Video: Funding Post-Secondary Education

In this lesson, Nick Palazzolo compares the main ways to fund post-secondary education: qualified tuition programs (529 plans), student loans, grants, and scholarships. He explains that 529 plan earnings are not taxed currently and come out tax-free only when the funds are used for qualified higher education expenses, and that reasonably required room and board qualifies only for a student enrolled at least half-time. Working through a $16,000 award for a degree candidate, Nick shows that a scholarship or grant is tax-free only to the extent it pays qualified tuition and related expenses: $10,000 is tax-free, while the $6,000 for room and board, travel, and payment for required services is taxable, even though the same room and board can be a qualified 529 expense. He then illustrates how contributing $5,000 a year for 15 years at a 6% average annual return grows a 529 plan to $116,380 on $75,000 of contributions. The lesson closes with the conditions for moving 529 funds to a Roth IRA, including the requirement that the plan be maintained for the beneficiary for at least 15 years and the $35,000 lifetime rollover cap, along with 529 coverage of certain qualified post-secondary credentialing expenses and the point that Public Service Loan Forgiveness is not federal taxable income.