Since having a kid of our own I have often found myself in the company of other parents. And let me tell you, there is nothing in this world parents want to talk about more than the latest exploits of Little Johnny or Young Suzie.
“Oh man, you do NOT want to know what I found in Johnny’s diaper!” (you’re right)
“Oh my gawd, Suzie said the cutest thing today! Let me tell you all about it.” (that’s, uh… really cute)
And my personal favorite:
“Yeah this kid is wicked smart… probably gets it from his old man, hehe. So anyway, I opened up a 529 plan for him last week. We even did that thing where you contribute 5 years’ worth all at once. You knew you could do that, right?”
Me: “Yeah, uh.. Jr doesn’t have a 529.. And we have no plans to start one.”
A 529 is a tax-advantaged account used to save for future college expenses. (And now K-12 after passage of the TCJA of 2017.)
You gift contributions to a beneficiary (e.g. your kid) which are invested in mutual funds. All income / gains are tax-deferred, and when withdrawn for qualified education expenses (e.g. tuition) any/all gains are tax free.
Sounds nice, right?
Why GCC Jr has No 529
Why let the opportunity for tax free growth slip by?
Tax Deferred / Tax Free Growth
We already have a very interesting investment account that has tax deferred and tax free growth: a standard brokerage account.
I’ve demonstrated this over the past 4 years. Low/no yield stocks and ETFs grow tax deferred, and qualified dividends and long term capital gains are taxed at