does cost exactly 200 grand at that point in time with it. But that would be, that's what I feel like is the optimal bet in this particular case. But there's so many ways that also you can, not everyone can do that, but if you

contribute, if you kind of meant that philosophy, how early can I fund this plan with the minimum amount and then stop on there if that's your goal, for example, because of the way that the account is structured in there. If you overfund it, again, there are options to take, to use those, those things in some limited capacity for things outside of higher educational expenses, but there are also penalties and a little bit of pain in the rear to really reallocate the dollars to other life purposes. So I think it's important to fund it accurately, in my view, in there. And it's not one of those things I really want to maximize and swell out, swell out as much as possible. So Amberley, what are you doing at the end of the day? Could you remind us

one more time with it? It was it the 10,000 per check? child. Correct. Yeah. I do want to say that I'm in that great privileged place that I can just throw some money at one of the most expensive times in our lives of having a new kid. And I actually was like, okay, I've got 10 grand here sitting in an account that's not doing anything. I'm throwing that at my first kid. And then I figured I had to be fair and do that towards my second kid. So I started saving for that as well. So I do $10,000 when they're born. And then I do $1,500 a year that I just do in like quarterly increments because I don't know why. There's no reason for it until the there, I think it's 18, and that should get me to about $85,000. Awesome. And then, yeah, with my oldest Katie on there, just that 1,500 note, in Colorado, there's that matching program. If you put a thousand in, you get a $1,000 match, at least for her. I'm not sure if that will also be applying to my second in there, but obviously take the

free money in there and that match. That's a great, great benefit. Yeah, Scott, for that one, were you over the limit? Because I believe that there was a household income limit on that, or maybe I was wrong. I qualified at the time. So, and they haven't disqualified me at this point. I have not been asked for an item there, but I would absolutely, if I did not qualify, give back that money.

I did not. I really haven't done my, done a tremendous amount of deep diving into that, that one. So, and I was surprised. I was getting a $1,000 gift. So I'll check that one out. If anybody from Colorado knows how to, how to, how to declare that. I am not attempting to take a benefit that I am not eligible for, please on there. So.

Yeah. And Scott, I think they have limited, they've lowered it sadly in the past few. years. So it was $1,000 when my kid was born as well. And I didn't even know about it because I put the money into fidelity and had no idea about this college investing. So I was looking into it as well. And to tell you the truth, I think I just disqualified myself from it. And that's a terrible way of doing it because I didn't even apply. And I know that they have leftover funds for these types of things. So I should just double check again with my kid. And I don't even know if there's an income limit. I just had made that assumption. And I think now it's like 500 instead of the 1,000.

maybe 750, so womp, wamp, womp. It's still free money. Heck yeah. And that's only for littles because I just looked it up and it said, born January 1st, 2020 or after. I did look up in Colorado, how long does the money have to be in the 529 plan before it can be used for expenses?

And it said there is no limit. There's no time limit on how long it must be in the account before you can use it. So one thing I can do is start funding my goal. going to college in August daughter because at least I'm going to be reducing my taxable income on money that I'm already going to spend. Do I wish I would have learned this 18 years ago? Sure. But it's better to learn it now than pay, you know, how many years of college for her after tax money when I could be using it before tax. So that came, that's something that came out of this episode that I am really, really excited about. And I want to reach out to our audience and

say, do you know of a 529 expert or are you a 529 expert? I think that we should have some questions. If we misspoke or, you know, misunderstood a point that we shared here, please correct us, Mindy at biggerpockets.com, Scott at biggerpockets.com, Amberley at biggerpockets.com. We would love to know what we got wrong so that we could correct it for the future. Yeah. And I think the biggest criticisms of this episode or the big advice or the input from our community is going to revolve around the 529 plan as an estate planning tool and multi-generational planning tool, which we did not get into. And I'm frankly not thinking through it right now. I am not worried about 60 years in the future using this account. That's not the primary purpose of why I would be planning to use it. I'm using it

as a how do I plan for my two children's college education? As life progresses, I may update my plans and begin using the tool for different purposes, but I'm just not, I'm not there yet. personally with this. And I think many people who are thinking about the 529 are really thinking about it more in the context of the college savings program piece for the direct descendants or direct generation following them. I agree with that, Scott, because it's also planning so far in the future with something that is a little bit changing right now. We've got a lot of online education. We have different ways that we are learning. And I'm not 100% sure that our kids will be using university the same way. we did or even maybe going to university. So that's my, I didn't want to overfund mine.

Yeah. Another one here, and I know this is going to rattle some folks, but I'll throw it out here anyways, is there's a substantial rise in the last few years of homeschooling. This is not something that me and my wife are intending to do at any point, maybe a year at some point. And there would be the maximum that would apply there. But with that rise, I wonder if some of these funds will be eligible for many activities related to those items there. So that's something to consider if you're in this camp of I'm either going to homeschool for a year or two or for a majority of it. I believe that would be a, I wonder if there would be more research to do to see if the

529 funds could apply to portions of the activities you might enroll your kids in. If there's a science curriculum that they already do for eight weeks or whatever, maybe there's something that would apply there. So something to think about for those folks. That's a really good point because we have two boys. We have learned a lot about redshirting and homeschooling and world schooling. And we are definitely going towards that and for certain portions of their life if it makes sense for them. Because I happen to have one of those children who is extremely physical and is constantly helping us with our renovations and it's cleaning up all the time. And so I don't think he's going to be sitting down in those school chairs for very long. And so we're trying to see what our options are. And it's a great idea to see if we can use fun. for a 529 for, you know, the science class that happens in Boulder that a few of our friends go to. So thanks. You wonder how the, in my world, you just, I open question about how much harm is done

or benefit gained by missing eighth grade, for example, seventh or eighth grade. So, you know, that's the, that's the one part in my world. The rest, there's a lot of eight or just the other grades, I think. But those two were, those two are rough for a lot of kids. So. Yeah, seventh grade, I could have skipped. Same. I am so glad the internet didn't exist when I was in seventh grade. The internet existed. It made seventh grade bearable.

Well, Amberley, thank you for sharing so much knowledge here. This was a great discussion. I love the different viewpoints that we all bring to this. I bet you that the money community will, well, some will think about it more like me. Some will think more like you, Amberley, and some will think more like you, Mindy. And so I think that this was, this was helpful. But this is this idea, this concept of college education is going to be something that everybody who's grappling with fire is going to have is going to grapple with. And there's a whole bunch of emotions and values that go into that decision and then how the tools apply in the context of those values and that the goals can vary wildly. Definitely dive into your state-specific 529 plan and get all the information that you can.

I, yeah, don't be like me. Now, Amberley, can I contribute to your kids' 529 plan? Yes, that's what we do actually. So instead of gifts at baby showers, we actually put a link to the 529 for the future child and actually asked people to contribute for our wedding. We did the same thing. We got married after our first kid, Nauti, Nati. And we ended up asking people instead of giving us any gifts because we don't need anything. We're in our 30s. We actually asked them to contribute to our children's 529s. So you just get a link from your provider and then that link can go out and then it will send information. when someone has contributed to that account. So you can send a thank you. Okay. So for all of you who have kids who are like, oh, I don't need another gift for Christmas or their birthday or whatever, set up your 529 plan and give that out to all your friends and family. Hey, if you're thinking about giving our child a gift, this is a great place to do it. That child will really appreciate elementary differential equations in 12 years. 100%. All right. That wraps up this episode of the Bigger Pockets Money podcast. She

is Amberly Grant. He is Scott Trench. I am Mindy Jensen saying got a hop, sugar pop.