A Simple Plan to Lower Your Taxes and Boost Your Returns

Andy Snyder|August 16, 2023

Two of the riskiest (and often dumbest) financial decisions today’s generation of youngsters face are whether to go to college… and how to pay for it.

If they make poor decisions, they’ll be riddled with debt (with monthly payments that can easily rival a mortgage) and earn a degree that’s virtually useless… like one in (gulp) puppetry or bowling management.

The fact that few folks want to fix the root of the problem is one of the greatest threats to American kids.

But a little-understood strategy can provide major help. With taxes always on the rise, it’s a critical topic.

Most serious investors have heard of 529 plans. But few realize their true power.

They are not just for young parents. Far from it.

They’re perfect for grandparents… aunts… uncles… anybody who wants to boost their economic fate and lower their taxes.

Washington Did Good?

Congress created the plans in 1996 as a way to spark interest in saving for a college education.

Earnings generated through the plans are not subject to federal tax and, in most cases, are not subject to state tax when the money is used to pay for necessary college expenses (the list of qualified expenditures is actually quite expansive).

Right off the top, that could boost your profits by as much as 20%… or 40% if the folks in D.C. get their way.

And in at least 34 states, the tale gets even better.

School the Taxman

You can deduct 529 contributions from your state income tax each year. In Pennsylvania, we can deduct as much as $28,000 worth of income… per beneficiary.

And what’s really powerful is that the law allows you to transfer funds from one beneficiary to another without triggering a taxable event.

In other words, in many instances it makes sense for investors to open a 529 plan just for the annual deduction on their state income taxes.

Even if they never use the money, they can easily withdraw it (you always remain the owner of the funds) or transfer it to their children or grandchildren. Many states offer 529 plans that also provide appealing inheritance and gift provisions.

Another benefit of these plans is that you can open an account in any state. You’re not locked into your home state’s plan.

We recommend looking at Utah’s plan. It allows savers to invest in a wide array of assets, including ultra-cheap Vanguard funds. Its most expensive option comes with an annual fee of just 0.46%.

The bottom line is that your kids, your grandkids… and even your neighbor’s kids are likely to go to college.

And it will be expensive… no matter what the folks in Washington promise.

If you manage it poorly, your kids could start their working lives overwhelmed with debt. It could ruin them.

If you manage it wisely, though, you can invest in their education while lowering your tax burden.

Taxes are (always) on the rise.

A 529 plan is a smart way to avoid some of the pain.