Nate Reineke (00:13)
Hello, physician moms and dads. I'm Nate Renneke, Certified Financial Planner and Primary Advisor.
W. Ben Utley (00:19)
And I'm Ben Utley, certified financial planner and the service team leader here at Physician Family. Nate, what do you have on tap for us today?
Nate Reineke (00:28)
Today is all college. All college. We've getting lots of college questions. I think that there's graduation around the corner.
W. Ben Utley (00:31)
college. Okay.
What's that?
Graduation I got a graduation story for you It's it's my it's my high school graduation story. So when I was one of those geeky science kids You know one part of the science fair and got the Bausch and Lama award for promise in the field of science And that's why I got these two degrees But when I was in high school, I graduated 11th in my class 11 not top 10 11th out of like 400 kids and The thing that separated me from the guy who graduated 10th was like point
Nate Reineke (00:42)
What's that?
Mm.
W. Ben Utley (01:08)
β grade points. Now I'm sure some of our listeners can relate to this story, but I was one of those guys that was late to flower. So I hated the locker room and locker room is a place where, you know, little guys like me got beat up. So, β you know, I didn't want to suit out and I didn't suit out in this one PE class. And I got like a B or a C in there or something like that. And otherwise I had great grades and honors classes and
Nate Reineke (01:11)
Mm-hmm.
Mm-hmm.
W. Ben Utley (01:37)
You know, the geeky science kid classes, AP, all that stuff. You know who beat me out in 10th position? The star quarterback of the high school football team. Yeah. Beat me out by one 100th of a GPA point because guess what? You always have to suit out when you're a football player. Yeah. Yeah.
Nate Reineke (01:40)
Mm-hmm.
Ew.
wow. β
Wow β
W. Ben Utley (02:02)
Yeah. And to this day, when people meet me and they're like, Ben, how am going to remember your name? say, well, here's how you can remember. When I played football in middle school, my middle school football coach called me Gentle Ben. And they tell you about how often I played.
Nate Reineke (02:15)
Wow well Yeah, it's funny Well, β I gotta say in the last week of taking college questions. I never see β Physicians more frantic than when they're preparing to send their first child off to college It's like man you'd think β
W. Ben Utley (02:19)
Yeah, I'm not holding on to any angst about that at all. It's totally all out there now.
Aw yeah.
Nate Reineke (02:43)
I give it, there's nothing of, maybe when they're about to retire, but I don't even think it's as bad when they're about to retire.
W. Ben Utley (02:50)
Dude, when my kid was headed off to college, it was like the endless summer from hell. It was just nothing but essays and angst and it was rough. Yeah.
Nate Reineke (02:55)
Yeah.
Yeah, yeah,
I had a, have one family. They prepared for β private school, like, you know, like they thought would happen. A very, very bright child got into Notre Dame.
W. Ben Utley (03:07)
Mm-hmm.
Woof.
Nate Reineke (03:16)
Yeah, so, you know, they might be stealing some college money from younger, younger kids. And I said, β save up buttercup. It's time to, put some more money in here. So, all right. First question from a cardiologist in Oregon. If I have a college, if I have college expenses that I haven't saved for coming up in the next year, should I put them in a five 29?
W. Ben Utley (03:20)
Mm-hmm.
Yeah
Yeah. Yeah.
Nate Reineke (03:45)
or regular high yield savings account.
W. Ben Utley (03:49)
Good question.
Nate Reineke (03:50)
Yeah, that's a good question.
W. Ben Utley (03:51)
That's all you're the college dude here like you are on staff college planning specialist I don't even know why I'm sitting in the show today.
Nate Reineke (03:54)
Yeah.
Yeah, well, you know, this is β for Oregon, this is a clear answer because with 529s, which is an account you use to save for college, β you can get a tax break and that is a state income tax break for the year that you contribute to the account. Right. But that's not in every state. I'm answering this for Oregon.
So should I put some money in my 529? Yeah, β you can put the money in and take it right back out and you can get your state income tax credit. Now for other states, maybe there isn't that benefit there. Maybe they don't have a tax break or maybe you don't have state income taxes. β And then the question becomes a little bit β less clear or the answer becomes less clear.
W. Ben Utley (04:39)
Yeah.
Nate Reineke (04:57)
I still think there's merit to putting money in the 529 because putting it
W. Ben Utley (05:01)
Okay, so you,
I got one for you. You know what's sick and wrong? This is sick and wrong. So you got your high tax days like New York, New Jersey, California. What's sick and wrong is California has a super high income tax. And if you put money in their 529 plan, you get no state income tax deductions there.
Nate Reineke (05:21)
I did stick them wrong. You know what's even sicker? Is their 529 not all that bad? You'd think California expensive. It's pretty cheap 529. It's got good Vanguard funds. And then they just stick it to you at the very end, like no tax break.
W. Ben Utley (05:22)
Yeah.
Yeah.
I really just
wanted to hear you say the word wronger.
Nate Reineke (05:36)
Yeah.
So, I mean, it becomes less clear on what you should do because it's the extra step of putting the money in. β Sometimes it's just easier to pay the school directly. β Now, but if you are putting, if you're setting the money aside for a reasonable period of time, β rather than just writing a check to the school, you can put the money in the 529, put it in like a FDIC insured, essentially
money market savings account. It's just inside the 529. And right now those are paying 4.25 % interest in the Oregon 529. So let's say you got to put in $100,000 to pay for Notre Dame, and you're going to pay the bill in a year. You're going to make $4,000 in interest. And if you put in a high yield savings account, you're going to pay taxes on the interest. And nobody notices that.
W. Ben Utley (06:08)
Yep.
Yeah.
Mm-hmm.
Yeah.
Nate Reineke (06:33)
kind of sneak it in on your taxes. You don't realize why you have that little extra income. β
W. Ben Utley (06:38)
Dude, if people
got an itemized bill on their tax returns, like if they could see it the same way you'd see like, I don't know, grocery bill or a bill at some shishi restaurant that charges like $100,000 to eat there, people would be astonished at the tax savings that just get wasted. Yeah.
Nate Reineke (06:53)
Yeah. Yeah. So
I've seen people do both. I've actually recommended both in certain situations, but in general, it really comes down to where you're putting the money inside the 529. So if you're investing the money versus putting in a kind of a money market account, it may change, but generally it's a good idea to put the money in the 529. Okay. Okay.
This is my β most interesting question to me. So it's from an ENT in Florida. Planning to send my kids to college. Should I use the Florida prepaid plan for college rather than a 529? Chelsea and I took Florida prepaid college to the mat like last week. And it was interesting because, I'm the college person here. So Chelsea's like, hey, tell me all about the Florida plan.
W. Ben Utley (07:21)
you
Mm-hmm.
Nate Reineke (07:48)
And I had done this several times in the last several years because I always get Florida prepaid plan questions. β So let me start with what the Florida prepaid plan is and compare that to 529. If you think, if you live in Florida and you think you want to pay for state school, okay, so a Florida school, you can, yeah, you can pay β Florida
W. Ben Utley (07:55)
Mm.
Gators. Gators.
Nate Reineke (08:18)
for this prepaid plan on a monthly basis. So they basically send you a monthly bill, you pay the monthly bill, or you can pay it all upfront. But what it does is it guarantees you that whatever the cost of college is gonna be when your child goes off to school, they can go to school for the two or four years, whatever plan you paid for. So as long as it's in-state, right? And this is like β highly recommended usually to.
W. Ben Utley (08:37)
As long as it's in state, it's got to be a state school. Yeah. Yeah.
Nate Reineke (08:46)
to Florida residents if they want to do state school, least amongst their peers and most people, and even me, I've recommended several times. But here's what you need to know about this prepaid plan. One, it is tuition only. Okay, so you can buy the Florida prepaid plan. You're probably still going to need to save into a 529. Okay, because a 529, and comparing it to the Florida prepaid plan, you save your own money.
W. Ben Utley (08:54)
you
Mm-hmm.
Nate Reineke (09:16)
It's still your money. You don't have to use it for college. Something happens and you decide you want to pull that money out. You technically could, so it's still in your control. β And the difference is that you're investing that money, hoping that that keeps up with inflation. So you put the money.
W. Ben Utley (09:25)
β So what's the downside?
Like if I'm in Florida, why wouldn't everybody in Florida just pile all the money they could into this Florida prepaid plan?
Nate Reineke (09:41)
I think the downside for physicians is that very often their children do not go to in-state school.
W. Ben Utley (09:49)
So if
your kids wind up going to, I don't know, Harvard or Penn or something like that, then you're sunk.
Nate Reineke (09:53)
Yeah.
You're sunk. β for, yeah. So, so here is why most people choose the Florida prepaid, just be clear. And it is a great prepaid plan, the best in the country as far as prepaid plans go. β But if they go to a different state school or they go into a out of state school, you can use the money in the Florida that you were going to use from the prepaid plan.
W. Ben Utley (09:57)
What happens to the money though? Like where does it go?
Mm-hmm.
Nate Reineke (10:22)
that can transfer to a different school. basically, Florida is going to send that money to the school that you chose. But here's the catch. Florida schools in general are one of the cheapest in the country.
W. Ben Utley (10:23)
Mm-hmm.
Hmm.
Nate Reineke (10:36)
So let's say cost of a Florida school was 10 grand, but they go to some state school, they go to University of Oregon, the cost is 15, or they go to God forbid an East Coast school and it's 25. You're not getting $25,000, you're getting the 10.
W. Ben Utley (10:41)
Mm-hmm.
Yeah.
Yeah.
Wow. Okay.
Nate Reineke (10:58)
Okay, so that is the real risk and you still have that risk if you save in a 529 if you're not saving enough but you have more control you have more control and contributing more kind of catching up and you You could use more money toward tuition and maybe they're a little short somewhere else like room and board food and things like that, but
The reality is this is just, you are dead set on your child going to school in Florida, it's a good deal. If you want flexibility, you should use a 529. And when I write these plans, a lot of times it will look cheaper to use the Florida prepaid plan. That is because you live in an inexpensive state when it comes to college.
W. Ben Utley (11:28)
It's.
You know, I think that these, um, the Florida prepaid plan would make a lot of sense for a family that has, you know, three, four or five kids in Florida. Cause you know, one of those kids is going to go to, you know, university of central Florida or something like that. Yeah. So that, that makes, that makes a lot of sense. You know, there's a little history here though. I've been around long enough that I've seen a lot of these prepaid tuition plans. Florida is one of the very few survivors. Many States had these prepaid tuition plans.
Nate Reineke (11:56)
Yeah. Yep. Yeah. So.
W. Ben Utley (12:14)
And a lot of the states had to renege on their promises and some of their plans just went under. So you have to be really careful, but this is one of the very few plans that survived that is solid.
Nate Reineke (12:28)
Yeah, and you can imagine why. It's because the cost of college is going up at an insane rate and they couldn't keep up. so this just is a question of flexibility versus guarantee. So you get the guarantee of Florida, you get flexibility with the 529. 529, you have market risk, which is you're risking your money in the stock market, but you also get the rewards of the stock market if it goes well.
W. Ben Utley (12:53)
Mm-hmm.
Nate Reineke (12:57)
β versus kind of the risk that your child won't go to a Florida school. I'll just say most Florida residents choose the prepaid plan. β But yeah.
W. Ben Utley (13:05)
Yeah.
Nate Reineke (13:08)
Okay, that was fun. I'm glad I got to use our Chelsea Knives research on the box.
W. Ben Utley (13:13)
Yeah.
Nate Reineke (13:14)
Next question is from a plastic surgeon in Missouri.
W. Ben Utley (13:17)
Hello, Big Mo.
Nate Reineke (13:17)
Is it?
Is it a good idea to add the cost of private K-12 to my financial plan and have a 529 fund it?
W. Ben Utley (13:30)
Hmm. That's a new one.
Nate Reineke (13:33)
This is, β I struggle with this one if I'm being totally transparent. β the reality is that I struggle with it because, I feel like it gives a false sense of security to families who are saving a lot into their five 29s. So their kids 10 years old, they, they sort of don't realize that, β
W. Ben Utley (13:56)
.
Nate Reineke (13:59)
cost of college is going up by a lot. They feel like they have a ton of money in their 529 plan. And then right toward the end, they spend a bunch of it on high school. Even worse would be planning to pay, this says private K through 12. And where I'm from, the only private schools were, you know, nine through 12. Like there was no private kindergarten. So, but.
W. Ben Utley (14:06)
Yeah.
Yeah. Yeah.
Well, isn't
this, I mean, isn't it like practically not possible in a lot of cases to pay for this? Like I think it's like private K-12 in someplace like Delaware, know, Massachusetts, something like that where private K-12 is like a 30, 40, 50 K a year proposition and the 529 plans let you take what, 10,000 out tax free?
Nate Reineke (14:46)
10.
This is the real problem. You start piling money into your 529. You don't get a ton out of it if you have an expensive private school. You get the 10 grand. And if they are going private, K through 12, there isn't a ton of benefit to putting this money in and then just start to start taking it out when they're six years old or five years old. So
This is the complicated part for planning. invest this money, a lot of 529s, 529s, you can't have two separate β investment strategies. You can't say this part of my money is for private K through 12. So need to invest it conservatively because kindergarten's like tomorrow. So I don't want to put a bunch of money in the stock market if I'm going to have to pay this bill really soon. And then
W. Ben Utley (15:37)
Mm-hmm.
But you know, I guess
you could, you could have two five to nine plans or you could have two nine, two five to like, could dedicate one and set your investments up for that case, you know.
Nate Reineke (15:47)
You could do this, yeah.
So there is a way around this, which is you open up separate 529s, but the benefit isn't really there because there's not a lot of time for growth. So again, you start funding these accounts. Maybe you get enough money in the high school fund or like, I'm sorry, K through 12 fund to pay for a few years. Like you're paying kindergarten, first, second grade, cause you got 30 grand in there.
W. Ben Utley (16:05)
Thank
Nate Reineke (16:23)
And then it's done. And you didn't really get any growth because you shouldn't be putting your, sticking your money in the stock market. If, if you're going to have to spend the money in a few years.
W. Ben Utley (16:33)
I
got a possible strategy here. So sometimes β in these families, grandma and grandpa want to kick in. You know, you got like possibly two grandmas and two grandpas.
Nate Reineke (16:36)
Yeah.
W. Ben Utley (16:44)
And if they all live in a state that has a state tax break, like, I don't know, New York or name a high tax state where they have a break. don't know, Colorado is not high tax, but they have a nice break there or maybe Missouri. β Grandma and grandpa could put money in the 529 plan, get their tax break and turn around and spend the money on K-12.
Nate Reineke (16:57)
Mm-hmm.
That's true. Yeah.
W. Ben Utley (17:07)
and they
get to see the benefit of it right now, because I don't know, sometimes grandma and grandpa don't last 12 more years, right? Yeah, so that's not a bad strategy.
Nate Reineke (17:12)
That's right. Yeah. And that's a,
that's a good strategy if you have that situation. mean, and cause there is this idea that while I'll get the tax break for, you know, the state income tax break, but you know, families who are saving appropriately for college already get it for saving for college. So I guess what I would say is don't, it's fine to do this. You know, at the top of this podcast, I was saying stick the money in.
W. Ben Utley (17:29)
Yeah. Yeah, right.
Nate Reineke (17:39)
Put it in a high yield savings account. Don't pay taxes on it. It's nothing wrong with doing it But you can only use ten thousand dollars per year so you're still gonna have to pay up if you have an expensive private school and just don't let it Get in the way of your vision for college So I usually say there's not a ton of benefit, but you could save a little extra for high school β But I had one family that I just wrote a plan for they had five children all gonna go to private high school
W. Ben Utley (17:44)
Mm-hmm.
Yeah, right.
You
Nate Reineke (18:10)
And
their issue was, I just can't pay, you know, if it's 30 grand a year and they're all in high school at the same time or really close to each other, it's going to be $100,000. So I'm like, okay, you probably need to beef up your 529 just to help soften the, you know, the blow of paying price.
W. Ben Utley (18:28)
I can
see one more use case for this high yield savings account versus 529. So this question came from a plastic surgeon. I get the impression that plastic surgeons don't get sued a lot. But if it came from an OB-GYN or an ER doc, then I think that would tilt the favor toward the 529 plan account, depending on the state.
Nate Reineke (18:39)
Mm-hmm.
W. Ben Utley (18:48)
Because a lot of those plans get asset protection basically, or get exempt from bankruptcy. And that would really help those folks at run a risk of getting sued. But I think the risk is so small, it barely tilts it toward the 529. But again, I don't see any harm in having the 529 plan account if it's, as long as it's invested appropriately for the time horizon, I think that's not a bad way to go.
Nate Reineke (19:01)
Mm-hmm.
Yes.
Agreed. Agreed. β Very nuanced, but at the end of the day, if you are kind of meticulous about planning, this is totally reasonable to do. But don't mix it up with your college money because it won't be invested appropriately. And just understand that saving for college is far more beneficial than saving for high school or K through 12 school.
W. Ben Utley (19:12)
Very nuanced, right? Yeah.
Yeah.
Nate Reineke (19:36)
because there's longer for it to grow. And the whole reason we use 529, if we hear anything on this podcast, hear this. We do it for the tax free growth. And the only way you get a lot of that is if you invest early and more aggressively upfront so that when you get closer to your goal, which is college, you don't have to take a ton of risk. β Tax free growth is key.
W. Ben Utley (20:02)
you
Nate Reineke (20:02)
Last question.
from a surgeon in Georgia. My children are seven and nine years old and I'm planning to pay for a private undergrad degree along with graduate school. What should I do if my children choose a less expensive school than I'm planning for?
W. Ben Utley (20:20)
Jump up and down.
Nate Reineke (20:22)
Yeah, that's right. I normally
see the opposite then.
W. Ben Utley (20:27)
Retire early go to the car dealership take a big vacation. I don't know.
Nate Reineke (20:32)
Yeah,
yeah, yeah, it doesn't generally happen. So it's kind of extra money at that point. But the technical answer is that there are ways to move this money around and use it effectively. Like you can give it to a different child. You just transfer the money from 529 and Sally's name and put it in Sam's name. Right. And then you can pass it on to grandkids very tax efficient way to give your
your kids a gift because the reality is you're like, don't, know, grandkids are far away. Well, it's a gift to the parents. They have to save less. So it's still benefiting the child that you saved for. And then there's the Roth IRA, the new rule that came out a few years ago. You can convert this money at the council long enough into a Roth. β Not all of it at once. There's some rules. Yeah.
W. Ben Utley (21:10)
Yeah.
You know, have to say that is a tiny little shot glass
of lemonade for gigantic lemon. You know, that, oh, you can put it in a Roth, blah, blah, blah. You know, I read that whole ruling and everything and I got all excited. And by the time I read it, I was like, man, this is the booby prize. Yeah, it's not a planable event. It's just not even worth thinking about. It's just.
Nate Reineke (21:32)
I know.
It is. It is. I'm just hoping.
No,
W. Ben Utley (21:49)
Just if you happen to get stuck, you know?
Nate Reineke (21:50)
because what this is what happens you get the headlines you can now use your 529 for Roth IRA and then you dig into the details and you realize it's complicated and it's a little bit complicated it's not that much money.
W. Ben Utley (22:04)
That's just
15 minutes worth of grandstanding for some senator. That's all that is. Yeah.
Nate Reineke (22:07)
Yes, but
what in real world what happens is people get this confused and they think I can put in a million dollars in this 529, roll it into a Roth, which is not the case. think it's the limit's like 30 grand and it takes you four years to get it in there. Yeah, so it's kind of nice, but not a big back door. If you have $100,000 too much money in a 529, Roth isn't going to save you. So, β
W. Ben Utley (22:18)
Yeah, I'm making the big X. Yeah.
Nate Reineke (22:35)
The reality is if this, if you are lucky enough for this to happen, you can take and you want the money for yourself and say you don't want to give to grandkids. You pull it out, you pay taxes and penalties and the penalties and taxes are only on the growth of the account. So you have $100,000 left over and let's say there's $30,000 in growth because you've been investing appropriately this whole time.
W. Ben Utley (23:04)
I got a simple question for you. get this is something we're not hearing this question, but when I talk to people about 529 plans and they whisper their questions.
There's a really simple question that's very confusing and I'm going to ask it this way. If I'm a doctor in Texas, no income taxes there. If I'm a doctor in Texas, a very hot place, and I invest for my kid's college using the Utah 529 college savings plan, and then my child goes to school in Kentucky,
Is that possible? Or am I going to have to pay paid penalties? How does that work? Like if they don't, I live in one state, I want to, and they don't go to school in my state and I save in a different state, like what's that do to me?
Nate Reineke (23:38)
Hmm.
Yeah, this is something that is confusing for no reason. I don't know why people actually get it confused, but here's the deal. You can open up a 529 in any state. You can spend the money from that 529 in any college, in any state. You can open up a 529 no matter where you live. In 20 states, 20 different colleges, it doesn't matter.
W. Ben Utley (24:06)
no matter where you live.
Nate Reineke (24:12)
So a lot of people, another one people all get is my state has a limit to how much I can contribute to my 529 because the tax break is $10,000 a year. So I can only put in $10,000 a year. That's wrong again. It's just that is how much you get as a benefit is $10,000 a year. So I've had brand new people come into my fold and I see three 529 accounts for the same child in three different states.
because they think they can only contribute 10 grand a year.
W. Ben Utley (24:41)
β
I wrote a plan one time for somebody that was in Virginia and they said, I think it was $6,000 or something like that. They're like, why would I put more than $6,000 in the plan? Cause I don't get a tax break. I'm like, because you want to send your kids to a private school and it's going to cost a lot more than $6,000 a year in savings. You know, like the reason you put money in your 529 is cause you're going to need the money, not just the tax break. Yeah.
Nate Reineke (24:58)
Yeah, right.
Exactly, exactly.
That's like saying why would I put money in a brokerage account? It doesn't give me a tax break.
W. Ben Utley (25:08)
Yeah, why would I
ever do anything other than fund my 401k? Well, if you can, know, that's probably not gonna cut it. Yeah.
Nate Reineke (25:11)
Mm-hmm. Yeah.
Right, right. And
here's the big thing, okay, for 529. I said this earlier, but it is the tax break is nice. But it's not that nice. I mean, in Oregon, we get you get 600 bucks, which is like
W. Ben Utley (25:29)
think it's more
of a more of an incentive is the way to look at it. Yeah. Just like a
Nate Reineke (25:32)
Yeah, yeah. And I
would look at the credit and the deductions as something to really encourage people other than doctors, like middle class people, to save a few bucks for college. It's not going to do that much on your taxes, but what you won't see, but is hugely beneficial, is when you pull this money out, you have no tax owed. Right? So you pay for Notre Dame first year, a hundred grand.
W. Ben Utley (25:44)
Yeah.
Yeah.
Nate Reineke (26:01)
And most of that's growth. You pay out of your 529, no taxes. If you pay out of pocket because you only save six grand a year, you got to pay out of pocket. You're going to pay like 40 % in taxes to pay that $100,000 bills. You got to earn 140, send your kid to college that one.
W. Ben Utley (26:18)
Cool.
Nate Reineke (26:18)
So
it's the tax free growth that is the big prize here.
W. Ben Utley (26:21)
So you know, Kelsey and I have been working on this guide. You think I should talk about that guide? We're talking about the five, we're working this week, we're gonna put the finishing touches on the 529 College Savings Plan Spending Guide. Because when we have parents whose kids get to be in their freshman year or in the summer before the freshman year, the question is always like, I've been saving for this stuff for 18 years, how do I get the money out? Like, how do I actually get the money out? What can I spend it on?
You know, what are the gotchas? so β Chelsea and I have written a guide to 529 plan withdrawals and It's got all the gotchas including the stuff that I learned as I was spending for my kids college So if you're a client and you want that you got it if you are a listener and you're not a client β Send a request to us and I'll try to send it to you β would be really cool if you'd rate our show
Nate Reineke (27:04)
Mm-hmm.
W. Ben Utley (27:18)
you know, say something nice so that other people can find this and maybe request the guide as well. So on that note, if you're interested in chatting with us, maybe becoming a client, go to physicianfamily.com, click the big get started button. There you can take a little quiz to see if we're a match and if we are, we can schedule an interview. If you're not ready to take that step, but you're curious about personal finance stuff and you have a question you'd like to see featured on the show, you can send your question to podcast at physicianfamily.com.
and we'll read it on the air and do our very best to answer it for you. So until next time, I want you to do your very best so you get to graduate on time and not 11th. And while you're at it, remember you're not just making a living, you're making a life.
Nate Reineke (27:57)
Thank
