How a 529 plan can ease high cost of parenting
According to Credit Karma, as of 2024, it could cost parents up to $18,000 per year to raise a child. With education being one of the largest yearly expenses, Maconomics founder Ross Mac joins Yahoo Finance's Wealth! to discuss how young parents can ease childrearing costs early on.
Mac's primary recommendation is a 529 custodial account, a tax-advantaged savings plan meant to help pay for education. Contributions are tax-deductible, and withdrawals are tax-free.
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Editor’s Note: This article was written by Gabriel Roy.
Video Transcript
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BRAD SMITH: The joys of parenthood, every parent says. When most people think about having children, they think about bonding, bottles, bouncing babies on their knees, play dates, toys. All the fun exciting parts of raising a child. One thing they might not take into consideration at the gate is the cost. According to Credit Karma as of 2024, it could cost parents up to about $18,000 per year to raise a child. And education is one of the biggest yearly expenses.
So how can young parents begin easing some of those costs early on. One solution, 529 plan. Joining us now for our simple finances segment is economics founder and personal finance expert Ross Mac. Ross, I know you have children as well. So what are the 529 plans? You've looked into this. Take us into it?
ROSS MAC: Well, one Brad, thanks for having me. And to your point, it is extremely expensive to raise a child. And I think one of the great testaments is finding a way to ensure your kids have the opportunities that you didn't have. And for me, I actually had student loans when I graduated college. And so now I'm being way more thoughtful when it comes to ensuring my kids don't actually have to have student loans. And the first thing I looked at was a 529.
And so a 529 is a tax advantaged college savings investment account. I want you to think of it like a 401(k). However, it's for future educational expenses. And the good thing is going to be tax advantage on the front end and the back end where you're going to be able to potentially get tax free growth and as long as you're using that for qualified educational expenses.
BRAD SMITH: And so as a guy with three little ones as we mentioned, what's one big expense that hit you the most that new parents may not think about?
ROSS MAC: Well, one, we clearly are living through extreme high inflation and so groceries. Groceries are pretty expensive. I had no idea how much formula was. As well as child care. We're talking daycare, we're talking nannies. Those things are pretty high. And so as I think for the future, I'm instantly thinking about, OK, college expenses as well.
BRAD SMITH: Certainly. Ross, great to see you. Thanks for breaking down the 529 for us here today. Appreciate it.
ROSS MAC: Without a doubt, thank you.
