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Natalie Slagle  00:00

Even if you have so much money, it doesn't necessarily mean it's important. Like, that's not for us to say. So I think, like, a couple needs to decide, like, do we want to set our money aside for a child? And I don't think the answer should be an automatic Yes. I think it's a conversation a couple should have,

Dan Slagle  00:22

yeah, yeah, for sure, I feel like that's how we normally start off the conversation, because a lot of times, partners have never had the conversation more so the conversation of like, how much do we want to fund for higher education? Specifically,

Natalie Slagle  00:41

welcome to Money Dates, the podcast that makes money conversations with your partner feel a little less taboo. I'm Natalie Slagle, a certified financial planner, and I'm joined by my husband and business partner, Dan Slagle, also a Certified Financial Planner. Say Hi, Dan, hello. In each episode, we'll share honest stories and practical tips to help you and your partner feel more connected and confident on your financial journey. So grab your drink, get comfortable and join us for our money. Days. Hi Dan, Hi Natalie. Okay, are you

Dan Slagle  01:16

I gotta tell you? Yeah, we're getting right to it. I gotta tell you a story. Okay, it's not really a story. It's just something I experienced this week. I was meeting with a client and a lovely couple a little further along in life than than you and I are, and they're having a graduation party on Saturday. Oh, before we had a child. I was like, Yeah, graduation party. Like, oh, free food. I just remembered, like, Actually, I didn't even have a graduation party, but I remember that, like, time of life, of like, going to, you remember, like, friends parties, and you try to, like, batch, like, three or four in a day and get all the free food, hang out

Natalie Slagle  01:58

the walking tacos. Yeah,

Dan Slagle  02:01

I feel like you need to explain real quick what a walking taco is, because there could be, like, a segment of this country that has no idea what a walking

Natalie Slagle  02:12

taco is. I don't believe that that everyone has to know, because they're so great. If that has been deprived from folks, then that's really sad. So a walking taco, you have a bag of chips, which we could have a whole episode on which bag of chips is for the walking taco. And I have a very strong opinion about this, but you have a bag of chips, like the fun size, not like the huge bag of chips, but like the personal size bag of chips. And you just throw taco stuff in the bag. So it'll be usually like kind of gross ground beef with the gross taco seasoning, lettuce, tons of sour cream, like you think you did enough, and you need to do one more scoop of sour cream and cheese, and that's a walking taco.

Dan Slagle  02:57

I

Natalie Slagle  02:58

wish I got very passionate.

Dan Slagle  03:02

I wish I had the same like my metabolism as when I was 18,

Natalie Slagle  03:09

three walking tacos. Yeah, as you

Dan Slagle  03:11

are so pumped up about walking tacos, as you were talking about walking tacos and describing it, I'm like, This is disgusting. Like now in my mid 30 year old self, like, I'm happy I say it's disgusting, but it would sound good. I think you went a little heavy on the sour cream. Like you don't need that. Like you went a little heavy on the sour cream, and that's kind of where you lost

Natalie Slagle  03:33

me. Anyways, Dan, are you a Frito? Oh, hold on Frito. Hold on

Dan Slagle  03:37

hold on hold on we're getting so off topic. I was telling you a story. I'll answer that at the end of the podcast. Okay, fine. Doritos, okay, there you go. All right. Oh, I was meeting with clients, and they shared that their daughter's having a graduation party this upcoming weekend. And that hit me a little different now that we have basically a one year old. Yeah, well, how did it make a difference? I I can't imagine the feeling now of like, sending your child to school and sending them away. And I just asked them, like, how are they feeling about it? Yeah, they were like, you know, they started off by saying, like, Oh, we're really excited. Like, we, you know, you get an extra room back in the house, get more free time. And then after they started talking, they were just like, it makes us actually really sad.

Natalie Slagle  04:32

It makes me sad for them and our future,

Dan Slagle  04:36

yeah, yeah, yeah. So that, that's the story I wanted to share with you, because it, in summary, like, for me, it was like an under, like, it actually being present in a moment of conversation around, like, we've raised this child, the child is going to go to school, they're going to be on their own and like, that's like it, right? Like, of course, kids come back for holidays. And they're older, they might move back in with you, but it just feels like this huge, monumental step. I think we should talk about it today. I think we should talk about, like, tying it all together. Does it make financial sense to save for our kids future and education? Let's talk

Natalie Slagle  05:18

about it. Let's do

Dan Slagle  05:19

it. Let's do it because I think it's such a big topic in conversations with our clients. And now, for now for us, right?

Natalie Slagle  05:29

And it's literally, you know, because we do have clients at all different kind of ages of the spectrum. We have clients who have launched their kids into adulthood, and they're doing great. And then we have a lot of clients who are having their first or second kid, like, right now ish, and it feels like the second they have a child, I mean, and it's kind of like our job to bring this up. But we're like, do you want to talk about all the different financial strategies on saving for your kid? And, well, we usually don't ask it that way, right? We're like, Yeah, you know, we just ask, like, how do we even ask it? It's kind of a question of, how important is it to you to save for your children's education? Because it's like, we want you got to have that discussion before you even talk about, well, a can you afford to because we want our clients to save for themselves and make sure that's set up before we think about saving for the next generation. Yeah, I think just like, is this important? Because even if you have so much money, it doesn't necessarily mean it's important. Like, that's not for us to say. So I think, like, a couple needs to decide, like, do we want to set our money aside for a child? And I don't think the answer should be a NES. Like, should be an automatic Yes. I think it's a conversation a couple should have.

Dan Slagle  06:53

Yeah, yeah, for sure. I feel like that's how we normally start off the conversation. Whenever we have education, like, on our agenda, right? It's like, because a lot of times, partners have never had the conversation or understanding of like, how more so the conversation of like, how much do we want to fund for higher education specifically? And like, just posing that question to clients brings up a really good conversation, because oftentimes I feel like we hear, I'm gonna throw out percentages, and it's usually on a scale of like, 100 we wanna fund 100% of education. We wanna fund 50% of education, or somewhere between. Like, I don't think we've ever had a client say 0% like, I truly don't, but that's an option. I would say on the low end, maybe, like five to 10% is, like, some numbers that we've seen.

Natalie Slagle  07:48

Yeah, we want to do something, but we don't want to just, like, screw up our finances because of it.

Dan Slagle  07:54

Yeah, yeah. And I feel like you want to provide, like, some context into why partners may choose to fund 100% of education versus, like, 50% versus maybe that 10% number,

Natalie Slagle  08:08

yeah, I mean, there's the percentage that we talk about is derived from the inputs that we utilize, that we're making assumptions over for Our clients and then for their expected college costs. So none of us know, like, honestly, like, we don't actually know what the numbers are going to be, but the numbers that we utilize is a 5% inflation rate. It used to be higher

Dan Slagle  08:35

even before we get to, like, the numbers, oh, yeah, you know, like, I don't even know if you and I have had this like, true. I feel like we may have like in our sleep deprived early stages of our doubt of our daughter and like making contributions to her education account. I feel like you and I are in the camp of like, well, if we can fund as much as we can, we should, right, maybe closer to that like, 100% figure. And I feel like that comes from a place of you and I both had student loans. Yes, we did, and not wanting to have our daughter go through that and again, who knows what education is going to look like in 18 years, but just making decisions off of what we know today. Like, I feel like that's why you and I are on the higher end of that, that scale of like, if we can afford to fund it, then, then we absolutely will do our best to do

Natalie Slagle  09:26

it. Yeah, you're right. It did start with a conversation of, well, do we, is this a priority of ours? Do we want to put funds set aside to a 529, plan, and that, that was a vehicle. We haven't even talked about that all the different kinds of vehicles, but that's the vehicle. Vehicles, but that's the vehicle we have started with for Jay. And the answer was yes, because we there's so many thoughts about like, student loans, you know, we also had skin in the game. You know, did that impact us to try really hard, because we knew we had these loans, I don't know. Or did. It impact us in a way of like we would be a little further ahead if we didn't have all these student loans we had to pay for and maybe you and I are having a better conversation about this now, because I remember us talking about it, and it was when she was really young, so I don't even remember the conversation, because we probably were working off of two hours of sleep. But I I'm kind of under the mind. I'm under the mindset Dan like me Natalie is kind of like, if we could afford to help her, why wouldn't we?

Dan Slagle  10:35

Yeah, yeah. I agree. I agree. And whatever like percentage, which we'll get to here in a second, like explaining those numbers, but like, numbers, but like, in whatever percentage of like, being fully covered for college, that that means, right? Like, and some clients may choose 50% or 20, 10% whatever it may be, there's, there's reasoning behind it, and it's about having that conversation with, with your partner. I mean, this is a conversation that, like, Who would think to have this conversation? Like, now, when your kid is one and you have 18 years to figure it out with? I'm sure some people just take, like, future bonuses or just, like, dumps some excess bank savings into, like, a education account, and they just call it good, and they just see what happens, right? So I think it's just about like this conversation, like being a little more proactive, like, very proactive, actually, if we think about like for us, like, 18 years in advance. But there's a reason why it makes sense to have this conversation sooner than later.

Natalie Slagle  11:36

Yeah, there's financial benefits and tax benefits. Yeah, so do we want to talk numbers now?

Dan Slagle  11:43

Yeah, yeah. So once you have that conversation with your partner again, that's something that we love, guiding clients through the discussion and really collaborating with them to come up with a solution, once you kind of have your like figure in mind, right? Like, we want to then show you what does it take to do it like what actions do you need to take today to be able to say you're gonna fund 100% of education costs 18 years from now? So we some data, some numbers that we utilize. Our financial planning software gathers average tuition costs from collegeboard.org, so I'm going to throw out some numbers, public in state, four year tuition in today's dollars, $29,910 public out of State, four year tuition. $49,080 private four year school, $62,990

Natalie Slagle  12:47

so let's use that, and that's one year.

Dan Slagle  12:50

Yeah, yeah, so let's use those three scenarios. That's one year and that's in today's dollars, yes. So whenever, not

Natalie Slagle  12:57

when, like when our daughter goes to school in 18 years.

Dan Slagle  13:01

I'm about to share what that number is in total. So whenever it comes to education, we use a inflation rate of 5% so meaning the numbers that I just laid out, depending on the path that your child, or maybe you're going to go on compounds, 5% every single year.

Natalie Slagle  13:20

And I will, like, I think this is important when we we use inflation in lots of different facets for our clients, financial plan, their retirement projections. And 5% is a high inflation rate because we also inflate salaries. We inflate expenses, like spending, you know, you're, you're just household expenses. So 5% is high, but that's a valid that's what we have seen. You know, when we look at historical data, that's it's a valid inflation rate, yeah,

Dan Slagle  13:51

yeah, compared to like, spending or salary increases, we're usually somewhere around like 3% Exactly. Let's go back to our daughter. Let's use her example. So she turned one at the end of this

Natalie Slagle  14:02

month. Oh, it was crazy. So many feelings,

Dan Slagle  14:07

so many feelings. Oh, we should add add to the list of what we talk about here with 529, we should add the you gift code,

Natalie Slagle  14:17

like it for our daughter.

Dan Slagle  14:19

Oh, no, no, no sharing, no sharing.

Natalie Slagle  14:23

Like, oh, we want listeners to contribute to our five. Our daughter's 529,

Dan Slagle  14:28

plan, no, I'm going to stop them. Cannot do that. Thank you. Oh, fine. All right, so she turns one at the end of this month. I ran some numbers. So we have this, like, really nice platform that shows everything way more beautifully than just me talking about it, her total college costs between 2042 so the year she'll be 18 and 2045 so four years of college, if I just took public in state, four year tuition. Which, again, in today's dollars, $29,910 per cost for four years of school, it's going to be $295,477

Natalie Slagle  15:12

aka 300,000 we'll round up 300,000

Dan Slagle  15:16

Wow, for four years in total. That's not like per year cost. That's the total cost for four

Natalie Slagle  15:21

years. That's great. Christine, we have to remember,

Dan Slagle  15:25

we're looking at future dollars, right? So the idea that your income savings rates like hopefully match something close to that, that's, I don't know, that's just insane to me.

Natalie Slagle  15:39

Well, what what happens alongside, and this is what has been happening, is salaries have not been increasing at the rate that college has. And so that's like, why we're in the dilemma that we're in is because parents, affordability has not been able to keep up, because their salaries haven't been keeping up. And I like, I remember my dad telling me that he paid for his own college. His parents didn't save any like I don't even call when the 529 plan existed or came about, but his parents didn't set aside any money. He's one of 10, so I don't blame them, but he paid for his tuition by working at Dairy Queen. We cannot work at Dairy Queen while paying for tuition. We, as in, like, the general

Dan Slagle  16:27

public, like, I Dairy Queen, like the 70s and 80s, though, like prime,

Natalie Slagle  16:32

yeah, he talks about how, like, they used to have to always do the flip to, like, prove it's, I don't know, solid. And then that went away. And then I think Dairy Queen got sued over that anyways. Anyways, the world is different on being able to afford tuition via cash flow, because via cash flow, there's a lot less families out there who can afford to do it, who can afford that sticker price of 30 grand a year. If your kid goes out of state or goes to private, you gotta essentially double that. So, man, that is

Dan Slagle  17:07

hard. Yeah, yeah, which is why we bring up the conversation so early, right? Like, let's get rid of the shock. Let's show you. This is we have a lot of time, and then we're not just showing the numbers to like, scare clients at the end of the day, like, we're showing clients that number to say, like, what can we do today to make this possible? And it's hard to believe, like, just some minor changes, as long as you can maybe cash flow, some extra savings, redirect some of your savings and where it's going, making minor changes today, like allows you to hit that percentage goal or get somewhat close to it, right? So we're trying to tie everything together. So you know, based on our daughter's 529 balance right now, and an assumption of $5,000 additional savings per year, like that gets her college costs 98% covered, and

Natalie Slagle  18:03

$5,000 a year, we can come up with that?

Dan Slagle  18:08

Yeah, yeah. And we're in a fortunate place to be able to come up with that, right? And I think so a lot of our listeners are as well. It's just, it's showing like the impact. Because remember, we inflated at 5% college costs every single year, if we can have it invested, maybe more oriented to how stock markets have performed historically speaking, you're looking at somewhere between seven and 8% now, I can't get I can't guarantee that, but that's historically what we've seen. So you're beating that 5% inflation, right? That's like, the beauty of the education of the 529 account, which I think you'll explain here in a second, is you're allowed to invest the money and let it grow so understanding, like, you know, when you're 18 years away from education, like there's a lot of growth potential within the investment based On historically, what we've seen stock markets do

Natalie Slagle  19:01

exactly yes, we so our clients will will select a 529 plan, and 529 plans are state sponsored. So it's not like you if you're at Schwab or if you're at Fidelity, you can't just be like, okay, fidelity, let me open a 529 plan. That's not how it works. They're state sponsored. Now, usually you can go to any state, but the reason why I'm bringing that up is because it has to do with the investment. So every state sponsored plan has their list of investments, and you and I go into, you know, we're We'll first look at whether or not the client should go with their state, because for multiple reasons, they might not want to go with their state. And we go in to that website and that investment options, and we select the investment, and you know, you're talking about this, and I'm like, I don't think like that is such an important choice on the investment itself. So you select the 529, plan, and then you have to select the investment, because hopefully and what is ideal. Feel from a balance perspective and from a tax perspective, and I'll talk about that in a second. You want your investments to outperform the inflation that we're assuming, and in order to do that, you need to select the right one. So it's a really, really important decision. So I just, I just want to emphasize that, do you want me to talk about, like, the benefits?

Dan Slagle  20:20

Yeah, I feel like we've been talking about educate, an education plan and mentioning the 529 but we haven't really talked about it, so I think it would be a good opportunity to talk about

Natalie Slagle  20:29

it. Okay, great. So the 529 plan is, again, it's state sponsored. Not every state has one, for the most part, and so you can just look up, like, what is my state's 529 plan, and open an account, and then you're going to link your bank account to fund contributions. Okay, now those contributions that go into the account are with post tax dollars, because it's in your bank account so you've already paid taxes on it, so you put it in with post tax dollars. Let's say you put in five grand, and by the time you take it out, I'm just going to use simple low numbers for now, but by the time you take it out, it's worth $8,000 right? So you have $3,000 of growth in the account. Now, if you had it just in your brokerage account, that $3,000 you'd have to pay taxes on, right? And depending on what your income is, it's going to be 15% or higher. Lots of depends, depends, depends on that. But we're just keeping it simple instead with the 529 plan, the benefit is that you don't have to pay taxes on the earnings if it's utilized for qualified education expenses. That's where the power comes in at the 529 plan. Because if you are putting money in a plan like Dan in our example, if we try to fund 100% of Jay's education, and our balance needs to be 300,000 we're talking hundreds of 1000s of dollars, right? And there's likely going to be a significant amount of that balance that is growth. And if we didn't put that in the 529 plan, we would owe 1000s of dollars of taxes on that growth. But because it's in the 529 plan, and then, assuming it's utilized for education expenses, we don't have to pay taxes on it. That's powerful.

Dan Slagle  22:21

Yeah, your example, the 5000 turning into 8000 I'm like, Dang that, like, gets her a burrito in 18 years, based on the numbers we're sharing. But anyways, all jokes aside, yeah, I think, yeah, the growth component is so important again, as long as we're using it for qualified education expenses. I feel like the IRS just came out with, like, some new legislation, like, not too long ago that we've been talking about a lot with our clients, and clients have been bringing it up as well. Do you want to talk on on that a little bit?

Natalie Slagle  22:54

Yes. So the secure Act, which I feel like that came out around COVID. I don't have the exact year, but it's been out now for a little while, let us, as in, parents, know that unused funds, up to $35,000 can be rolled over from a 529 plan to a Roth. So a valid concern about the 529 plan is, maybe my kid doesn't go to college, maybe they get scholarships. Maybe there's been things that Congress has been creating to help create it's important that there's some boundaries here, because they want the funds to be utilized for higher education, but they also don't want to penalize parents who did make, I would say, the right decision to save ahead of time, right? And so one of the ways they're creating some more flexibility is saying you can roll over in today's dollars. I really hope this inflates, but again, it's kind of a newer rule, so we'll see what it means for our kids. But you can roll over $35,000 it's $7,000 over five years. That's how it works. You can roll over up to $35,000 from your 529 plan to the child's Roth IRA. Now if Jay didn't need all that, and she was able to do it, starting your young adult life with a $35,000 Roth IRA, that sounds pretty great.

Dan Slagle  24:14

It sounds amazing. Yeah, it sounds amazing. And like families with two or more children, you can always change the beneficiary on the accounts, right? So I know there's some specific rules within like, how the Roth IRA transfers and in that case, but like, generally speaking, if one child didn't go to school or they didn't need all the funds, you can change the beneficiary to the second kid, assuming that they need access to the funds,

Natalie Slagle  24:44

right? Yeah, it used to be like, some people would be like, I'm just gonna have one, 529, plan. You know, I have three kids, so I'm just gonna have one, and then I'm gonna keep changing the beneficiary. But now that there's this new rule with the Roth IRA or that you can transfer it, it actually does. Makes sense to have a designated 529, plan for each child, but you can still kind of front load the first child, if that makes sense. So that's kind of some of the things that we kind of help evaluate for parents, is how much to put in each plan and making those decisions going forward.

Dan Slagle  25:18

Yeah, super helpful. And then as far as like, I know there's, right, there's some state tax benefits, tax benefits to making 529, contributions

Natalie Slagle  25:28

as well. Yes, so every state's different. So, I mean, I don't have time right now to go through each one of them, but some states offer a deduction based on the contribution. Some states, if your income is a certain amount, they'll actually give you a credit. These are going to be beneficial in your state tax return, not your federal because you don't get federal deductions or credits for 529, plan contributions, but your state might. In some states, it's like over a $15,000 deduction. Like it's significant.

Dan Slagle  25:58

I don't remember, I don't remember off the top of my head, but there. But

Natalie Slagle  26:00

it's worth looking up whatever your state is to look at that benefit, and even if you don't own this is for the grandparents or friends or whatever. Even if you don't own the 529 plan, your state might still give you a deduction or a credit if you contribute to your friends, your nieces, your grandparent, your grandchild, like, if you make a contribution to a 529 plan, but you don't own it, you could still get a state tax benefit of some kind for that 529 plan contribution.

Dan Slagle  26:33

That's fascinating. I know we have to wrap it up here shortly, but I did want to go back to the you, gift you gift code. And some listeners were hoping I was going back to the walking taco conversation, but we're gonna, we're gonna go back to the you gift code. Do you mind sharing a little bit about that code and how we personally use it?

Natalie Slagle  26:56

Yes. So the you gift code, I see it with a lot of different 529 plans for our 529 plan specifically, what it allows for is essentially an easy contribution from people who want to contribute to the plan. So you generate the code, you'll have to go to your 529 plans website and just look for something about a you gift code or outside contributions, and then it should lead you through all the prompts, but it creates this code, and the code is really nice because it gives you essentially this like website that you can then send to your friends and family to make contribution to the 529 plan of your child, and it doesn't show them all the details of the of your 529 plan so they'll have no idea what your balance is. They won't get any of the personal information, but it will say this is the name of the beneficiary. The beneficiary is the child. The owner is you. You know, like, we got to put a little picture of our daughter's face to really, like, amp up the feelings around making the 529, plan contribution. So it's, it's like, for us, I've kind of like, instead of, you know, when I Jay's birthday is coming up and I'm like, we should be sending this. I haven't done this. This is a reminder for myself. Instead of letting people just give her these crappy toys that she's going to use for two months, we should be proactively sending that link to the grandparents, to the aunts and uncles and say, hey, no obligation, obviously. But if you want to contribute or get something for Jay's first birthday, the gift that keeps on giving would be a 529, plan contribution. Here is the you gift code to make that happen.

Dan Slagle  28:39

Yeah, yeah. It's a really powerful tool. I love sending it to family and friends around her birthday, because, to your point, like, I just, I don't love the idea of just collecting things to collect things that she'll get rid of. And maybe I'm biased, because of my profession, we've always brought this up to clients, like, once they opened the 529, right? And I feel like our clients share similar values to us, to like what's important, and would highly recommend sending that over to family and friends, absolutely.

Natalie Slagle  29:14

And one more thing before we go. This actually happened to me earlier today, Dan, I was pulling up our balance sheet, and I was looking at it, and I pulled up our investment accounts, and in that listed our IRAs or 401 k is our brokerage account in our 529 plan on all of those accounts, the lowest valued account is Jay's 529 plan, rightfully so. It's the newest investment account. But looking at that number gave me the greatest satisfaction, even though our retirement accounts have much bigger balances. Looking at that 529, plan, I was like, wow, look at what we're doing. That's a really good feeling that is financially. And personally, very satisfying.

Dan Slagle  30:01

Yeah. Well, thanks, Natalie, last question I have is, how much do you think a walking taco will cost in

Natalie Slagle  30:08

18 years? I bet it costs $134

Dan Slagle  30:12

that's ridiculous. Okay, I'll see you next time.

30:15

Thanks. Dan, bye.

Dan Slagle  30:20

Hey, if you've enjoyed this episode and are looking for personalized financial guidance, schedule a free complimentary consultation using the link in the description below, Natalie and Dan Slagle are the founding partners of Fuse Financial Planning, a registered investment advisor. The information provided in this podcast is for informational purposes only, and should not be considered investment advice or a recommendation to buy or sell any securities. Investing involves risk, including the potential loss of principal. Advisory services are offered to clients or prospective clients, where Fuse Financial Planning and its representatives are properly licensed or exempt from licensure. For more information, including our disclosures, please visit our website@www.fusefinancial.com.

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