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Smart Business Owners Don’t Open a 529 Plan — They Hire Their Kids

The average annual cost of attending a private, four-year college was over $48,000 last year. That’s more than double what it cost 20 years ago, and the cost for public institutions has grown at a similar alarming rate.



If you have kids, your financial advisor probably already discussed with you by the time your children are entering college, it will definitely be more expensive than right now, and currently costs anywhere from $125,000 to $200,000+ (in total cost) to get that important degree.



Instinctively, you might leave your advisor’s office determined to start saving like yesterday. And, of course, everyone including your advisor will tell you to first look at starting a 529 plan, in many cases before your child is even born!



But if you’re a business owner, there’s an option I’m sure that no has mentioned to you: Hire Your Kids Instead.




Hiring your child to save for their future is a way that’s smart, efficient, and future-proof, hiring them actually makes much more sense than investing in a 529 plan and here’s why:



Yes. It’s Legal.



You can hire kids at any age, as long as you’re doing it properly as per the Fair Labor Standards Act. The child labor laws apply only to specific types of work and industries. One of the smartest options is to hire your kids as models for promotional materials for your business. This is legal because they aren’t exposed to dangerous equipment, chemicals or have them working unreasonably long hours — the kinds of things departments of labor would hammer you on, When you compare the cost of outsourcing photo shoots and the talent to what you can pay your own children, you’ll wonder why you’d ever hire anyone else in the first place!



However, you can’t just pay your kids for no reason. You need to justify that the rate you’re paying them is what’s deemed reasonable for the work they’re doing for your business.



Modeling is just one option. When they’re older they can move on to other tasks, like cleaning your office, answering the phone, etc... As a responsibility for any parent, make sure to keep them safe, and pay them a reasonable rate.



Avoid The Tax Penalty

529 plans are sold as providing all kinds of tax advantages. While they can provide some benefits, you can actually avoid paying income taxes altogether by hiring your children.



Many 529 plans are funded with post-tax money. If you ever need to use that money for anything other than their education, you’re going to get hit with a minimum 10% federal tax rate.



Under the new tax code you can pay someone up to $12,000 a year before having to worry about federal income taxes. And 529s are investment plans, just like your 401(k), meaning they’re exposed to market volatility and you can lose money.



Hiring your children allows you to do some important things: put the money where you want it, have access to the money when you need it, and avoid the fees and potential tax penalties that come with a 529.



What About College?

Rules around 529 accounts clearly restrict when and where you can use your money, no matter how much you’ve saved. Paying your kids as part of your business instead keeps that money flexible so that as the future of education changes your plans can change, too.


Teach Your Kids About Financial Independence:

Beyond the financial benefits, why not start teaching your kids about managing money while they’re still young?



Instead of putting that next new phone, toy or video games on their birthday wish list, they can earn the money to pay for it through honest work. Now your kids can learn about the benefits of working for money, as well as the choices you’re faced with when you have it.



And if you’re a business owner who has dreams of your kids someday taking over your family business, it’s great to start exposing them to what you do, how you do it, and whether it’s something that will one day interest them.



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