This faith and finance podcast is underwritten in part by Soundmind Investing. For more than 30 years, do-it-yourself investors have relied on SMI for proven strategies and trustworthy guidance.
SMI helps people build wealth so they can provide for their families, prepare for the future, and give generously. Learn more at soundmindinvesting.org Better ways to save for their kids' college than existed a generation ago. So are you making the most of your college savings program?
Hi, I'm Rob West. It's been less than 30 years since Congress authorized the tax-advantaged 529 plans. More options soon followed. Mark Biller joins us today with the pros and cons of several college savings programs. Then it's on to your calls at 800-525-7000.
That's 800-525-7000. This is faith and finance biblical wisdom for your financial decisions. Well, our guest Mark Biller is the executive editor at Soundmind Investing and underwriter of this program. Mark and his team have waded through the fine print of the available programs for college savings so you don't have to do it. Mark, great to have you back with us. Thanks, Rob.
Good to be back. Mark, everyone knows that college is expensive and getting more expensive all the time. In fact, I saw just the other day that the first four schools now have price tags over $90,000 and they're thinking by 2026 there will actually be schools over $100,000 for one year of education, room and board and fees. So yes, saving is vitally important.
So why don't you give us just kind of an overview of the general landscape? Yeah, well, that's definitely the case, Rob. You know, everybody knows we've had a nasty bout of general inflation over the last four years or so. But what a lot of people don't know is the cost of higher education has been rising at two to three times the general rate of inflation over the last couple of decades. And that's a big part of the reason why student debt has become so much more common than it used to be. So a little over half of today's new college grads enter the real world with both a diploma and an education loan.
The average size of that debt load has nearly doubled over just the last 15 years. So in the article that we're discussing this month, we have a calculator that estimates what 70% of the four year cost for an in state public college would be at different intervals in the future. Now we use that 70% as our target because most students are going to get some type of student aid to cover the rest.
Now, when we look at that calculator, Rob, the numbers get a little jarring, kind of like you were just saying. Let's say you have 14 years before your child heads off to college. Well, 70% of the four year cost at that point in the future is going to run just under about $150,000. Now, the good news is if you start saving early, the monthly amount you need to save to hit those lofty targets is a lot lower than if you wait and start later. So again, with that example, if you start now with 14 years still to save, a parent would need to save about $520 a month to hit that total. If they wait until their child's 10 years old to start saving, they'd have to save about twice as much every month. Now, obviously, not every parent is going to be able to pay 100% of those bills. But the point I'm trying to make is saving for college can be a pretty daunting task. It definitely requires an all hands on deck mentality.
And you want to start as early as possible. Yeah, that's really helpful, Mark. Now, you mentioned it's an all hands on deck opportunity, which I assume means getting the kids involved in the process too, right? Yeah, absolutely. You know, the goal here is we're trying to minimize student loan debt and the earlier that they understand that whatever doesn't get covered is ultimately going to be their debt.
Well, that's good. That's good for them to understand that early. So let them know they can contribute toward that cost in a lot of different ways.
Their own savings, summer jobs, scholarships, financial aid, they qualify and so on. And like we said a moment ago, the earlier you and your kids get started, the better. So to that end, we recommend that you start a college fund for each child. As the years go by, have your kids also contribute as they receive money for birthdays, holidays, money that they're earning working. You know, there's a dual goal going on here, Rob. You're obviously trying to reduce the amount of college debt that they might end up with. But at the same time, they're going to be learning that discipline savings is the best approach to meet future financial goals. That's well said, Mark.
And I think communication is key to letting your kids know early what you're expecting of them so they can be a part of the solution. Mark Biller is with us today. Mark is executive editor at Sound Mind Investing and underwriter of this program, we're talking college savings. And we have much more to come just around the corner.
We'll be right back. What's most important to you when it comes to choosing your financial advisor? Someone who's aligned with your biblical values? How about someone who will take the time to explain your options? Certified Kingdom Advisors are professionals who meet high standards in competence and integrity and have been trained to offer biblical financial advice.
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SMI provides step-by-step guidance for do-it-yourself investors, from those just getting started to those getting ready for retirement. More information, including a short video webinar on profit and peace of mind, no matter what's happening in the market, is available at soundmindinvesting.org. Great to have you with us today on Faith and Finance. With me today, my friend Mark Biller, executive editor at Sound Mind Investing and underwriter of this program. We're talking about a recent article at SMI called Making the Most of Your College Savings Program. In fact, that article is available to you right now at soundmindinvesting.org.
That's soundmindinvesting.org. And Mark, you were sharing before the break about the high cost of college education and the importance of saving early. We'll get into a few of those savings vehicles in a moment, but you mentioned the all hands on deck approach. And I think the key is to invite our kids into the process, communicate well, but also make sure they're doing their part. I mean, studying hard, getting some of those AP classes knocked out, if that's an option, perhaps working during the summer. I know I was a resident assistant on campus and had my room and board covered. I mean, we need to get creative even while we're making getting the grades, the preeminent priority, right?
Oh, absolutely. And I love what you just said there, Rob, because one of the things that's really true for a lot of kids is there's no way they're going to be able to earn as much working as they can quote unquote earn through scholarships and that kind of thing. I remember all the way back when I was in college and had an academic scholarship, you know, there was a point where I wanted to get a job outside of college and my dad was quick to remind me, look, the most money you're going to earn is by keeping those grades up and keeping that scholarship.
So definitely that is another avenue. Of course, some kids with sports, different activities, different things, but that academic scholarship path is a real big one for a lot of kids. Well, and my wife is a testimony to that. She grew up in a single parent home.
Her mom made it clear. Listen, if you're going to go to college and I want you to, you're going to have to get scholarships. They turn their living room into a scholarship application factory. I mean, they applied for everything and $150,000 in scholarships later, Mark, she put herself through college. So it is possible if you're willing to put in the work, but I think that does go hand in hand with saving and saving early. So you've got that compounding effect working for you. And I know in this article, we're talking about you and the team at SMI identified the best resources and programs for college savings.
So share that with us. Yeah. So first Rob, a few that people have heard of that we really don't focus on. We don't think these are the best options. They used to be very common. Like when you and I were saving for college, these were probably what we were using. Those are a doubly savings bonds, unified gifts to minors, custodial accounts, and prepaid college plans.
Those used to be popular. Now there are better options. The three that are big today that we focus on in this article are covered out education savings accounts, section five 29 college savings plans, and surprisingly Roth IRAs. Now each of those three provides strong tax advantages and varying degrees of flexibility, but each also has some downsides. Yeah. Well, folks are probably not surprised to hear the first two.
They may be by the third. Let's talk about each of them. Perhaps we'll start with those first two specifically targeted for college savings, the Coverdell and the five 29.
What should our listeners know? Yeah. So the first two are specifically designed for college savers. And the key with both of those is they allow you to invest for college and then take all of the earnings out tax free as long as they're used for qualified education expenses.
There are some differences though. So first with Coverdell ESAs, they're really a compelling option for parents whose income allows them to make contributions. And there are some income caps. It's about 190,000 to 220,000 for married filing joint filers. And the levels for single filers are lower.
We have all those details in the article. The main advantage, Rob, of Coverdell's over five 29 plans is flexibility. So with a Coverdell, you get to choose the specific investments you want and you can make investment changes as often as you like.
Now, admittedly, that's a feature that people like our SMI reader audience really value being able to direct their own investments. If you don't care about that, then that's not a particularly big deal in terms of Coverdell's versus 529. And there is one disadvantage of Coverdell's and that is that you can only save $2,000 a year in a Coverdell per kit. So you can definitely accumulate a lot in a Coverdell if you start early. But if you have to save quite a bit in a shorter period of time, 2000 a year may not be enough.
That's really helpful. All right, let's talk about 529 plans, because I know this is the other really attractive option. Yeah, there's no question 529 plans have become the savings vehicle of choice for most families today. And like I said, if you don't care about directing your own investments, then a 529 plan is going to be just fine if you just want stock and bond index funds.
529 are great. The first thing you need to know about 529 plans is most of them are sponsored by individual states. Now you don't have to be a resident of the state whose plan you choose, and your child does not need to go to school in the state of the plan you choose.
So those are a couple big points. What that means, though, Rob, is there are over 50 different state plans you can choose from because some states have more than one. So it really does become a matter of finding a plan that you like from any of the states that are available there. And just like Coverdell's, all that money, all the invested money and earnings can come out tax free as long as you're using it for qualified education expenses.
Now, unlike Coverdell's, this is a big one. Many states do offer you a state income tax deduction or credit for 529 plans to your own resident state plan. And because of that, you always want to check your own state plan first to see if there are any tax benefits for your contributions. The other big advantages of 529 plans are there are no income limits for the contributor, and there's no maximum contribution limit, although some states do set pretty high maximum limits. So 529 plans are the natural choice for higher income college savers.
Like I mentioned, they are a little more one size fits all. Most of them offer an age based portfolio track, so they will guide the allocations from very aggressive when the child is young to more conservative as they're older. So that's an advantage if you would like to have that handled for you. There are some financial aid differences and how these different plans are handled. Again, the details of that are in the article, but the short version is Coverdell's and 529 plans both get pretty favorable treatment, whereas the Roth IRA, you have to be a little more careful with using it for college.
This is so helpful, Mark. Unfortunately, we're about out of time, but I want you to quickly mention why a Roth IRA should be on folks radar as well. Yeah, what I love about a Roth is flexibility. So if junior gets a big scholarship or decides not to go to college, all of that money you've saved is already in the best place for your retirement.
So a Roth can be a lot more advantageous than a Coverdell or 529 plan in that type of situation. Well said, Mark. Appreciate your time today.
As always, thanks for stopping by. Thanks, Rob. Folks, you can get all the details and go deeper on all of these options Mark mentioned today when you head to soundmindinvesting.org. Just click Making the Most of Your College Savings Program at soundmindinvesting.org.
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The number to call, 800-525-7000. Our goal on this program every day is to reverently approach God's Word, understanding that we are charged with a high calling, and that is to be stewards or managers of the King of Kings resources. We want to do that in a way that's wise, that's hopeful, to encourage you in your role as a steward and lead you toward faithfulness. Well, we do that every day as we tackle your financial questions and hear your testimonies, and we love to hear when God is at work in your financial life and you have a story to share where that you've applied these principles and you've seen God at work and faithfully providing for you over the years. Share those with us as well. The number to call to be a part of the program today is 800-525-7000.
Let's go to Ohio and welcome Mary to the broadcast. Go right ahead. Hello.
Hi, how can I help you? Well, I have a dear friend that left me their 401k. It has like $76,000 in it right now.
Okay. I'm 80 years old and I understand I can't leave that to anybody else. In other words, I can't designate a beneficiary. Is there something I could do to roll it over or put it in something else or even take a penalty?
I doubt if I'll be able to use it that long since I'm already 80. Yeah, so your friend passed away and left this to you. You were the beneficiary. Is that right? Yes.
Okay. Yeah, what I would typically recommend is that you do roll that out to an IRA and there are rules about how you need to take that out. So I'd check with your CPA or financial advisor just on what the IRS says about how quickly you need to, you know, take that money out.
I suspect it's probably going to be over 10 years. You have to have it all out of there and you'll pay taxes on it as it comes out. But you should be able to name a beneficiary on it so that if you passed away while there's still money in there, you would designate who receives it after you. As an IRA, you mean? Yes. Okay. And that is standard that the beneficiary can't name a beneficiary on a 401k?
No, you shouldn't. If you have the inherited 401k, my understanding is you should be able to have a beneficiary on that as well, because you need to be able to specify who gets it if you pass away. And all 401ks have a named beneficiary.
I'm not aware of a provision with an inherited 401k that that disqualifies you from naming a beneficiary for your the account that you now own. But I would just circle back with the company and double check that you may want to just explore that a bit further. Oh, okay, because I think it's written, I'll have to look again, because I was surprised that I can't name a beneficiary. Yeah, but you're saying that would not necessarily happen, but that's unusual. I'm not aware of that, if Yeah, that would be a surprise to me.
So I would I would investigate that a bit further. Now, can I cash that out as a 401k? Or what would happen if I tried to do that?
You can absolutely. So as that money comes out, you would just add it to your taxable income. So often, folks, especially if you don't need the money, will take it out over time, as to not push a portion of it up into a higher tax bracket by taking it all out at once. What's the amount roughly in the 401k that you inherited?
Around 70. Okay. Yeah. So for instance, what you may want to do is take that 35,000 a year for the next two years, if you if you want to take it out. Now, if you don't need the money, you may want to just leave it in there and let it grow. But as it comes out, it would just be added to your taxable income. And then you could do with it.
Would you please? Okay, but as I take it out, there would not be a penalty. Is there when I'm 80? There would not be any penalty. No, if the only thing that would happen is it would be taxed. Correct as income. Okay. But thank you so much. I really appreciate this program. I enjoy listening to everything you have to say. Well, thank you, Mary. I appreciate you being on the program. And thanks for those kind remarks. Lord bless you.
Let's go to Texas and welcome Luke to the broadcast. Go ahead, sir. Yes, sir. My auto insurance has really gone up over the last two years. I got the new policy this month, and it's gone up again. So I want to look for another company. Are there any auto insurance companies for a biblically based in other words, they're not giving money to Planned Parenthood or something?
Sure. Luke, I can't say specifically, but I will say that I know Christian Community Credit Union, who we as an underwriter of this broadcast, and we have a trusted relationship with that they work with an organization called true stage partners, TRU stage partners, that offers auto and property insurance, you know, with competitive rates and discounts for credit union members, and focuses on community and shared values. I don't know that they identify themselves as an overtly Christian company in the same way Christian Community Credit Union does. But I would be inclined to say that if CCCU works with true stage, I would believe that they uphold strong values. So that would probably be the first place that I would go. Okay, thank you.
I'm already a member of the Christian Community Credit Union. Excellent. Oh, that's great. That was true stage. That's right.
TRU stage partners. Yes, sir. Okay. Thank you very much, sir. Have a great day. All right. And you as well. Thanks for your call. Let's finish up today in South Carolina. Let's see.
El Ciana. Did I get that right? Yes. Okay, go right ahead. He did. I listened to you on then Saturday and the GNN here in South Carolina.
Oh, very good. My question is on SSI and Social Security benefits. I feel that I was I'm a nurse by profession and I got sick about maybe 18 years ago. And I feel short change because when I listen to other people, even in lower brackets and educational wise, they're getting more I'm living in a poverty state, you know, of incomes, which I felt like I should have gotten more.
When I didn't have a lawyer, I did everything myself to get this benefit. And at the time, I was really ill. So I think they short changed me in my benefit. I had worked for some, you know, state company there in the medical field. And I started to work like I told your representative at the age of 13.
And at that time, I don't think they were taking out and so, you know, benefits. So I felt like I got short change. I'm just blessed because I use my you know, I own my home. I was living in Boston, Massachusetts, I sold it, I was able to pay off that home and able to buy, you know, a home here. If I was I if you notice a lot of elderly people are homeless. And if I did not do that, I think I would be homeless at this moment because the income that I'm getting in.
So I was wondering, my question is, can I go back or get a lawyer to fight? Sure. And let me let me quickly respond. Unfortunately, I don't mean to cut you off. And I'm almost out of time.
El Ciana. Yes, even if you didn't initially hire an attorney, it's important to understand that consulting one now could help you know your legal rights and potential actions you could take. You're going to want to find an attorney that specializes in retirement or disability law to provide guidance on whether you have any legal recourse and just kind of walk with you through all of this. I wish I could spend more time on this. But unfortunately, I'm out of time. Lord bless you. Thanks for sharing your testimony today. A big thanks to my team today.
Taylor Standridge, Devin Patrick, Pat Montague. Couldn't do it without him. And everybody here at faith by enjoy the rest of your day and come back and join us next time. Bye bye. Faith and Finance is provided by Faith by and listeners like you.
