Saving for Education for kids. Need Suggestion

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Saving for Education for kids. Need Suggestion

Postby bumblebee27 » Thu Mar 21, 2013 12:13 pm

Hi All,

I am trying to see which way to go for saving for my kids education. I am primarily using ROTH IRA for kids education and maximized it. Currently have 16 .5K.

Invested in

VGSTX Vanguard STAR Fund $2, 500
VTSMX Vanguard Total Stock Market Index Fund Investor Shares $4000
VWELX Vanguard Wellington Fund Investor Shares $10,000

I have a 7 and 11 year and wondering I need to save more.

For the 11 year, I am thinking of doing a 529 and/ or Savings bond. For 529 , thinking about New York's moderate plan( https://uii.nysaves.s.upromise.com/cont ... based.html), but living in AZ. I do not like the AZ plan and AZ offers tax credit if I open 529 anywhere.

The reason I wanted savings bond for my 11 is because I do not want to take too much risk.

For my 7 Year, planning to use the moderate portfolio as well in New York Plan.

Please suggest if this is a good approach.

Thanks
BumbleBee
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Re: Saving for Education for kids. Need Suggestion

Postby MGBGTV8 » Thu Mar 21, 2013 4:10 pm

You can change beneficiaries of these plans, so thinking of dedicating one account per child may constrain your planning and thinking rather than considering that there is "college money" in a certain total asset allocation. There may be ways to manage the accounts to maximize financial aid (529's are considered student assets) as well. Without a state tax benefit that in the case of the Maryland plans govern the limits per contributor and per beneficiary, you may have more freedom.

Kiplingers had a state by state review of 529 plans, but the most recent one I found on their website is from 2007. You are probably well advised to try your own search for a similar review of plans with recent updates. Their bottom line for Maryland was if you live there, use it because of the state tax deduction for contributions, which I look at as a 7% one time return on the money. These days I jump a 7% even if it's just a one time return. SO I didn't look much further in to the diffrent plans. NJ doesn't offer a state tax deduction, so my Father in law funnels any contributions through us so we can get the tax writeoff.
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Re: Saving for Education for kids. Need Suggestion

Postby kenyan » Thu Mar 21, 2013 4:22 pm

Actually, 529 plan assets are considered to belong to the parents for financial aid purposes. Roth IRAs can be ok, but consider that when you make qualified withdrawals from a Roth to fund college, those withdrawals are considered (the following year) to count as parents' income, which is considered highly accessible (unlike assets) in current financial aid formulas. Unless you have enough to pay for everything without any financial aid/loans, be careful of when you make Roth withdrawals.

If you purchase savings bonds, go with I bonds in this case. EE bonds are only worthwhile if held for 20 years; anything less and they're a terrible investment (interest rate 0.2% currently). 529 plan contributions are definitely worthwhile, at a minimum to the limit of your tax benefit. The NY upromise plan is a fine choice; there are others such as NV, UT, CA, WI that are worth considering.
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Re: Saving for Education for kids. Need Suggestion

Postby bumblebee27 » Thu Mar 21, 2013 5:30 pm

Thanks Kenyan and MGBGTV8 for your reply.
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Re: Saving for Education for kids. Need Suggestion

Postby hsv_climber » Thu Mar 21, 2013 5:41 pm

IMHO, you should continue maximizing your RothIRA, but DO NOT use it to pay for college expenses. Unless you have a sizable pension, the better use for that RothIRA might be for your retirement. It is easy to get a student loan or scholarship, but it is impossible to get a "retirement loan".
Regarding 529... Definitely contribute at least up to AZ State deduction limit to the plan of your choice. NY looks fine.
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Re: Saving for Education for kids. Need Suggestion

Postby DualIncomeNoDebt » Thu Mar 21, 2013 6:12 pm

I-bonds. $10k per year per Social Security Number, plus the additional $5k via tax refund. Search forums on this. Not enough time for EE bonds.


Department of the Treasury

Question: What is the Education Savings Bond Program?

Answer: The Education Savings Bond Program permits qualified taxpayers to exclude from their gross income all or a portion of the interest earned on the redemption of eligible Series EE and Series I bonds issued after 1989. You must be at least 24 years old before the bond's issue date. To qualify for this exclusion, the taxpayer, the taxpayer's spouse, or the taxpayer's dependent at certain post-secondary educational institutions must incur tuition and other educational expenses. Persons with incomes above certain thresholds may not be eligible to participate. The tax exclusion is described in 26 U.S.C. 135 (see GPO.gov).


http://www.treasurydirect.gov/forms/savpdp0051.pdf

Denote the AGI exclusions, meaning if you make a lot of money, you cannot get the exclusion.
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Re: Saving for Education for kids. Need Suggestion

Postby letsgobobby » Thu Mar 21, 2013 6:30 pm

are you maximizing all available tax-advantaged retirement space already: IRA/Roth IRA (x 2 if married), 401k (x 2 if married), HSA?

Do that, then you can cash flow part of college by diverting income from retirement savings.

Those retirement accounts come with large tax advantages so I would not suggest relinquishing that space.
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Re: Saving for Education for kids. Need Suggestion

Postby Tortoise » Thu Mar 21, 2013 6:56 pm

Allan Roth had a comparative look at 529 plans in 2011. NY was in his top 5. Utah was the "winner."
http://www.cbsnews.com/8301-505123_162- ... n-of-2011/

Morningstar rates 529 plans for 2012 at
http://news.morningstar.com/articlenet/ ... ATg&part=1

Once again, Utah earned a "Gold" rating. Note that Utah uses Vanguard funds.
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Re: Saving for Education for kids. Need Suggestion

Postby john94549 » Thu Mar 21, 2013 7:05 pm

Whether you'll need to save more depends to a great degree on what educational path(s) are likely to be chosen. Whether you'll need to fine-tune the "boxes" (the savings vehicles) depends on those path(s) and how much you can afford to salt away. We really don't have any of that information.
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Re: Saving for Education for kids. Need Suggestion

Postby kenyan » Thu Mar 21, 2013 9:46 pm

Tortoise wrote:Allan Roth had a comparative look at 529 plans in 2011. NY was in his top 5. Utah was the "winner."
http://www.cbsnews.com/8301-505123_162- ... n-of-2011/


It should be mentioned that the NY, CA, and WI plans have all changed substantially since Allan's article.
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Re: Saving for Education for kids. Need Suggestion

Postby OneDay » Thu Mar 21, 2013 10:44 pm

I live in AZ and do the Nevada 529. It is nice that it is housed by vanguard and counts towards your investment levels with them.
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Re: Saving for Education for kids. Need Suggestion

Postby NorCalDad » Fri Mar 22, 2013 1:48 am

letsgobobby wrote:are you maximizing all available tax-advantaged retirement space already: IRA/Roth IRA (x 2 if married), 401k (x 2 if married), HSA?

Do that, then you can cash flow part of college by diverting income from retirement savings.

Those retirement accounts come with large tax advantages so I would not suggest relinquishing that space.

This is the realization I've come to. We max 401k/Roth but still have room in a 457 and are going to prioritize the 457 ahead of the 529, in part thanks to advice from people here. If we need a college fund, we'll use the Roths. OP's case may be different, though, since his state offers a 529 tax benefit.
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Re: Saving for Education for kids. Need Suggestion

Postby happymob » Fri Mar 22, 2013 5:15 am

DualIncomeNoDebt wrote:I-bonds. $10k per year per Social Security Number, plus the additional $5k via tax refund. Search forums on this. Not enough time for EE bonds.

Assuming you aren't likely to be over income limits for the education benefits at time of redemption.
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Re: Saving for Education for kids. Need Suggestion

Postby HardKnocker » Fri Mar 22, 2013 7:31 am

Don't save anything for college for your kids.

Then you/they will get more financial aid.

Have about $5k in savings and investments. In addition, buy a boat, three cars, have a expensive RV (all by loans) and a large mortgage. Don't forget to buy other consumables on credit like big screen TVs, cars, etc.

Then your kid can go for free.

Don't be a dummy like me and have assets. I have to pay the full shot.
Last edited by HardKnocker on Sat Mar 23, 2013 10:14 am, edited 3 times in total.
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Re: Saving for Education for kids. Need Suggestion

Postby MGBGTV8 » Fri Mar 22, 2013 9:26 am

Thanks for setting me straight about the ownership of the 529 plan and whose asset FAFSA considers it to be. It definitely reinforced my point about advising the OP to get current info!!
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Re: Saving for Education for kids. Need Suggestion

Postby HopeToGolf » Sun Mar 24, 2013 10:57 pm

HardKnocker wrote:Don't save anything for college for your kids.

Then you/they will get more financial aid.

Have about $5k in savings and investments. In addition, buy a boat, three cars, have a expensive RV (all by loans) and a large mortgage. Don't forget to buy other consumables on credit like big screen TVs, cars, etc.

Then your kid can go for free.

Don't be a dummy like me and have assets. I have to pay the full shot.


I feel your pain but isn't income more of an issue than assets?

I ran one of the calculators on a college's website and income seemed to drive the aid decision.
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