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Highlights from this episode include:

  • Why your retirement account makes college funding more difficult (4:49)
  • The worst possible decision you can make about your child’s education and how to avoid it (6:31)
  • How overbearing parents ruin their child’s opportunity to get the right college education (11:04)
  • Why 529 plans are one of the worst ways to invest a college fund (15:17)
  • How 529 plans make college more expensive for you than it should be (16:31)

Ready to stop doing what you hate? Go to RetireNowRetireWow.com and fill out the Game Changer form to secure your financial future.

Read Full Transcript

Do you hate the thought of working past 55 or 60? Do you hate not being able to live the life you deserve today? Do you hate not knowing what your financial future looks like? It's time to stop doing what you hate, here's your host, Mr. Harold Green.

Hello everybody. It is time to stop doing what you hate. Harold Green here with you today. Thanks for tuning in to the show. Hopefully you are having a fantastic day and a fantastic week. I just kind of want to get into something that I've been on for a while. I think the last, the last show we talked about college craziness and all the different things that are going on with college. And today I want to stay on that topic, but it's going to be about five to nine plans, the pros and cons of having a five to nine plan lately.

(00:56): There's a lot of things that have been going on with colleges and in regards to what are they going to be looking at due to the coronavirus situation and all of the different adjustments that they're going to have to make. But I want to lay a little bit of a foundation about college. And as you guys know, I do talk about it and the rapid retire program, it's part of the rapid retire program. And if you want to know more about rapid, go to the website, retire now retire wild.com and then download that brochure. And so, and talking about five 29 plans, I got to put out that little disclosure, all investments, including real estate are speculative in nature and involve substantial risk of loss. I encourage our investors to invest carefully. I also encourage investors to get personal advice from their own professional investment advisor and to make independent investigations before acting on information that I publish in the show.

(01:48): And I'm just going to tip my hat to you guys real quick about how I feel about five 29 plans. Honestly, I do not like them, and there are three reasons why I don't like them, but there are maybe one or two reasons why I can stomach them. And so I want to go into the three kinds of families that do need help with planning for college. I call them category one category, two category three category. One are families that need total financial assistance. These folks are going to get financial aid wherever they go. However, everything must be done a hundred percent accurately and on time in order to get the maximum amount of free money and the least amount of loans. And so one day what I'm going to do is just tackle the whole college loan situation and then how to pay for college using loans, if you have to.

(02:38): But today I just want to like stay on the topic of the five 29 plan. And then there's the family that falls in the category, too. These folks who are going to get some money from some schools, and then other schools are going to tell you to take a hike because you make too much money. And it is also based on how your income and your are positioned. Now, a majority of the families that I've spoken to in the past that have come into my workshops are what I call category twos and category threes. Because here in Hawaii, you need to be making at least a hundred thousand to 300,000 in order to you know, have a, have a good go at it and to be able to enjoy life here because the housing costs are astronomical. Paying for private school is not getting any cheaper gas has gone down, but there's still a lot of other things that we have to pay here.

(03:30): Just an order to enjoy the Island of Oahu and all of the Aloha that, you know, that comes along with it. Now, the third kind of family is what I call category three. These are the people who make way too much money and they do not qualify for financial aid, but you may still get forced into the process for the merit based money. These people must also be concerned with paying for college in the most tax efficient fashion, and must take into consideration how this will affect all other financial aid, financial, and retirement goals they may have. And the reason why is because category three families, they do make a lot of money. I would say category three, four for me, would be anybody making over 250 to $500,000 or so. And that, that puts you in the category three range where colleges are basically going to tell you, you're not going to get anything, but that's, that's not necessarily true because there are some colleges out there that will still give your kid a grant.

(04:28): It just kind of depends on how bad they want that student. Okay. And also like, why is it such a problem paying for college? And this is just a recap, 80% of Americans have 66% of the net worth and retirement accounts. I mean, I see a lot of people with more money in retirement than anywhere else. And so getting that money out is hard because you can only take $50,000 out of your 401k, you know, and you have to have that paid back before you go get another 50,000 or so. So it just makes it really hard paying for college. Although for the 401k 76% of Americans are living paycheck to paycheck that hasn't changed a whole lot. We're still kind of in the same spot. And then 56% of Americans say they have less than a thousand dollars in their checking and savings account combined.

(05:07): And then salaries have stagnated for most Americans and their net worth has fallen. And then the day and age that we're in right now and what's going on right now, people have to have had to raid their savings accounts. And some people have had to raid their 401ks just to like live. And so what I've seen in the past with parents, like, you know, in all the years, people have about one or two years of the tuition saved. I see people hoping for scholarships and when they don't get that money, they have to take on debt. I see students getting accepted to the college of their choice, but they can't go because mom and dad don't have the money. And then I see parents and students are like way too busy with it today to plan for tomorrow. Like they have so many conflicting goals and things like that.

(05:45): And I also see parents making choices that prevent those students from getting the most free money and they're following the wrong advice. And it's really hard for me when I see parents that are out there following that advice when it comes to getting their students to college, because nine times out of 10, the people giving that advice have no idea of what's going on in that person's household. And what's going on in that family's finances. And I think that's just a tragedy. I also see students scared of making the wrong decisions for their future. So they make no decision at all, primarily because they're afraid, they're afraid of what their parents are going to say. They're afraid of maybe what other family members are going to say. And so these kids just clam up and it, and it's just really hard to get out of them, what it is that we need in order to help them.

(06:33): So Kayla and I, my new assistant Kayla, she graduated university of San Francisco with her degree in marketing. And I guess business entrepreneurship, I don't really know exactly what the major was. I can't recall it, but it had a lot to do with marketing and business and then, you know, entrepreneurship and things of that nature and her being a recent grad and going through this process, I met her when she was in I think it was 11th grade and high school. And she was really a smart student and her and I were talking about the services that we have in place. And she was saying how for her, it was pretty easy because she only had her one part to do. And that was good, the good grades. And I helped her mom and dad with the finances and the figuring out how to pay part.

(07:14): And when it came to financial aid, she didn't have to do any forms and she didn't have to worry about any of that. We kind of took, well, not kind of, we took all of that off of her plate. And so we're just going to talking about the services and just to let you guys know, we are revamping our college funding program in our college admissions program because things have changed. Things are constantly changing and I don't want to keep like putting the same old, you know, bologna on the table for dinner. We got to have something different because things have changed. And so we looked at our students and we just kind of broke it down into two types of students that we have. And yes, I'm going to get into the five 29 plan, but this part is very, very important. You have to understand what you are working with when it comes to your student.

(07:53): All right. And I'm going to say this and I, and I, I w I want you guys to understand that I'm not coming from a bad place with this. Okay. I'm coming, you know, from my heart, because I built this program based on caring for families, caring for students, and like wanting to alleviate the pain and the suffering that they were going through. But we narrowed it down to the two types of students that we work with. All right. Number one, the student that needs motivation, number two, the student that needs guidance. And when we look at the program, it's built more towards the students that need guidance and not the students that need motivation. And so when the kids are highly motivated, they follow a process. And so Kayla got a chance to talk and interview a kid that that's kind of late in the process.

(08:44): And so, you know, we were wondering, you know, w why are we just kind of going through this now with this kid, the family has, they've been on board with me for quite a while. You know, they knew we had these services, but what it was was that came down to filling out the financial aid forms. And they didn't want to screw them up because they have assets and things like that. And so we just thought the student wasn't, wasn't motivated, and that's why they weren't forcing the parents to, you know, get in touch with us and like, Hey mom and dad, you know, they got that program. Let's get that started. Well, come to find out, the kid did have the motivation. It was just a miscommunication type of thing with the families. And so Kayla decided that after the interview, it was more of a guidance thing that a motivation, and here's, here's the difference when the kids don't have the motivation, the parents usually send them in to me to have that talk that I was talking about in the college craziness show, where we have to really like hone in and talk about like the nitty gritty of why are we 17, 18 years old and don't know what we want to do with our life.

(09:44): What led to us getting to this point and being so unsure that, you know, we, we can't, we can't figure out what it is we want to do and where it is that we want to go. And so we're going to revamp our services so that when we inter we engage with students that are going to be in earlier grades, I would say, seventh, eighth, ninth grade, starting as early as then, and determining, you know, do they need motivation? Do they need guidance? And then if they need motivation, then how do we get them the motivation that they need in order to make sure, make a decision? Because we have to face the fact that some kids have no business being in college at all. And again, I'm saying this coming from a good place, because you know, over 50% of kids don't graduate from college.

(10:26): And then the rest of them take between six and 10 years to graduate. And the average age of a kid in college today is 25 years old. So that tells you a lot about where we are in this country. It comes to paying for college. And why are those kids in college when there's, they're not supposed to be there while I think it's because a couple of different things, I think it's, the parents want them there because they needed them to be somewhere doing something productive and, and looking productive. Because sometimes it's an embarrassment when, you know, people ask, so what does your kid doing? The, you know, the graduated high school. So were they gonna do, and you say, ah, I don't know. They're gonna don't know. And some parents feel like it reflects poorly on them, but what my wife and I decided a long time ago was, you know what, we're going to raise our kids the way we believe they need to be raised.

(11:14): And we want to raise them to make a difference in the world. And so what they do with that is going to be totally up to them, whether it's great or it's not great. And we are not going to let that reflect on us. In other words, you know, my son went to MIT and people like, yeah, you must be so proud of him. And what I tell them was I tell them, I tell them this kindly. I tell them I'm extremely happy for my son. I'm extremely happy for him because he put in the hard work. You know, he, he did it, you know, part to play in it, but I don't, I don't get prideful about it because it wasn't me sitting in those classrooms, staying up till two and three o'clock and pulling all nighters and cracking out whatever MIT threw at him that was all on him.

(11:55): So that's his badge to wear, you know, he can pin that in his cap, you know, that's his feather, that's his thing, but we are extremely happy for our kids because we feel that or making the right choices for themselves. And, and we had a small part to play. And then an aunt, the other token, on the other hand, if they did something negative and they did something bad and it didn't look great, we wouldn't pin that on ourselves because we, as parents, we did the best that we knew how to do. We went the extra mile and we've done all of these things for, for our kids. And so getting into the whole five to nine plan thing and what the deal is with it is it will start at a long time ago, the government created the five 29 plan to help parents out.

(12:40): It was a way it was, it's kind of like the 401k, the 401k was created to bail out. I believe this is just my professional opinion based on what I've seen to bail out corporations from having to fund pensions, because they have to put away more money and pensions than they have to put in 401k is the only thing they do with a 401k is a match. But with a pension they're responsible for the whole entire thing. The employee doesn't have to put in anything, right? So for a lot of corporations, when it starts to affect profitability, it also, and that affects the stock price and on and on and on and on. So, you know, when companies can trim their budgets and do those types of things, it's a boom for the stock market. And guess who takes advantage of that? People who have money invested in stocks, right?

(13:25): And so they came out with a 401k to, to make that, to put that all on the, the the worker. And then, you know, the tax break for the employee employer is look, I, you know, donate 3%, 6%, whatever, give them a match. And then, you know, they're out the door, it's up to them, what they do with that same thing with the five 29 plan, the government created that. So it would help parents save for college. But here's the problem that I see with the five 29 plans. And as a fiduciary advisor, I do not recommend five 29 plans for the following reason. Number one, only about 5% of the people in the United States who have them should have them. Why? Because again, you look at that the top 1% of the people in this country, they can afford to dump the maximum mental five 29 plan every single year.

(14:12): And then, you know, wait until their kids go to college. I mean, you can pay for private school out of that money and you can pay for college out of that money and it's all tax free. So with the gifting and the rules at that nature, grandparents can dump tons of money into the five 29 plans to help the parents can dump tons of money into the five 29 plans to help. And that's something Trump did to help open up that gate. So more money could go into the five 29 plan. The other reason I don't like the five to nine plan is because most of them have very limited neutral funds in them that don't perform too well. And a lot of this stuff is based on time to college and time to use the funds. And so they to lower the risk inside the five 29 plan.

(14:53): So that by the time the kid gets ready for college, the money should be there, which is a smart thing from a financial planning perspective. In other words, taking some of that risk off the table, but in some cases that's not really necessary. Okay. Especially depending on the type of market that you're in, if you're in a bull market and things are going phenomenally well. Okay. And you're fine to nine, planets are going more and more and more conservative because your kid's going to go to college in a year or two. That's something you want to take a look at and see if there's a way to, you know, if you're going to invest with college, make sure you're taking advantage of them market as you're in it right now, versus going into something like a lifetime fund. Like, you know, whether you're your lifecycle funds in your retirement plan.

(15:40): And that's just kinda like my thing with that. So if I were advising a parent and they were looking at saving for college, I use something called dual purpose dollars. So we want to make sure that money can be used for multiple things, not just, you know, set aside for college. And I talked about that and building up financial network where people are sitting there and they're compartmentalizing their assets and they can't use them. And so the kid says, well, I don't want to go to college. I'm not going to college. I didn't set up this five 29 plan you guys did. And so I've seen cases like that. And now parents are stuck with the five to nine plan. They can give it to a family member like a niece or nephew or something like that, or they can give it back to themselves and that they can go back to college.

(16:17): But I mean, what a waste, right? So that's another reason why I don't like the five 29 plans. And the last reason I don't like the five 29 plans. And the very biggest reason I don't like them is because they hurt financial aid. And, and this day and age, the average five 29 plan has about $30,000 in it. And $30,000 is not enough to cover four years of college, but I've seen, you know, when I, when I, when I do this little exercise on my workshop and I'll tell you guys what it is, and you can do it for yourself. I did this exercise called my plan to pay for college. Okay. And it goes like this. And so you get the bill in the mill, all right. And your kids already applied for college, all things being equal. And you told them, Hey, you get some scholarship money from the school and you know, you get it.

(17:05): And you got the grades and you work really hard. And, and mom and dad are gonna figure out the rest of it. All right. So now it's time to figure out the rest of it, bills on your desk to pay for that first semester. And then it's like 25,000. Remember now you already said, we're going to cover it. All right. So 25, a thousand dollars is sitting there on your desk. How are you going to pay for that? And what I want you to do is I want you to write down the three things that you would do to pay for it. You know, are you going, going to read that five 29 plan? Are you going to take a 401k loan? Are you going to take a home equity line of credit? Are you going to make the kid take loans in different things?

(17:39): It was like that. All right. So write down what you think you would do. And then number, I have three questions about that. My number one, this will your plan cover the entire cost of college and it's either, or no, number two, can you pay for college without changing your current lifestyle? In other words, you know, if you go in, you pay for that $25,000 in one fashion or the other, how is it going to affect your cashflow, right? Can you still save for retirement? And that's number three, can you still save for retirement before you die? You know, you take out a hundred thousand dollars home equity line of credit, and, you know, you're sitting there and trying to put $25,000 on a per semester or whatever it might be. You know, how, how can you pay for that and still continue on to retirement before you die.

(18:20): And these are some things that you have to think about in regards to setting up your college funding plan, understanding the type of student that you have to work with, you know, before you go putting, you know, a thousand dollars a month or whatever it might be and to a five 29 plan. Now, there are some good points about the five 29 plan. If you got the money to dump in, you know, whatever the limits are for the five 29 plan. If you can do that every single year, you know, God bless you, knock yourself out. It might be a good thing for you to do, or it may not be a good thing for you to do. You have to look at your long-term financial plan and understand is the five 29 plan, right. Long-Term for me and my family, or is it not the right thing to do?

(19:05): Okay. So I wanted to share with you guys today, the pros and cons of the five 29 plan. I know I did it in short fashion. I will come back to it a little bit later on down the road and talk about the loans and how things kind of tie in, in regards to the award letters and what colleges are going to be looking for. And we are revamping our college funding services. They're not bad now. They're really good. I feel that we just need to make them great. And as we see the changes in the college landscape and the financial aid process and how colleges are going to be viewing their students. And so if you need help with this process or, you know, family members out there that have kids, and they're not sure how they're going to get it done, maybe they've lost a job, or maybe they're suffering through something.

(19:47): And, you know, they have smart kids and they're motivated and they want to go to college, send them our way. I would love to talk with them. You guys have my number (808) 521-4401. And I, I want to help families before they start doing something that they hate. I want to help their students before they get into a college that they hate. And I just want to help them before they start going down the wrong path. All right. So you guys have been great today for allowing me to share with you this subject matter. Again, my number is (808) 521-4401. And I do look forward to helping you with your goals, whether it be college, retirement, or whatever. And until next time, one, two, three, let's get it.

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