As we continue to grow and continue to be Loud, will always appreciate you for taking 5-10min of your day to read what I have to say, thank you!

This week I encourage you to focus on your plan not the plan of the media or others, your wealth is not their wealth!

Children ARE Expensive: Education Edition

I won’t sugar coat anything for you, EVER, I won’t start here either. Education is EXPENSIVE, with no end in sight. This issue I want to tackle the Cost of Education, WTF a 529 Plan is, Usages and Alternatives to 529 Plans. The goal today is to enlighten you about the costs and ways to start saving…if you want to or as you’ll see in the Alternative section I have some different ideas around how to “fund” education.

Private K-12 Costs

The latest insights highlight that the journey from kindergarten through postsecondary study in private schools comes with an estimated price tag of $441,207 in 2023 currency values.

Here's a snapshot of the tuition landscape:

• Private K-12 schools have an average annual tuition of $23,839.

• Private high schools set their annual tuition at an average of $15,645.

• Private universities' doors open for an average annual tuition of $32,825.

• Prizmah Jewish Day Schools, numbering 101, carry an average tuition of $23,528.

• Private boarding schools, a total of 161 across the nation, require an average annual tuition, including room and board, of $67,270.

A closer look at the figures:

• Nationwide, the average annual tuition among all private schools stands at $12,167.

• Private elementary school students pay an average of $11,207 per year in tuition.

• For private secondary schools, the average annual tuition clocks in at $15,645.

• The median annual tuition across all private schools is $9,873.

• Catholic private schools, often referred to as parish schools, boast lower tuition compared to their counterparts.

• Elementary students in Catholic private schools see an average annual tuition of $4,840.

• Secondary Catholic private school tuition averages at $11,240.

Gross, right? Now I know all of you are not doing Private school and some are currently in private school, but this will show you tuition averages (obviously each state/school is different) but shall help you in planning.

College Costs

The College Price Tag In the United States, the average annual cost of college, encompassing everything from textbooks and supplies to daily living expenses, stands at a staggering $36,436 per student.

Costs on the Rise The cost of college has undergone an astonishing transformation in the 21st century, surging more than twofold. The growth rate over the past decade rests at a steady 2%. For in-state students attending public 4-year institutions, the yearly expenditure averages $26,027. This includes tuition, daily essentials, and the whole academic package.

Tuition Chronicles Tuition takes center stage in the college financial orchestra. The numbers speak loud and clear: tuition at any 4-year institution hovers around $19,806 or 54% of the overall college expenses. Public 4-year institutions, whether in-state or out-of-state, sway in the range of $9,678 to $27,091, while private institutions demand $38,768 annually. The 2-year college journey has its own rhythm, with tuition taking up 26.0% to 57.0% of the total expenses.

A Glimpse into History The trajectory of tuition costs throughout the years is an intriguing tale. Adjusted for inflation, tuition has surged, with a 2.5% annual increase from 1963 to 2020. The 21st century witnessed a dynamic shift: the average tuition escalated by 17% at 2-year colleges, 45% at public 4-year institutions, and 28% at private, nonprofit 4-year institutions. These shifts offer a window into the economic metamorphosis that education has undergone.

Beyond the Classroom College expenses extend beyond the confines of the classroom. Room and board present their own enigma. For a student dwelling on campus at a 4-year institution, room and board oscillate around $12,111. Off-campus life or the 2-year college scenario showcases distinct patterns ranging from $7,303 to $12,111.

Hidden Expenses Crucial living expenses like transportation and personal care are hidden players in the college financial play. The landscape is diverse, spanning from $3,304 to $5,268 in additional costs at 4-year institutions. Be it SAT prep courses or local economic factors, these variables entwine with individual circumstances to shape the overall expense tapestry.

So now that you are petrified to have you children go to either Private School or College or Both, let’s figure out some ways to help save!

WTF is a 529 Plan?!

Let's delve into the essentials of 529 plans – the compass guiding you toward brighter educational prospects.

These accounts, while not bringing upfront federal tax breaks, reveal their magic when it's time to spend on qualified education expenses. The core concept is simple: contributions receive no Federal tax break, but when it's time to withdraw for approved education expenses, neither your hard-earned cash nor its earnings face the jaws of Federal income tax.

Education expenses that align with this tax-free boon usually encompass higher education essentials like tuition, fees, books, and supplies. Even room and board expenses aren't left out, provided the beneficiary is enrolled at least half-time. The recent years have added more sparkle to this gem, with qualified education expenses now covering up to $10,000 annually for K-12 education (thanks to the Tax Cuts and Jobs Act) and even up to $10,000 of lifetime qualified student debt (thanks to the SECURE Act).

Amidst this intricate tapestry, 529 plans dance with some unique rules. Unlike other tax-favored counterparts, these accounts don't bow to an annual contribution limit (though exceeding the annual gift tax exclusion could trigger a gift tax return). The real twist lies in the total balance limit, which is specific to your state's plan. States set this maximum sum, linked in theory to the anticipated higher education costs. The range is vast – some allow accumulating a princely $500,000 or more, while others tread more cautiously around $300,000. Once this summit is reached, contributions halt, but your account's growth isn't curtailed – earnings can still flourish (potentially surpassing the initial 529 plan ceiling).

In essence, a 529 plan is your ally, a tax-advantaged investing account fostered by state agencies. Its goal: to sculpt your education aspirations for your designated beneficiary, often your child. Invest today, and let these funds compound, waiting to pave the way for qualified educational expenses like college tuition or textbooks.

While federal deductions for 529 contributions aren't granted, the magic happens on the withdrawal front – when the funds are used for education purposes. Numerous states sweeten the deal with deductions for state taxes. It's a strategy embraced by Colorado, New Mexico, South Carolina, West Virginia, and more, where a 100% deduction of the contribution is the cherry on top.

Different Uses - K-12 and Disability

While using a 529 plan for primary or secondary schooling might sometimes lead to missed tax benefits, specific scenarios can present exceptions. For instance, if it becomes evident that your child won't fully utilize the funds for college – due to different education paths, affordability, or scholarship prospects – redirecting some 529 funds towards secondary school tuition can prove worthwhile.

In cases where there's no alternative beneficiary for the plan and you're already shouldering private school costs, earmarking the 529 for secondary school might make financial sense. This approach can also be strategic if the plan has generated substantial gains and you're seeking qualified distributions, such as for elementary or secondary tuition expenses. Moreover, leveraging tax benefits is a tactical move; if your state provides tax deductions for 529 contributions, channeling school fees through the plan can lead to deductions or credits, enhancing your financial gains.

It's important to note that while private school tuition qualifies for 529 distributions, homeschooling expenses aren't generally covered. However, a handful of states – Alaska, California, Illinois, Indiana, Kansas, Kentucky, Nebraska, or Texas – consider homeschooling akin to private school, allowing 529 funds for certain homeschooling costs meeting tuition criteria.

The Pros:

1. Tax-Free Growth: Regardless of your state, 529 plan investments flourish tax-free. The growth from earnings on your investments and savings remains shielded from taxes, provided the funds are directed toward qualified education expenses.

2. Versatile Savings: 529 accounts transcend versatility, enabling you to stow away more annually compared to a Coverdell Savings Account. This flexibility extends to various levels of education, offering a comprehensive solution for your child's learning journey.

3. Gifting Ease: 529 plans introduce an array of gifting options, replete with user-friendly websites and resources. Rallying friends and family to contribute to your student's education becomes smoother, setting it apart from other investment accounts.

4. Short-Term Strategy: For those with children already attending private schools, utilizing a 529 plan serves as a potent short-term savings strategy. Depending on your state, you might avail income tax deductions or credits for contributions, potentially leading to substantial savings.

The Cons:

1. Limited Qualifying Expenses: The IRS permits payments for K-12 tuition and fees up to $10,000. However, a web of beneficiaries across multiple accounts requires meticulous coordination to circumvent penalties on withdrawals, as exceeding this limit might trigger a 10% penalty along with taxes on earnings.

2. Impact on College Savings: Blending elementary, middle, and high school expenses with higher education funding might hinder comprehensive college savings. It's pivotal to weigh the financial allocation between K-12 and future college expenditures.

3. Complex Gifting Allocation: The multifaceted nature of 529 plan usage can perplex contributors over the allocation of their funds. Ensuring that givers are well-informed about the specific allocation for K-12 tuition aids in streamlining the process.

4. State Tax Limitations: State income tax deductions or credits are subject to contribution caps, rendering substantial contributions ineligible for deductions. This facet requires careful consideration, especially if your contributions surpass the prescribed limits.

5. State Variability: Not all states embrace penalty-free 529 withdrawals for K-12 education. To avoid any surprises, verify your state's stance on penalty-free withdrawals for K-12 tuition.

Simply put, you can put money into the 529 and immediately take out for K-12 Private school costs, just reminder it may hurt future growth for College.

Disabled Child - 529 Able

At its core, the 529 ABLE account mirrors the structure of a 529 college savings plan, albeit with a distinctive focus. Administered by individual states, these accounts harbor the potential for tax-free withdrawals, granted the funds are directed towards qualified disability expenses. The year 2023 heralds a contribution cap of $17,000, aligning with the annual gift tax exclusion, while several states allow total contributions surpassing the $300,000 mark. Notably, this gift tax exclusion escalated by $1,000 compared to the previous year, soaring from $16,000.

Balancing Benefits and Limitations: However, it's imperative to tread cautiously, as exceeding a $100,000 balance in the 529 ABLE account could render an individual ineligible for Supplemental Security Income (SSI) benefits. Additionally, in the event of the beneficiary's demise, states hold the right to recoup a portion of the expenses through Medicaid, underscoring the dual nature of the benefits.

Navigating Qualified Disability Expenses: The true potency of 529 ABLE accounts lies in their capacity to cater to qualified disability expenses. This encompassing realm spans education, job training and support, healthcare, and financial management, aligning the financial provisions with the multifaceted needs of individuals navigating disabilities.

Eligibility: The avenue to a 529 ABLE account necessitates meeting specific eligibility criteria. To qualify, individuals must have received a significant disability diagnosis before their 26th birthday, with the condition anticipated to persist for a minimum of 12 consecutive months. It's paramount for the individual to be receiving SSI and/or SSDI benefits or obtain a disability certification from a medical professional.

A Bridge from College Savings: As of January 1, 2023, an intriguing opportunity emerged for parents who have diligently saved within a 529 college savings account. Should the beneficiary be subsequently diagnosed with a qualifying disability such as autism, parents can potentially transfer up to $17,000 of these funds into a 529 ABLE account, effectively forging a bridge between their aspirations and their evolving financial needs.

Alternative Ideas/Options:

Coverdell Education Savings Accounts served as prime vehicles for tax-free K-12 savings before 529 plans entered the private school landscape. Open to under-18 students, they allow up to $2,000 in annual contributions per beneficiary, regardless of account count. All withdrawals must transpire before the beneficiary turns 30.

Individual Retirement Accounts (IRAs) cater solely to higher education, not K-12. Yet, they offer a strategic means to segregate college and K-12 funds, particularly when state tax deduction limits are met. When annual caps for Coverdell and 529 plans are surpassed, a conventional savings account emerges as a secure harbor for near-future K-12 expenses.

Using Life Insurance can alter how you think of college planning. You can either build in the cost of education into your death benefit (upon your death loans will be paid off) or you can fund directly from your life insurance. Off the wall ideas are out there, so do not think in your situation you are stuck with only putting money forward.

Next Week’s Issue

Long issue this week but it’s not easy to summarize 529 plans and college education! Next week, Let’s take a journey on educating/developing your children around the concept of money, with some personal tips that we use.

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