Maximum amount in a 529 for an 8 year old?

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DonDraper
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Joined: Sun Mar 25, 2012 3:34 pm

Maximum amount in a 529 for an 8 year old?

Post by DonDraper »

What is the maximum amount you would put in a 529 plan for an 8 year old?

Here's my situation. I currently have about $42k in a 529 plan for my 8 year old. We only have 1 child. The money is currently invested in a fund that is 75/25 stocks/bonds. In 10 years this money should roughly double to around $80k.

The projected 4 year cost of college in 10 years is well over $100k. That said, who knows what the future will bring in terms of my child's future, scholarships, etc. Also we do expect to receive about $6-7k a year gift from the in laws to be used to fund my son's college expenses going forward. In other words more money is coming that will have to earmarked for college.

I'm beginning to lean towards keeping all future savings in a standard taxable account to avoid overfunding the 529. Any thoughts?
Grt2bOutdoors
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Re: Maximum amount in a 529 for an 8 year old?

Post by Grt2bOutdoors »

Interesting question, I think about this myself.
If you have $42K today and a $7K gift for each of the next 4 years, that takes you to 70K, toss in 3-4% inflation, at age 12 I'd start putting the extra money into a standard taxable account if the balance starts to approach within 20-25% of the cost of a 4 year college education (that is at age 12, the cost of a 4 year college is X, .75x or .80x, start placing funds in a taxable account). That's, what I would do.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Balthazar
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Re: Maximum amount in a 529 for an 8 year old?

Post by Balthazar »

Good question. I've saved $74K for my 4.5 year old. When he was born I used a college savings calculator and entered conservative estimates, i.e. 7% education inflation, 5% return, no scholarship money, decent school, e.g. Notre Dame, and 6 years of college. But it "feels" like I'm saving too much.
KlangFool
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Re: Maximum amount in a 529 for an 8 year old?

Post by KlangFool »

TS,

$0 in 529. Maxed up 401K, HSA, Roth IRA and so on... Save the rest in taxable A/C.

KlangFool
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veggivet
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Re: Maximum amount in a 529 for an 8 year old?

Post by veggivet »

I would suggest continuing to add to the 529, assuming all of your retirement accounts are maxed. If you end up overfunding, excesses in that account can continue to grow for the benefit of other children you may have, or grandchildren. Nieces, nephews, and first cousins would also be eligible if you didn't end up with any grandchildren. The benefits of tax-free growth over long periods of time are very impressive.
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Blue
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Re: Maximum amount in a 529 for an 8 year old?

Post by Blue »

We have substantially more than this for our 7 and 10 year old in 529's, but we view the 529 accounts as a mechanism to fund a family legacy of emphasis on education. Our intent is that anything not used by our kids will be used by our grandkids or beyond.
Topic Author
DonDraper
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Re: Maximum amount in a 529 for an 8 year old?

Post by DonDraper »

Blue wrote:We have substantially more than this for our 7 and 10 year old in 529's, but we view the 529 accounts as a mechanism to fund a family legacy of emphasis on education. Our intent is that anything not used by our kids will be used by our grandkids or beyond.
That's an interesting way to look at it. Given the fact the grandparents want their annual $6-7K to go towards education this might be the way to go with that particular contribution.
HorseRancher
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Re: Maximum amount in a 529 for an 8 year old?

Post by HorseRancher »

My child is 25 years old, and yes, I over-funded her 529 by almost $80,000. Why? I forecasted that she would need full support through her post-graduate degree, but she ended up receiving a full-tuition and fees scholarship. Now, I am trying to funnel money to her based on the fact that room-and-board are qualified educational expenses for purposes of the 529. By regulation, I am allowed to withdraw the lower of either (a) her actual rent+food or (b) the published university catalog expected expenses table. Honestly, I am considering just accepting the penalty on a non-qualified disbursement. The penalty is based on the disbursement of earnings, not on the disbursement of the principal. And, remember, when your child enters college, the earnings on the 529 will drop dramatically if you select the age-based investment criteria. For example, on the last $18,000 of disbursement, only $2,000 was tax-free earnings; the rest was principal. But, alas, if I keep funneling her the money, she will have her rent paid until the end of 2019!
jackholloway
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Re: Maximum amount in a 529 for an 8 year old?

Post by jackholloway »

We put the maximum 5 year $140k in for our ten year old, on the grounds that we had maximized 401k contributions. That is enough to cover Berkeley's 128k four year tuition, room, board, and fees, even assuming it grows faster than the 3.09% that the Colorado Stable Value fund is returning now.

If she gets into a school that charges like HMC, we are perhaps $114k low, plus cost growth. If she gets a scholarship, grad school is covered, or perhaps the potential grandkids get a windfall. The circumstances where I need the money are ones where my ordinary income rates will likely be fairly low, so even adding the 10% penalty might be less than my current OI rates.
Constant Chaos
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Re: Maximum amount in a 529 for an 8 year old?

Post by Constant Chaos »

HorseRancher wrote: she ended up receiving a full-tuition and fees scholarship. Now, I am trying to funnel money to her based on the fact that room-and-board are qualified educational expenses for purposes of the 529. By regulation, I am allowed to withdraw the lower of either (a) her actual rent+food or (b) the published university catalog expected expenses table. Honestly, I am considering just accepting the penalty on a non-qualified disbursement.
Wouldn't you be able to just take the money out in an amount equal to the scholarship? You pay tax, but no penalty. http://www.savingforcollege.com/questio ... cle_id=137
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