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- October 22, 2023
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Securing Your Kids’ Future: Choose Real Estate Investment Over 529 Plans!
When it comes to securing your children’s future, the traditional route often involves opening a 529 plan. However, there are several drawbacks to this approach. That’s why I’ve delved into alternative investment avenues that can better safeguard your children’s financial prospects. While 529 plans offer tax-free growth, they come with their fair share of disadvantages:
Limited Investment Choices: Most 529 plans have a restricted selection of investment options. These plans are administered by individual states, resulting in varying choices from one state to another. Your state’s plan may not align with your preferred investment options.
Lack of Flexibility: 529 plans lack flexibility and can easily incur penalties if funds are used for non-educational expenses. In addition to taxes on the growth, you may face an additional 10% penalty for diverting funds to other purposes.
Higher Fees: Typically, 529 plans come with higher fees that increase as your fund’s size grows, resulting in escalating annual costs.
Contributions may not be tax-exempt – In certain states, there are no deductions available for contributions made to 529 plans. California is one such state where these deductions are not offered. Consequently, if you reside in California, your potential benefits from these deductions are diminished.
For these reasons, many parents turn to alternative investment vehicles like Backdoor Roth IRAs or standard taxable brokerage accounts to save for their children’s college education. However, in my perspective, there’s a more fitting long-term investment vehicle for securing not just your children’s education but their overall future.
Investing in Real Estate for Securing Your Kids’ Future
Real estate possesses several characteristics that make it an ideal investment option for your children’s future:
Long-Term Investment: Real estate is designed for long-term holding, typically 7 to 10 years. It lacks the ease of liquidity, as selling a property can be a substantial undertaking, often requiring several months. This inherent illiquidity discourages impulsive selling.
Tax Benefits: Real estate offers a unique set of tax advantages, with depreciation being one of the most significant benefits. To gain a deeper understanding of these advantages, I recommend watching this informative video.
Substantial Inheritance Benefits: When your children inherit a property, its cost basis is reset. For instance, if you purchase a property for $200,000, and after 30 years it appreciates to $1 million, upon your passing, your son or daughter would inherit the property with a cost basis of $1 million. Subsequently, if they sell the property for $1.2 million, they would only be liable for taxes on the $200,000 gain.
Many savvy investors are already adopting this strategy. For instance, Brendan Turner, a renowned figure in the field, has shared his experiences of purchasing properties for his children. His insights can be found in this article.
Conclusion
In conclusion, when considering your children’s future, real estate investment emerges as a compelling alternative to the conventional 529 plan. Its potential for long-term growth, tax benefits, and inheritance advantages make it a worthy choice for securing your children’s financial well-being.”
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