Financial Awareness Month Part 5: 529 Plan

Financial Awareness Month Oct 31, 2020

How To Explain the Concept to Your Children:

Attending college may be one of the most expensive yet most valuable endeavors your child(ren) may take on. Because of the rise in costs to attend college and other forms of higher education, the government created a program called a 529 Plan to help support families in building their savings early so that they can more easily afford college in the future.


The federal government supports families by allowing them to invest money in a 529 Plan without being taxed when depositing it or withdrawing it. In exchange, the government limits use of these funds to only a limited set of education purposes. These funds will benefit from a long time horizon as the plan grows with the stock market and with interest. A platform like CollegeBacker makes this very easy to manage by helping families track their 529 plan while giving them easy ways to grow it from gifts from family and friends and cashback rewards.


How to Teach Your Children:

This demonstration should only take 10 - 15 minutes. Start with an even sum of dollar bills. Take half of the money and split it into two even piles to represent a 529 plan and a traditional savings account. Remove at least one dollar from the savings account to represent taxation. Every minute, add at least $1 to the 529 plan account, varying the amount as you like representing growth in the stock market. Every 5 minutes, add $1 to the savings account to represent interest. After the desired time, remove at least an additional dollar from the savings plan to represent a tax on withdrawal. Ask your child which pile of money they would rather have. This can be played with monopoly money or any spare “currency” from around the house.

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