What is 529 Plan?

A 529 account is a tax-advantaged savings plan designed to encourage saving for future education costs.

What is the key difference between investing in regular Brokerage Account vs 529 Account

The key difference is in the following tax advantages in 529 plans which can't be obtained in the regular brokerage account.

• Tax-free growth: Your investments grow without federal income tax.

• Tax-free withdrawals: You can withdraw the money tax-free and pay for qualified education expenses.

• State tax benefits: Many states offer tax deductions or credits for contributions to a 529 plan.

Visualization Created for Frank & Mark : Frank and Mark both are colleagues and both have recently became parents. they both want to save for their kids education , but Frank opened a 529 account while Mark opened a regular brokerage account. i) They both are in 7% state tax bracket ii) they both are able to generate 8% return on their investment of $250/Month. How much money Frank & Mark will have when their kids go to college?

Frank's Child

Mark's Child

Frank would be able to use around $112K for his child education and will not be paying any tax. So he will be able to use the entire money for his child's education.

Mark would be able to use around $93K for his child's education and as he will be paying Capital gain tax on the gains and state tax as well.

Conclusion : Frank will be able to use almost $18K to $19K more in spite their investments were similar, but Frank utilized the tax benefit of 529 account while Mark did not.

Things impacted Mark's financial performance :

1. At the time of investment Mark could not get State tax benefit on $3000/year investment which made his starting investment 7% less per year

2. After 18 years of investment while Mark withdrew money he paid Capital Gain tax ( 15% assumed)

3. After 18 years of investment while Mark withdrew money he paid state tax ( 7% assumed)

4. Dividend tax and others are not considered in the calculation

Note : This focuses on visualizing the benefits of a 529 plan versus a brokerage account for education, not on detailed tax calculations.

Call To Action : Open your 529 Account NOW!

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Thank you and keep building your legacy through Generational Wealth! Take care and don't forget to enjoy the journey and take care of your health.

Note : Please note that the calculations are estimates based on certain assumptions, such as variable annual returns. This blog post is intended to illustrate the potential long-term benefits of consistent saving and investing, not to provide specific financial advice. The information presented on this blog, including any visualizations or projections based on average historical data, should not be considered financial advice. Investing involves inherent risks, and the value of investments can fluctuate significantly.