While AUM advisors may seem appealing, they often come with high lifetime fees and potential conflicts of interest. In contrast, a fee-only, flat-fee financial planner provides transparent pricing, unbiased advice, and comprehensive financial planning—without taking a percentage of your investments.

If you’re searching for a fiduciary financial planner, flat-fee financial planning, or the best alternative to AUM-based advisors, this article will help you decide which model is right for you.

Fee-Only, Flat-Fee Financial Planners: Transparent, Unbiased, and Cost-Effective

A fee-only financial planner charges a fixed fee for financial planning services, regardless of the size of your portfolio. Unlike AUM-based advisors, they do not earn commissions or take a percentage of your investments. Instead, they provide objective, conflict-free financial advice at a predictable cost.

Why a Fee-Only, Flat-Fee Financial Planner is the Better Choice

✔️ Transparent & Predictable Costs – You know exactly what you’re paying, making it easier to budget for financial planning services.
✔️ Unbiased Advice from a Fiduciary – Fee-only financial planners are fiduciaries, meaning they are legally required to act in your best interest. Unlike AUM advisors, they don’t have an incentive to keep assets under management, so their recommendations are truly objective.
✔️ Comprehensive Financial Planning is Included – Many AUM advisors charge extra for estate planning, tax strategies, and retirement planning. A flat-fee financial planner includes these services in a transparent pricing model.
✔️ More Cost-Effective Over Time – Instead of paying an ongoing percentage of your investments, a fee-only financial planner charges a fixed amount for their services—often saving clients hundreds of thousands of dollars over time.
✔️ Best for High-Income Professionals & Retirees – A flat-fee financial planner is ideal for business owners, young professionals, high-net-worth individuals, and retirees looking for financial planning without hidden fees.

AUM-Based Financial Advisors: The Hidden Costs of Percentage-Based Fees

AUM-based financial advisors charge a percentage of the assets they manage for you. A standard fee is 1% annually, meaning that if you have $500,000 under management, you’d pay $5,000 per year—even if you don’t need much ongoing advice.

Why AUM Advisors May Not Be the Best Choice

❌ High Long-Term Costs – A 1% AUM fee may seem small, but over decades, it can cost hundreds of thousands of dollars in lost investment growth.
❌ Conflicts of Interest – Since their fees are based on assets, AUM advisors may hesitate to recommend paying off debt or making large withdrawals for major life goals.
❌ Financial Planning May Cost Extra – Many AUM advisors charge separately for estate planning, tax optimization, and retirement planning—so your total costs could be even higher than expected.

Are There Any Benefits to AUM-Based Advisors?

✔️ Hands-Off Investment Management – If you prefer a professional to handle asset allocation, rebalancing, and investment selection, an AUM-based advisor can actively manage your portfolio.
✔️ Ongoing Portfolio Monitoring – AUM advisors continuously review your investments and adjust strategies based on market conditions and economic trends.

Side-by-Side Comparison: MainStreet’s Fee-Only, Flat-Fee Model vs. AUM Advisors

The Bottom Line: Why a Fee-Only, Flat-Fee Financial Planner is the Best Choice

💡 A Fee-Only, Flat-Fee Financial Planner is the Smarter Choice If:
✔️ You want cost transparency and predictable expenses.
✔️ You prefer a fiduciary financial planner who isn’t incentivized to keep assets under management.
✔️ You want comprehensive financial planning included—without extra fees.
✔️ You want to keep more of your money growing for your future instead of paying it to an advisor.
✔️ You’re a do-it-yourself investor, pre-retiree or retiree, or business owner looking for a fee-only fiduciary advisor.

Find the Best Fee-Only, Flat-Fee Financial Planner Today

🔹 Looking for transparent, fee-only financial planning? MainStreet Financial Planning offers a flat fee structure with no hidden charges, ensuring you receive expert financial guidance without percentage-based fees eating into your savings.

📍 Explore our Money Roadmap Service today and take control of your financial future!

The post How a Fee-Only, Flat-Fee Financial Planner Can Save You $114K+ appeared first on MainStreet Financial Planning.

Inflation – The rate at which prices for goods and services rise, decreasing purchasing power. Moderate inflation is normal, but high inflation can be problematic.

An example of inflation is the U.S. inflation surge in 2021-2022 following the COVID-19 pandemic. During this period:

• Prices of goods and services rose rapidly, with inflation peaking at 9.1% in June 2022, the highest in over 40 years.
• Supply chain disruptions from the pandemic led to shortages, increasing costs for goods like cars, electronics, and food.
• Government stimulus programs and low interest rates boosted consumer demand, adding to price pressures.
• Energy prices soared due to geopolitical factors, including the Russia-Ukraine war, making transportation and heating more expensive.

The Federal Reserve responded by raising interest rates aggressively to slow inflation, eventually bringing it down in 2023.

Deflation – A decrease in the general price level of goods and services, often indicating weak demand and economic trouble.

An example of deflation is the Great Depression (1929–1939) in the United States. During this period:

• Prices of goods and services fell significantly.
• Wages declined, leading to lower consumer spending.
• Businesses reduced production and laid off workers.
• The money supply contracted due to bank failures, reducing available credit.

Deflation is dangerous because it can lead to a downward economic spiral where people delay purchases expecting lower prices, further reducing demand and slowing economic growth.

Disinflation refers to a slowdown in the rate of inflation, meaning prices are still rising, but at a slower pace than before. It’s different from deflation, which is when prices actually drop.

An example of disinflation is the U.S. economy in the early 1980s under Federal Reserve Chairman Paul Volcker. During this period:

• Inflation was high in the late 1970s, exceeding 10% annually due to oil price shocks and loose monetary policy.
• The Federal Reserve raised interest rates aggressively, peaking at around 20% in 1981, to slow inflation.
• Inflation gradually declined from over 10% in 1981 to around 3-4% by 1983, but prices still increased—just at a slower rate.
• Economic growth slowed briefly, leading to a recession (1981-1982), but inflation was successfully controlled.

This period is a classic example of disinflation because inflation was reduced without turning into deflation (where prices actually decrease).

Stagflation – A rare combination of stagnant economic growth, high unemployment, and high inflation.

An example of stagflation is the 1970s oil crisis in the United States. During this period:

• High inflation: Oil prices surged due to OPEC’s oil embargo (1973), leading to increased costs for goods and services.
• High unemployment: Economic growth slowed, and businesses struggled, leading to job losses.
• Stagnant economic growth: Despite rising prices, GDP growth was weak, creating an unusual combination of inflation and recession

Stagnation – A prolonged period of slow or no economic growth, often with high unemployment.

An example of stagnation is Japan’s “Lost Decade” (1990s-2000s). During this period:

• Economic growth was sluggish: Japan’s GDP growth was minimal despite various government stimulus efforts.
• Low consumer and business confidence: People and companies were hesitant to spend or invest.
• High debt levels: The banking system was burdened with bad loans from the burst of Japan’s 1980s asset bubble.
• Mild deflation: Prices remained stagnant or slightly declined, discouraging spending and investment.

This stagnation persisted for years, leading to prolonged economic weakness despite low interest rates and government intervention.

These terms can be quite similar, so I hope this list helps clarify their meanings and enhances your understanding of the articles you read.

The post What is Inflation, Deflation, Disinflation, Stagflation and Stagnation? appeared first on MainStreet Financial Planning.

The MainStreet Financial Planning Discussion Club

When:  Thursday, November 21st at 6:45 pm ET | 3:45 pm PT

~30-45 minutes

Recorded and able to retrieve for one week

How: Zoom Meeting

Free for current clients, $10 for guests

Email us for the Recording!

Passing on Your Legacy: Planning for Smooth Asset Transfer

Hosted by: Vida Jatuils, CFP® &  Anna Sergunina, CFP®

Guest: Barry W. Finkelstein

Are you prepared for how your assets will pass to your loved ones? Join Anna Sergunina, CFP® and Vida Jaulis, CFP®, and guest estate planning expert Barry W. Finkelstein, as they provide insights into establishing a meaningful estate plan to ensure a smooth transfer of assets through trusts, wills, and essential directives.

In many cases, estate planning documents are established without a full understanding of how they work, when they come into play, and how tools like trusts can facilitate the efficient transfer of assets to the next generation. This session will take you beyond the basics, empowering you with the knowledge to make informed decisions tailored to your unique life stage and family needs.

Topics we’ll cover include:
1. The essential documents for effective asset transfer, including trusts, wills, and powers of attorney.
2. Planning for minor children: setting up trusts to protect and support young beneficiaries.
3. Understanding how asset transfer evolves as children reach adulthood.
4. Choosing the right successor trustees, executors, and healthcare agents.
5. Structuring inheritances to ensure they support, rather than burden, your beneficiaries.

Join us for this insightful session to gain peace of mind, fully understand your estate plan, and ensure your legacy supports your loved ones at every stage of life!

About Barry W. Finkelstein

Barry Finkelstein is a California native and opened his last office in Alameda in 2000, focusing exclusively on estate planning for individuals and families throughout the Bay Area.  Barry is passionate about estate planning because he feels that there is so much about what happens to us and our stuff if we become incapacitated and after we die that most people don’t know or understand, which is why he loves doing presentations like this one, to help people make that rough transition as smooth as possible.  Barry is an avid cyclist who loves to do volunteer work and lives in Mountain View with his wife Susan and their two cats.

The post Chalk Talk: Passing on Your Legacy: Planning for Smooth Asset Transfer appeared first on MainStreet Financial Planning.

To avoid potential taxes and penalties with a 529 plan rollover to a Roth IRA make sure to understand the requirements.

• Account age: The 529 plan must have been open for at least 15 years.
• Rollover amount: The rollover amount must be from contributions made to the 529 account at least five years prior to the transfer date.
• Annual contribution limit: The rollover amount cannot exceed the annual Roth IRA contribution limit for the year. For 2024, the annual Roth IRA contribution limit is $7,000, or $8,000 for individuals aged 50 and older (based on age of the beneficiary).
• Lifetime rollover limit: The total amount that can be rolled over from a 529 plan to a Roth IRA over a beneficiary’s lifetime is $35,000.
• Direct transfer: The rollover must be a direct trustee-to-trustee transfer.
• Beneficiary name: The Roth IRA must be established in the name of the 529 account’s designated beneficiary.
• Earned income:  The beneficiary needs to have earned income equal to at least the rollover amount.
• Not all states recognize this new rule so you may owe state taxes and penalties.  Read more

As you wrap up the year, perhaps you want to explore taking advantage of this new rule.  You have until the tax filing deadline April 15, 2025, to complete the 529-to-Roth IRA rollover for the 2024 tax year.

Also, remember to consider your other options for unused/leftover 529 plan funds:

• Change the beneficiary of the 529 plan to another qualifying family member and use it for qualified education expenses.
• Create an education legacy for grandchildren.
• Save it for graduate school, professional programs, pursuit of a different field of study, resuming college later.
• If the beneficiary has special needs, you can rollover the 529 plan into an ABLE account which has a much broader definition of qualified expenses.
• Use up to the $10,000 lifetime limit to pay student loans.
• If the 529 plan beneficiary gets a scholarship, you can withdraw up to the scholarship amount penalty-free.

529 plans are a great education savings vehicle.  Your contributions can grow tax-free and if you use the money for qualified education expenses there are no taxes on distributions. College is a big expense, and the best strategy is to have savings to meet your family’s goal of paying for college.  So have no fear…save to a 529 plan and if things do not work out as planned…you have options for your unused

The post Year-end Planning: Unused/Leftover funds in a 529 Plan appeared first on MainStreet Financial Planning.

The MainStreet Financial Planning Discussion Club

When:  Thursday, October 10th at 3pm Eastern; 12pm Pacific

~30-45 minutes

Recorded and able to retrieve for one week

How: Zoom Meeting

Free for current clients, $10 for guests

Email us for the recording!

College Funding Planning

Hosted by: Vida Jatuils, CFP® &  Anna Sergunina, CFP®

Is your child heading to college in the next 0-5 years? Now is the time to start planning! Join Vida Jatulis, CFP®, and Anna Sergunina, CFP®, as they guide you through key strategies for funding your child’s education and developing a comprehensive timeline of actions to take.

We’ll cover crucial steps, deadlines, and discussions you should have over the next few years while your child is still in high school. Key topics include saving strategies, estimating costs, tax planning, and financial aid. Plus, we’ll help you map out the important conversations to have with your teen about college money.

Things we will discuss:

1. Is it too late to start saving?
2. Estimating the cost of college and creating a cash flow plan.
3. How to have the college money talk with your high schooler.
4. Tax planning strategies to reduce college expenses.
5. Is it worth spending money on test prep or AP tests?
6. Understanding aid, loans, and how to tap into investments.

Don’t miss this opportunity to build a solid college funding plan and stay on track with key financial decisions over the next 0-5 years!

College Funding Plan

The post Chalk Talk: College Funding Planning appeared first on MainStreet Financial Planning.

If you are in the SAVE repayment plan, your loan is now in forbearance indefinitely.  That means no loan payments are due until this issue is resolved, which could take a while.  You also will not be charged any interest on your loan while it is in forbearance.

The important difference with the SAVE forbearance relative to the previous pandemic forbearance is that you will not earn Public Student Loan Forgiveness (PSLF) or Income Dependent Repayment (IDR) forgiveness credits.  This could ultimately lead to forgiveness taking longer than you planned.  Click here to access the U.S. Department of Education’s updates.

With SAVE repayments paused what should you be doing?

• Login to your student loan account and make sure that you are not accruing interest on your loan, loan servicers can make mistakes.
• Use this opportunity to shore up your emergency fund, save toward a goal or pay down high interest credit card debt by redirecting your monthly loan payment.
• Don’t let the money that would otherwise go toward monthly student loan payments get spent elsewhere in your budget, then when loan payments resume, you will have to make difficult adjustments.
• If you are in the PSLF close to the 120 monthly payment milestone, you may decide to change your repayment plan to avoid delaying forgiveness. Carefully weigh the pros and cons of making a change.
• It is possible that the SAVE repayment plan will end. Explore the other repayment plans so you know what to expect and can start planning for your future!

It has been an interesting few years for student loan borrowers with repayment stopping and re-starting.  In addition, the uncertainty of loan forgiveness may be making planning for the future difficult.  On the bright side of things…you have a wonderful opportunity to get ahead on your other financial goals right now!  If you want to take full advantage of this opportunity but don’t know where to begin, give us a call and we would be happy to help!

The post SAVE Plan Blocked…Student Loan Repayment Uncertainty Continues appeared first on MainStreet Financial Planning.

What are Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts?

• These types of accounts are custodial accounts which allow you to invest on behalf of a minor until they reach the age of majority. The age of majority is usually either 18 or 21, determined by the state of residence of the custodian.
• UTMAs and UGMAs allow financial investments, but UTMAs also allow property such as real estate. UTMAs may be the only option when opening a new account. Vermont and South Carolina residents can only establish new UGMAs.

Why use this type of account?

UTMAs and UGMAs can transfer wealth to a grandchild, of course, but you can also use them as a learning tool to provide financial education. Gifting even a small amount of money to a UTMA or UGMA and passing along your investment knowledge can give your grandchild a gift more valuable than money that will last a lifetime.

How are UTMAs/UGMAs taxed?

This account is owned by the child, so earnings are generally taxed at the child’s assumed lower tax rate instead of the parent’s rate. This is the power of this type of account.

What is the impact on Financial Aid?

Since these are the child’s assets, there is an expectation that more funds of these funds would go toward the child’s education. Saving for College indicates “20 percent of a student’s assets are counted on the FAFSA, 25 percent are counted on the CSS Profile. Any interest, dividends or capital gains reported on the student’s income tax return is also counted as income on the FAFSA and assessed at 50 percent.” Note: This is not tax-advantaged like a 529 plan.

How can you use the funds in a UTMA/UGMA?

This account can be used for anything! Whether these funds are earmarked for your grandchild’s first car, a downpayment on a home or kickstarting their funds for retirement, these assets will continue to be invested for their goals. If the focus is specifically on education, a 529 Plan may be a better choice in some circumstances, however.

What happens when the grandchild turns the age of majority?

While the grandchild is the minor, you will continue to manage and invest in the UTMA/UGMA. After the age of majority, the grandchild takes over ownership of the account, and it becomes their individual account. This is where the knowledge and financial skills they have learned from you help them to become a responsible and informed investor for their future success.

Where Can You Open a UTMA/UGMA Account?

Ready to get started? Here are three reputable custodians where you can open a UTMA/UGMA account today:

1. Vanguard: Known for its low-cost index funds and long-term investment philosophy, Vanguard is a great option if you’re looking to minimize fees while teaching your grandchild about diversified investing. Open a UTMA/UGMA with Vanguard.
2. Schwab: Charles Schwab offers a user-friendly platform with a range of educational resources, making it a good choice for grandparents who want to engage younger family members in managing their investments. Open a UTMA/UGMA with Schwab.
3. Fidelity: With a strong emphasis on financial education and planning tools, Fidelity is ideal for those who want to teach their grandchildren about investing while providing a wide array of investment options. Open a UTMA/UGMA with Fidelity.

Opening a UTMA or UGMA account for your grandchildren is a wonderful way to contribute to their financial future while also passing on essential money management skills.

Interested in other ways to financially support your loved ones? Check out our article on 5 Ways to Give Your Godchild (or Loved One) a Financial Boost

The post The Benefits of Opening an UTMA/UGMA for Your Grandchildren appeared first on MainStreet Financial Planning.

What is a Custodial Roth IRA?
A Custodial Roth IRA allows a parent to open and manage a Roth IRA for a minor. The account is owned by the child, but the parent or guardian manages it until the child reaches the age of majority, typically 18 or 21, depending on the state. This account type is particularly beneficial for children who have earned income but may not have the knowledge or ability to manage their retirement savings yet.

Earned Income Requirement:
To contribute to a Custodial Roth IRA, your child must have earned income. This can come from traditional W-2 income sources, such as an after-school or summer job, or from self-employment, like babysitting or freelance work. The income must be verifiable, as this is a key requirement for opening and contributing to the account. There is no age requirement for opening a custodial Roth IRA so long as the child has earned income.

TIP: While there is an earned income requirement there is also an effective strategy where the parent can “gift” the child the full or partial amount of the contribution. This approach allows the child to enjoy their earnings while still contributing to their Roth IRA. For instance, if your child earns $3,000 from a babysitting job, you as the parent could contribute $3,000 on their behalf since they had $3000 in earned income and still allow the child to keep the earnings for them to use/spend. You could also consider contributing half of the earned income they had for the year ($1500) and then the child contributing the other $1500 while still allowing them to keep some of their hard earned money to spend while still making the child have some “skin in the game” so to speak.

Contribution Limits:
The contribution limit for a Custodial Roth IRA is the lesser of your child’s earned income or $7,000 per year (as of 2024). For example, if your child earns $5,000 in a year, that is the maximum amount they can contribute for that tax year. If they earn $8,000, they would still be limited to the $7,000 cap.

Time Advantage:
Starting a Custodial Roth IRA for your child maximizes the time their investments have to grow through compound interest. While any individual can open a Roth IRA at age 18, opening one even earlier enhances the time value of money and helps establish a habit of regular contributions. This early start not only amplifies the growth potential of their savings but also ingrains the discipline of consistent investing.

Withdrawal Rules:
The same rules that apply to a regular Roth IRA apply here. Contributions can be withdrawn at any time without penalty. However, withdrawing earnings before age 59½ may incur taxes and a 10% penalty, with certain exceptions such as first-time home purchases or education expenses. Importantly, the 5-year clock for tax-free withdrawals starts when the account is opened. This means that starting early allows the clock to start ticking sooner, making it possible to access funds for major life events like buying a house or paying for education with fewer penalties.

Long-Term Growth Potential:
Consistent contributions to a Custodial Roth IRA can result in substantial long-term growth. For example, if your child contributes $6,000 annually starting at age 10, they could potentially see their account grow to over a million dollars by retirement, thanks to the power of compound interest. Starting early not only increases the account’s value but also teaches the child the importance of regular saving and investing.

By opening a Custodial Roth IRA, you provide your child with a powerful financial tool and teach them the value of long-term planning. This early exposure to saving and investing sets the stage for a secure and prosperous adulthood.

*Source T Rowe Price 

A Custodial Roth IRA can be opened at most brokerage firms online—Vanguard, Fidelity, Schwab, etc. If you have questions about how to open and invest in a Custodial Roth IRA for your child, reach out to us, and we’d be happy to help guide you in setting your child up for success.

The post What is a Custodial Roth IRA and Should I Open One for my Child? appeared first on MainStreet Financial Planning.

One of my favorite quotes from the book is

“Allowance is not an entitlement or a salary. It is a tool for teaching children how to manage money.”

For children aged 5 to 8, Godfrey emphasizes the importance of learning ten basic money skills, such as how to save, track money, talk about money, spend wisely, and use money to do good in the world.

Here is what I am adapting and implementing with my son Liam.

Start Early: Basic Money Concepts

Even young children can grasp basic money concepts. It’s crucial to start early with simple, tangible methods that make the idea of money relatable. One effective way is using a piggy bank for collecting spare change. This allows children to see the physical accumulation of money, reinforcing the idea that saving can lead to something bigger.

What I am doing:

1. Tooth Fairy Money: My son Liam, now 5 and a half, has lost three teeth this year. Each time, the Tooth Fairy leaves a little money, which he adds to his piggy bank.
2. Cash Register Play: Liam loves playing store with his various toy cash registers. This game helps him understand the concept of transactions and the exchange of money for goods.
3. Kids Wallets: Liam has several kids’ wallets that come with fake dollars, coins, plastic cards, and IDs. He takes them everywhere, which helps him get used to handling money and understanding its value.

Establishing Habits: Saving and Investing

Introduce saving habits early. When your child receives money, whether from allowances or gifts, encourage them to save a portion of it. This can be done through their piggy bank or a small savings account.

What I am doing:

3 Savings Jars: We use three jars labeled Save, Spend, and Give. This method helps Liam understand the different purposes money can have and the importance of saving a portion of his money for future needs. Liam has a smaller set of plastic Jars. This looks like it could hold a lot more.

Discussing Values: Family Views on Money

Talking about your family’s values regarding money is crucial. Explain how your family decides to spend, save, and donate. This helps children understand the purpose behind financial decisions.

What I am doing:

 We still need to establish this more formally with Liam. Yuri and I intuitively know our values, but we haven’t discussed them directly with him. We often talk about saving money for vacations and trips, emphasizing that we save to explore the world, meet new people, make friends, and learn new things. This helps Liam appreciate the value of saving for experiences.

Using Games: Fun with Money

Make learning about money fun through games. Playing store or board games that involve money can teach children about spending and saving in a playful context.

What I am doing:

1. Kids Monopoly Game: Liam loves playing the kids’ version of Monopoly, which teaches him about money management in a fun way.
2. Playing Store: Using his cash register and other store-related toys, we play Target store at home.
3. Lemonade Stand: We’ve set up a lemonade stand in our neighborhood, giving Liam a hands-on experience with earning and handling money. As we made a few dollars, I am looking to invest in something that has more visibility, like this stand.

Involving Them: Family Meetings

Include your kids in simple family meetings about budgeting and spending. This gives them a sense of responsibility and inclusion in financial decisions.

What I am doing:

We’re just starting with this. We talk about simple things like grocery shopping and discuss prices for items, helping Liam understand numbers and value. This practice will become more frequent as he gets older.

Setting Goals: Saving for Special Occasions

Help your child set savings goals for birthdays and holidays. Use a chart or an app to track their progress. This teaches them the value of delayed gratification.

What I am doing:

We use the phrase “Put it on your wish list” a lot and have started a list on my phone for Liam. This helps him understand that we don’t buy things on a whim but save for bigger events like birthdays or holidays. He keeps asking me to review with him what is on the list from time to time.

Allowance: Learning Through Chores

Introduce an allowance system tied to chores. This teaches children the concept of earning money. Discuss how they can use their allowance, emphasizing the difference between spending and saving.

What I am doing:

Liam is starting kindergarten next month, and we’ve decided this is the right time to introduce an allowance. We’re starting with $5 per week, allowing him to decide how to use it. He has three jars for saving, spending, and giving. We’ve been discussing the purpose of each category, using his Tooth Fairy money as a starting point.

Teaching children about money from a young age is an invaluable investment in their future. By incorporating simple activities and discussions, we can help them develop a strong foundation in financial literacy. As Joline Godfrey points out in Raising Financially Fit Kids, these early lessons can shape their financial habits and attitudes for life. Remember, the goal is not just to teach them how to manage money but to instill in them the confidence and knowledge to make smart financial decisions.

As I test out these strategies and tools, I’ll be sharing my own experiences as things unfold. With the right guidance and tools, like the strategies from Godfrey’s book, we can ensure our children grow up to be financially savvy adults!

The post Early Financial Education: Teaching Kids Money Skills from Ages 5-8 appeared first on MainStreet Financial Planning.

Since 2018, the federal tax code allows 529 plans to be used for up to $10,000 per year to pay for qualified K-12 tuition.  Warning: not all states have adopted this rule, you may not owe taxes on your federal return but watch out for the impact on state taxes!  If you live in one of the states that does not allow for this, you may pay state capital gains taxes, need to repay tax deductions for contributions and pay penalties on withdrawals.

A 529 plan is a great way to save for education because you get tax-free compound growth over many years and in some cases a state tax deduction for contributions. If you start taking distributions earlier for K-12 tuition, you may limit the growth on your savings to fund college.

Just because you can use the 529 plan for K-12 education, it does not mean that you should use it.  It is important to know the rules in the state where you live and the amount of savings you will need to pay for college when deciding whether to use 529 plan funds to pay for private school tuition.

Here are 3 scenarios when it may make sense to use your 529 plan for K-12 tuition.

1. Overfunded 529- If you have more than enough saved for college, then using the 529 plan to fund K-12 tuition makes sense.
2. Capture State Tax Deduction- If your state offers a state tax deduction for contributions to a 529 plan, then run the tuition money through the 529 plan to maximize the tax deduction.
3. Temporary Solution- If you have a disruption in income due to job changes, health issues or other unexpected events, using the 529 plan for tuition can help to keep your child enrolled while your finances stabilize.

Remember to adjust your investments in the 529 plan if you will use funds sooner than college.  It makes sense to move the money you will use over the next three years into a stable value fund option.  That way in the event the stock market goes down, you will not have to sell stocks when they are down and limit recovery opportunities.

My two boys went to private middle & high school.  For the most part my husband and I used cash flow to pay for annual tuition, but there were a couple of years that we pulled from the 529 plan to help.  We accessed these accounts because we knew that we had enough to cover college costs, plus it was a short-term solution.

Private school can be expensive, and you may end up funding this expense for many years.  If your back-to-school finances includes paying for private school, it makes sense to have a plan.   If you need a strategy to fund private school tuition for your K-12 student(s) while saving for college, please reach out.  We consider your cash flow, all assets and tax implications to find a strategy that will put you on track to cover the cost of education for your family!

The post Back-to-School Finances: Should You Use A 529 Plan to Pay for Private K-12 Tuition? appeared first on MainStreet Financial Planning.