529 Plan vs. Rental Property: What's the Smarter Way to Pay for College?

There are three ways that I believe are really great ways to prepare for college.

So let's talk about the first one, and this is the traditional route.

If you worked with a financial planner, they're probably gonna tell you, you need a college savings account.

So here's how it works.

You put money in every month, every year, however you want to.

You can add to it whenever you want.

It's after-tax money, so you're not getting any kind of a tax break to put the money in.

It gets invested, and historically, the accounts have averaged somewhere between five, six, maybe seven percent a year, depending on how the market's doing and what that kind of looks like.

So let's run some real numbers so that you can actually get an idea of what this would look like.

So in this example, just to keep it very, very simple, say you took $40,000 and dropped it into a 529 today.

Let's say you have a 10-year-old.

Going back to kind of how we first started, you dropped $40,000 into a 529 today, and you never add another dollar.

You just let it sit there and grow for 10 years until your child is 18 and getting ready to go to college.

At an average of seven percent a year, let's use that number, that $40,000 would grow somewhere to be about $78,000 in 10 years.

So that's great.

That's real growth.

Your money basically doubled without you having to do anything else, and $78,000 here in California might get them two and a half, maybe three years of college.

So that's kind of cool.

And here's the other piece that makes the 529 attractive, is you can use that money for qualified education expenses, so tuition, room and board, books, et cetera.

And all of that comes out tax-free, so when they use it for those things, you don't have to pay taxes on it.

But here's the kind of catch about it, is that if you pull that money out for anything other than education, then you lose the tax benefit.

So it's a great tool, and it's built for that very specific purpose of your child getting educated.

So that one is simple, hands-off, tax advantage if you use it right.

Awesome.

Let's move on.