529 plans?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
gameguy56
Posts: 5
Joined: Fri Jul 22, 2016 11:23 am

529 plans?

Post by gameguy56 »

What's the general consensus on 529 plans? We just had a son (our first) and we're looking at being able to give him a head start on financial matters when he turns 18. We are planning to have more than 1 kid.

The tax benefits of 529 seem alluring, especially since in Michigan the MESP plan allows for deducting contributions up to 10k per year.

But the strict limitation on education expenses seems maybe a bit limiting? What if he wants to be an elevator mechanic?

Does it make sense to split 529/taxable contributions? Or just go all in on the 529 since likely at least 1 of our children will go to college? (wife and I both did, but we see the writing on the wall with the current state of the higher ed system)
Dollarsign16
Posts: 68
Joined: Thu Jun 02, 2016 11:24 am
Location: CA

Re: 529 plans?

Post by Dollarsign16 »

If you live in a state that offers deductions for using their plan then that is probably the best bet. I'm in CA which doesn't offer a deduction but the fees on Scholarshare are some of the lowest around so looks like we're going with that. Sounds like you're overthinking the possibility of not being able to us the funds for qualified expenses. It is likely at least one of the kids will be able to use the funds. Don't sweat it, just start saving!
Too many people spend money they earned..to buy things they don’t want..to impress people they don’t like. –Will Rogers
Engineer250
Posts: 1082
Joined: Wed Jun 22, 2016 1:41 pm

Re: 529 plans?

Post by Engineer250 »

gameguy56 wrote:What's the general consensus on 529 plans? We just had a son (our first) and we're looking at being able to give him a head start on financial matters when he turns 18. We are planning to have more than 1 kid.

The tax benefits of 529 seem alluring, especially since in Michigan the MESP plan allows for deducting contributions up to 10k per year.

But the strict limitation on education expenses seems maybe a bit limiting? What if he wants to be an elevator mechanic?

Does it make sense to split 529/taxable contributions? Or just go all in on the 529 since likely at least 1 of our children will go to college? (wife and I both did, but we see the writing on the wall with the current state of the higher ed system)
No tax deduction for me either (another CA resident). You can still get the money out of the 529, pay taxes (if you deducted contributions) and 10% penalty similar to retirement accounts. Could still be worth it. Your son can use it for any qualifying education expenses, I'm sure that includes elevator mechanic training. Generally the account can also be transferred to the immediate family of the beneficiary. So yes that could mean siblings, but look into whether maybe it could mean your son's kids too?

Also I'll just say predicting that higher education might be on the way out or might change drastically is similar to predicting you think the US stock market will definitely outperform international in the next 30 years. It's just a guess. Generally the way we think things are going is not the way they go. It's unlikely people will stop going to college in the next 30 years. I could see changes to how tuition is paid, but they aren't going to completely screw over everyone with a 529 account (it's an excellent tax shelter for a lot of wealthy people, wealthy people who lobby their politicians well, it's always good to be on the same side as wealthy people). I could also see maybe more technical universities, more job based training and fewer humanities degrees, in those instances a 529 would still be useful.

That said, $10k a year is a lot for one kid. I'm not sure I'd max that out, even if I thought my kid was going to pay full cost at Yale. It makes sense to maybe max it out for a few years, then start splitting with taxable. If your kid cashes it out at 22 when they are in a 15% tax bracket with the 10% penalty that's still close to breaking even if you were in, say, the 25% tax bracket.
Where the tides of fortune take us, no man can know.
User avatar
beyou
Posts: 6865
Joined: Sat Feb 27, 2010 2:57 pm
Location: If you can make it there

Re: 529 plans?

Post by beyou »

With 2 kids highly unlikely you come out overfunded.
And free college for all is not happening.
You will want flexibility to choose options.

I too live in a state with high income taxes and a tax decuctible annual invesmtent, which I took advantage of, but no additional deposits. Worked out well, in withdrawal mode now, and will easily spend it down and not pay any penatlies.
Topic Author
gameguy56
Posts: 5
Joined: Fri Jul 22, 2016 11:23 am

Re: 529 plans?

Post by gameguy56 »

Thanks all, this forum has already been quite helpful! :sharebeer


Next question related to the 529 is, I max my 401k but my wife still has some room in hers. We also both max out Roth IRAs.

Does it make sense to up her contribution to her 401k before putting money in the 529? What are the pros/cons of doing that, as I've heard that mentioned before as advice.
WolfgangPauli
Posts: 617
Joined: Sun Aug 23, 2015 8:28 am

Re: 529 plans?

Post by WolfgangPauli »

I used the MESP plan in Michigan for my son and it was fantastic.. Great investments, very low cost and great state tax benefits. Highly rated at http://savingforcollege.com and you buy direct.. do not use a broker. I fully funded my son through Ann Arbor UMICH and had money left over for first year of law school.

The danger / watchout is that you do not contribute too much. Your child will want to be a Wolverine and that costs substantially less than an East Coast Private school... Just plan that part well.

Having done it in MI, if I were to do it again, I would do exactly what I did.. fantastic plan.
Twitter: @JAXbogleheads | EM: JAXbogleheads@gmail.com
Engineer250
Posts: 1082
Joined: Wed Jun 22, 2016 1:41 pm

Re: 529 plans?

Post by Engineer250 »

gameguy56 wrote:Thanks all, this forum has already been quite helpful! :sharebeer


Next question related to the 529 is, I max my 401k but my wife still has some room in hers. We also both max out Roth IRAs.

Does it make sense to up her contribution to her 401k before putting money in the 529? What are the pros/cons of doing that, as I've heard that mentioned before as advice.
Yes your wife should max out her 401k prior to putting money in a 529.

Oxygen mask on yourself before you put it on your kid.

Let's say you max out your retirement but never save a dime for your kids' college. Your kid will still have 30-40 years to pay off student loans. He could work while in college, join the military, work in public service for loan forgiveness, etc. If you guys don't save enough for retirement, there aren't a lot of options. Keep working or try to live off social security and what you have saved, that's it. You can't typically take out loans to pay for your retirement. So put the oxygen mask on yourself first. If your kid graduates and can't get a job you'd probably be willing for them to move back in with you to save on cost. But if you get laid off at 55 and can't get another job and don't have enough saved to live on, your son may not be able or willing to have his parents move in with him.
Where the tides of fortune take us, no man can know.
snowblinded
Posts: 42
Joined: Sun Dec 21, 2014 10:00 pm

Re: 529 plans?

Post by snowblinded »

I've probably overfunded my kids' 529 based on their college/career prospects. (I still hold out hope that they'll turn it around!!!)

Is it a good idea to keep funding the plans (for state tax advantage) even though I suspect the educational benefit will be underutilized?

I'm glass half-full at this point...worst case is that I've just deferred the tax responsibility if they don't tap into the plan.
User avatar
SmileyFace
Posts: 9080
Joined: Wed Feb 19, 2014 9:11 am

Re: 529 plans?

Post by SmileyFace »

I assume you read the wiki article on this? https://www.bogleheads.org/wiki/529_plan
There are also lots of great discussions on pros/cons if you search for other threads.
Personally I love 529s - since there are so few tax-advantaged saving mechanisms why not take advantage of all those available to you - I now have 2 in college and am enjoying paying for their education using money that has grown tax free for 20 years.
The 10% penalty is ONLY on earnings - not the principle you put in - so worse case - you don't use all of the funds and take slightly lower growth. You could also fund 529s for approximately half of what you think you need if this is really a concern (e.g. each child half - if one doesn't use it - you can easily shift it to another child).
I would max out both 401Ks before funding the 529 - hopefully you can swing both by Living-below-your-means.
User avatar
arthurdawg
Posts: 929
Joined: Mon Jun 02, 2008 7:47 am

Re: 529 plans?

Post by arthurdawg »

There is great flexibility in passing the plans on to another beneficiary as well. I'm planning to use some of ours for the kids, but will likely end up transferring the accounts to the grandkids over the years.

You can fund education for the family for several generations!
Indexed Fully!
staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 8:40 am

Re: 529 plans?

Post by staythecourse »

arthurdawg wrote:You can fund education for the family for several generations!
Congrats in finding the true advantages of 529s. For the "regular" folks it is about saving for kids college. For the "rich" it is about setting up an inexpensive, low cost educational trust for generations.

It is, I believe, the ONLY situation where a completed gift from the donor is still under the control of the donor despite being the tax/ estate responsibilities of the giftee.

If you have kids going who will go to college (which is EVERYONE outside of a vocational school) then you will be using it. The best part is you have full control unlike the old UMTA/ UGMA accounts where they turn 18 and could buy a porsche with the money!

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
User avatar
goodenyou
Posts: 3601
Joined: Sun Jan 31, 2010 10:57 pm
Location: Skating to Where the Puck is Going to Be..or on the golf course

Re: 529 plans?

Post by goodenyou »

staythecourse wrote:
arthurdawg wrote:You can fund education for the family for several generations!
Congrats in finding the true advantages of 529s. For the "regular" folks it is about saving for kids college. For the "rich" it is about setting up an inexpensive, low cost educational trust for generations.

It is, I believe, the ONLY situation where a completed gift from the donor is still under the control of the donor despite being the tax/ estate responsibilities of the giftee.

If you have kids going who will go to college (which is EVERYONE outside of a vocational school) then you will be using it. The best part is you have full control unlike the old UMTA/ UGMA accounts where they turn 18 and could buy a porsche with the money!

Good luck.

I wouldn't plan on 529 Plans lasting for generations. Like all government programs, it has come under scrutiny for change.
"Ignorance more frequently begets confidence than does knowledge" | “At 50, everyone has the face he deserves”
FB01
Posts: 689
Joined: Fri May 20, 2011 12:36 am

Re: 529 plans?

Post by FB01 »

DaftInvestor wrote:I assume you read the wiki article on this? https://www.bogleheads.org/wiki/529_plan
There are also lots of great discussions on pros/cons if you search for other threads.
Personally I love 529s - since there are so few tax-advantaged saving mechanisms why not take advantage of all those available to you - I now have 2 in college and am enjoying paying for their education using money that has grown tax free for 20 years.
The 10% penalty is ONLY on earnings - not the principle you put in - so worse case - you don't use all of the funds and take slightly lower growth. You could also fund 529s for approximately half of what you think you need if this is really a concern (e.g. each child half - if one doesn't use it - you can easily shift it to another child).
I would max out both 401Ks before funding the 529 - hopefully you can swing both by Living-below-your-means.

DaftInvestor,

First of congratulation on your strategy of funding 529 for your kids. Just to get an idea...did you contribute lumpsum or you used to contribute monthly...would be great if you can let us know what was your average monthly contribution for you to now use money tax free for your kids education.

-JR
Thanks, | FB
User avatar
arthurdawg
Posts: 929
Joined: Mon Jun 02, 2008 7:47 am

Re: 529 plans?

Post by arthurdawg »

goodenyou wrote:
staythecourse wrote:
arthurdawg wrote:You can fund education for the family for several generations!
Congrats in finding the true advantages of 529s. For the "regular" folks it is about saving for kids college. For the "rich" it is about setting up an inexpensive, low cost educational trust for generations.

It is, I believe, the ONLY situation where a completed gift from the donor is still under the control of the donor despite being the tax/ estate responsibilities of the giftee.

If you have kids going who will go to college (which is EVERYONE outside of a vocational school) then you will be using it. The best part is you have full control unlike the old UMTA/ UGMA accounts where they turn 18 and could buy a porsche with the money!

Good luck.

I wouldn't plan on 529 Plans lasting for generations. Like all government programs, it has come under scrutiny for change.

I've no doubt it will... unfortunately with the cost of college, our kids will easily use most of their funding... the remainders will be swapped between them as needed for grad schools, and then we will pass on what we can.

And ditto for the control! We are setting one up for a niece... and while I think we can trust her, I'm keeping it in my account to keep her parents from helping themselves.
Indexed Fully!
User avatar
SmileyFace
Posts: 9080
Joined: Wed Feb 19, 2014 9:11 am

Re: 529 plans?

Post by SmileyFace »

FB01 wrote:
DaftInvestor wrote:I assume you read the wiki article on this? https://www.bogleheads.org/wiki/529_plan
There are also lots of great discussions on pros/cons if you search for other threads.
Personally I love 529s - since there are so few tax-advantaged saving mechanisms why not take advantage of all those available to you - I now have 2 in college and am enjoying paying for their education using money that has grown tax free for 20 years.
The 10% penalty is ONLY on earnings - not the principle you put in - so worse case - you don't use all of the funds and take slightly lower growth. You could also fund 529s for approximately half of what you think you need if this is really a concern (e.g. each child half - if one doesn't use it - you can easily shift it to another child).
I would max out both 401Ks before funding the 529 - hopefully you can swing both by Living-below-your-means.
DaftInvestor,

First of congratulation on your strategy of funding 529 for your kids. Just to get an idea...did you contribute lumpsum or you used to contribute monthly...would be great if you can let us know what was your average monthly contribution for you to now use money tax free for your kids education.

-JR
I don't know that my exact payment schedule is relevant as its easy to set a goal and amortize what you would need to do monthly to hit it. If you don't have enough spare cash flow to hit a monthly goal - contribute whatever you can. I essentially took a raise I got and started contributing after the birth of our second child. I was putting in about $200 a month into each of two accounts but also did some lump sums when receiving bonus's. I stopped contributing when I hit my targets (based on price of a 4year state tuition).
daveydoo
Posts: 1564
Joined: Sun May 15, 2016 1:53 am

Re: 529 plans?

Post by daveydoo »

529 has been one of the best things we've ever done, financially. Part of this reflects the timing (contributions over the past decade or so). My home state has a tax advantage, but nowhere near as generous as yours. And our home-state educational opportunities don't hold a candle to yours, either (Go Blue!)
staythecourse wrote:For the "regular" folks it is about saving for kids college. For the "rich" it is about setting up an inexpensive, low cost educational trust for generations.
Respectfully disagree. First Family inappropriately took some heat for this, imo. If you're planning to pay anything toward your kids' college, you should have a 529. It's not the savings angle; it's the tax-free accumulation that's key. We've doubled out investment, tax-free; it's a Roth IRA for college (and even better if you have a state-tax deduction). The downside, imo, is that most folks don't even become aware of this opportunity until college rolls around (i.e., way too late -- see First Family reference above, btw).
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"
richard37
Posts: 91
Joined: Wed Mar 20, 2013 10:38 am

Re: 529 plans?

Post by richard37 »

Sorry to crash this thread but thought easier to ask a 529 question here rather than start another thread.

We have two kids. a three and a half yr old and a one and a half yr old.

My wife's grandfather has been generously making an annual donation to both kids so between that and what we save we are able to put in 16K per year for each kid.

My question is at what point would you suggest stopping the payments into the 529s and switching to a taxable account. We currently have about 120K saved between two 529 accounts. I don't want to keep funding the 529s and end up with too much so my plan was to switch at some point to taxable accounts. Just not sure when to do that.

Thanks in advance!
Chadnudj
Posts: 1266
Joined: Tue Oct 29, 2013 11:22 am

Re: 529 plans?

Post by Chadnudj »

Engineer250 wrote:
gameguy56 wrote:Thanks all, this forum has already been quite helpful! :sharebeer


Next question related to the 529 is, I max my 401k but my wife still has some room in hers. We also both max out Roth IRAs.

Does it make sense to up her contribution to her 401k before putting money in the 529? What are the pros/cons of doing that, as I've heard that mentioned before as advice.
Yes your wife should max out her 401k prior to putting money in a 529.

Oxygen mask on yourself before you put it on your kid.

Let's say you max out your retirement but never save a dime for your kids' college. Your kid will still have 30-40 years to pay off student loans. He could work while in college, join the military, work in public service for loan forgiveness, etc. If you guys don't save enough for retirement, there aren't a lot of options. Keep working or try to live off social security and what you have saved, that's it. You can't typically take out loans to pay for your retirement. So put the oxygen mask on yourself first. If your kid graduates and can't get a job you'd probably be willing for them to move back in with you to save on cost. But if you get laid off at 55 and can't get another job and don't have enough saved to live on, your son may not be able or willing to have his parents move in with him.
Another reason to max your 401ks before 529s: if you do it this way, when your kid(s) go to college, you could suspend your 401k contributions and use that money to cash-flow college expenses (if necessary), while the money you already contributed 17 years ago continues to (hopefully) grow as the market does its thing.
Chadnudj
Posts: 1266
Joined: Tue Oct 29, 2013 11:22 am

Re: 529 plans?

Post by Chadnudj »

snowblinded wrote:I've probably overfunded my kids' 529 based on their college/career prospects. (I still hold out hope that they'll turn it around!!!)

Is it a good idea to keep funding the plans (for state tax advantage) even though I suspect the educational benefit will be underutilized?

I'm glass half-full at this point...worst case is that I've just deferred the tax responsibility if they don't tap into the plan.
Do you think your children will have kids eventually?

Would you like to help your grandchildren with their education?

Because you can always change the beneficiary down the road...and since your kids are probably a while away from having their own kids, and those grandkids are a ways away from college-age, you get a ton of time for compound interest to do its thing.
User avatar
SmileyFace
Posts: 9080
Joined: Wed Feb 19, 2014 9:11 am

Re: 529 plans?

Post by SmileyFace »

richard37 wrote:Sorry to crash this thread but thought easier to ask a 529 question here rather than start another thread.

We have two kids. a three and a half yr old and a one and a half yr old.

My wife's grandfather has been generously making an annual donation to both kids so between that and what we save we are able to put in 16K per year for each kid.

My question is at what point would you suggest stopping the payments into the 529s and switching to a taxable account. We currently have about 120K saved between two 529 accounts. I don't want to keep funding the 529s and end up with too much so my plan was to switch at some point to taxable accounts. Just not sure when to do that.

Thanks in advance!
Wow - you are in really good shape. You're are close to the point that I would switch over but its really up to you. Items to consider:
Are you planning on funding state college or private college? Have you looked at these costs for your state?
(many states = $20K per year for state college - this is $80K for undergrad. If this is your goal you are done at $160K assuming tuition cost increases will approximate growth in the accounts.).
Are you planning on funding post-graduate work (if either desire to go there) - what are those costs?
If you don't spend it all do you feel financially secure otherwise - e.g. fully funded retirement accounts? Are you okay passing these funds down to another generation if they don't get used - or taking the 10% growth penalty?
tnr
Posts: 150
Joined: Tue Jan 26, 2016 11:36 am

Re: 529 plans?

Post by tnr »

richard37 wrote:
We have two kids. a three and a half yr old and a one and a half yr old.

My wife's grandfather has been generously making an annual donation to both kids so between that and what we save we are able to put in 16K per year for each kid.

My question is at what point would you suggest stopping the payments into the 529s and switching to a taxable account. We currently have about 120K saved between two 529 accounts. I don't want to keep funding the 529s and end up with too much so my plan was to switch at some point to taxable accounts. Just not sure when to do that.

Thanks in advance!
Richard-we are in your situation but our kids are older, 9 and 13. We stopped funding the first 529 at around 150k and will do the same for the second. Well above our state school estimated 4 yr cost but below a selective private school 4 yr cost.

If we've over funded for undergrad, the money will be left for post grad. If still overfunded, we will switch beneficiaries to other family members.
richard37
Posts: 91
Joined: Wed Mar 20, 2013 10:38 am

Re: 529 plans?

Post by richard37 »

Daftinvestor / tnr thanks for the replies!!

Haven't thought about postgrad and not planning on factoring that into the 529 equation.

We are in NJ and looks like Rutgers is around 30K for in-state including room and board / books etc.

Was thinking about stopping the 529s when they hit 100K. I figured that fourteen or so years of growth would give me plenty in the 529s by the time they go to school and having everything else in taxable gives me more flexibility. Just curious what others in this fortunate situation do.

Cheers
staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 8:40 am

Re: 529 plans?

Post by staythecourse »

daveydoo wrote:529 has been one of the best things we've ever done, financially. Part of this reflects the timing (contributions over the past decade or so). My home state has a tax advantage, but nowhere near as generous as yours. And our home-state educational opportunities don't hold a candle to yours, either (Go Blue!)
staythecourse wrote:For the "regular" folks it is about saving for kids college. For the "rich" it is about setting up an inexpensive, low cost educational trust for generations.
Respectfully disagree. First Family inappropriately took some heat for this, imo. If you're planning to pay anything toward your kids' college, you should have a 529. It's not the savings angle; it's the tax-free accumulation that's key. We've doubled out investment, tax-free; it's a Roth IRA for college (and even better if you have a state-tax deduction). The downside, imo, is that most folks don't even become aware of this opportunity until college rolls around (i.e., way too late -- see First Family reference above, btw).
Not to be political, but Mr. Obama is a democrat and would not have cared about 529 plans if they were utilized for the middle class or poor. The problem he had was the data supported the rich were the one's using them the most and he saw a new tax revenue stream. It would make no sense for a democrat to try to eliminate any modality that is advantageous to the working class (that cuts right into their voting base). That whole fiasco is good proof it will take a lot to eliminate 529 plans as the outcry was swift and severe. I remember him turning about in less then a week after that speech where he mentioned it.

I do agree 529 plans are great, but just like many great things out there folks just do not utilize them. Not sure why, but I am sure there are disertations on the subject already. In my opinion, 529 plans may be one of the single BEST investment opportunities out there. It is a sure fire way to generate a positive return (just by avoiding taxes) for anyone who has a kid going to college (which is everyone in this country who wants a shot at a good life outside of vocational schools).

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
flyingbison
Posts: 1363
Joined: Wed Mar 12, 2014 8:52 am

Re: 529 plans?

Post by flyingbison »

daveydoo wrote: If you're planning to pay anything toward your kids' college, you should have a 529. It's not the savings angle; it's the tax-free accumulation that's key. We've doubled out investment, tax-free; it's a Roth IRA for college (and even better if you have a state-tax deduction).
If I pay anything toward my kid's college, it will likely be out of cash flow. Can't afford to save for college (an optional expense) when I can't even adequately fund my own retirement.
remomnyc
Posts: 1055
Joined: Mon Jan 04, 2016 3:27 pm

Re: 529 plans?

Post by remomnyc »

richard37 wrote:Daftinvestor / tnr thanks for the replies!!

Haven't thought about postgrad and not planning on factoring that into the 529 equation.

We are in NJ and looks like Rutgers is around 30K for in-state including room and board / books etc.

Was thinking about stopping the 529s when they hit 100K. I figured that fourteen or so years of growth would give me plenty in the 529s by the time they go to school and having everything else in taxable gives me more flexibility. Just curious what others in this fortunate situation do.

Cheers
We stopped contributing at 100k for the first 529. Current balance is 182k with 5 yrs to go. Haven't hit 100k in contributions on second 529. Current balance is 145k with 8 yrs to go. If they go private and we're short when they start, we will wash taxable funds through the 529 if either of us is still working and can benefit from the state income tax deduction.
Engineer250
Posts: 1082
Joined: Wed Jun 22, 2016 1:41 pm

Re: 529 plans?

Post by Engineer250 »

staythecourse wrote: I do agree 529 plans are great, but just like many great things out there folks just do not utilize them. Not sure why, but I am sure there are disertations on the subject already. In my opinion, 529 plans may be one of the single BEST investment opportunities out there. It is a sure fire way to generate a positive return (just by avoiding taxes) for anyone who has a kid going to college (which is everyone in this country who wants a shot at a good life outside of vocational schools).

Good luck.
a) Most people don't even know what they are. When I mention it to non-professionals I know, they've never heard of it.

b) Most people aren't able to afford maxing out their workplace retirement plan to $18k, let alone starting a Roth IRA, let alone starting a 529.

Also I bet 529 would cover certain vocational schools as well, but am not sure.
Where the tides of fortune take us, no man can know.
staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 8:40 am

Re: 529 plans?

Post by staythecourse »

richard37 wrote:Sorry to crash this thread but thought easier to ask a 529 question here rather than start another thread.

We have two kids. a three and a half yr old and a one and a half yr old.

My wife's grandfather has been generously making an annual donation to both kids so between that and what we save we are able to put in 16K per year for each kid.

My question is at what point would you suggest stopping the payments into the 529s and switching to a taxable account. We currently have about 120K saved between two 529 accounts. I don't want to keep funding the 529s and end up with too much so my plan was to switch at some point to taxable accounts. Just not sure when to do that.

Thanks in advance!
Personally, I would put 50% of the expected cost down. Let it grow and add as needed. Any shortfall at that time then needs to be met with cash flow.

For me, I have 2 kids same ages as you and plan for about 800k needed. That is toward UG and postgrad. My wife and I are fortunate to do so so we will keep doing it. So I will keep dumping money in until 400k and let it ride at 80/20 (which it currently is) all the way through (grad school graduation is age 25 or so) so the time horizon is quite a bit down the road. Worst case is the investments do great and then I just unintentional/ intentional set up a poor man's educational trust to be passed down from generation to generation. For us we will not be using all are money in our lifetime so I am more then happy to give some of that money for education for future generations.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
Engineer250
Posts: 1082
Joined: Wed Jun 22, 2016 1:41 pm

Re: 529 plans?

Post by Engineer250 »

staythecourse wrote:Worst case is the investments do great and then I just unintentional/ intentional set up a poor man's educational trust to be passed down from generation to generation.
Or one of your descendants can cash it out, pay tax and pay the 10% penalty. If someone left me $800k and I had to pay the penalty and taxes on it...well that's still ballpark $575k left after all that. Sometimes in our tax avoidance minds we perform too many hurdles. I mean, I'd take $575k after paying taxes and penalty rather than $0 just so I could avoid paying taxes.
Where the tides of fortune take us, no man can know.
staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 8:40 am

Re: 529 plans?

Post by staythecourse »

Engineer250 wrote:
staythecourse wrote:Worst case is the investments do great and then I just unintentional/ intentional set up a poor man's educational trust to be passed down from generation to generation.
Or one of your descendants can cash it out, pay tax and pay the 10% penalty. If someone left me $800k and I had to pay the penalty and taxes on it...well that's still ballpark $575k left after all that. Sometimes in our tax avoidance minds we perform too many hurdles. I mean, I'd take $575k after paying taxes and penalty rather than $0 just so I could avoid paying taxes.
Good point. I guess I should say to the same folks who would be inheriting the money anyways. Besides the owner controls "cashing out" and not the beneficiary. So it is up to the current owner to choose a responsible next owner and so forth down the generational chain.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
Jack FFR1846
Posts: 18461
Joined: Tue Dec 31, 2013 6:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: 529 plans?

Post by Jack FFR1846 »

DaftInvestor wrote: Wow - you are in really good shape. You're are close to the point that I would switch over but its really up to you. Items to consider:
Are you planning on funding state college or private college? Have you looked at these costs for your state?
(many states = $20K per year for state college - this is $80K for undergrad. If this is your goal you are done at $160K assuming tuition cost increases will approximate growth in the accounts.).
Are you planning on funding post-graduate work (if either desire to go there) - what are those costs?
If you don't spend it all do you feel financially secure otherwise - e.g. fully funded retirement accounts? Are you okay passing these funds down to another generation if they don't get used - or taking the 10% growth penalty?
Massachusetts State Colleges are just about $30k a year. I don't have to worry about that because my son's at a private college....$65k. And no, it's not MIT, Yale, Harvard, BU, BC, Brown, Dartmouth or one of the other 50 local New England colleges that are more expensive. I wish I could deduct contributions to a 529 but can't.
Bogle: Smart Beta is stupid
User avatar
SmileyFace
Posts: 9080
Joined: Wed Feb 19, 2014 9:11 am

Re: 529 plans?

Post by SmileyFace »

Jack FFR1846 wrote:
DaftInvestor wrote: Wow - you are in really good shape. You're are close to the point that I would switch over but its really up to you. Items to consider:
Are you planning on funding state college or private college? Have you looked at these costs for your state?
(many states = $20K per year for state college - this is $80K for undergrad. If this is your goal you are done at $160K assuming tuition cost increases will approximate growth in the accounts.).
Are you planning on funding post-graduate work (if either desire to go there) - what are those costs?
If you don't spend it all do you feel financially secure otherwise - e.g. fully funded retirement accounts? Are you okay passing these funds down to another generation if they don't get used - or taking the 10% growth penalty?
Massachusetts State Colleges are just about $30k a year. I don't have to worry about that because my son's at a private college....$65k. And no, it's not MIT, Yale, Harvard, BU, BC, Brown, Dartmouth or one of the other 50 local New England colleges that are more expensive. I wish I could deduct contributions to a 529 but can't.
I can't deduct contributions either but the 20 years of growth is tax free regardless. Anyone with young kids that wants to fund their kids colleges should use 529 regardless of whether or not contributions are deductible.

And many MA state colleges are not $30k per year (for example UMass Amherst is but UMass Dartmouth is not and umass Dartmouth has some good programs. Similarly for several other state universities. In fact - I think umass amherst may be the only one that high). There are choices for parents that don't want to pay a $65K price tag. I only mention this because parents with young children need to realize they don't need to pay $65K a year if they don't want to. If you can afford to and what to that's great - but their are great schools across the country that provide great educations at lower costs.
User avatar
SmileyFace
Posts: 9080
Joined: Wed Feb 19, 2014 9:11 am

Re: 529 plans?

Post by SmileyFace »

DaftInvestor wrote:
Jack FFR1846 wrote:
DaftInvestor wrote: Wow - you are in really good shape. You're are close to the point that I would switch over but its really up to you. Items to consider:
Are you planning on funding state college or private college? Have you looked at these costs for your state?
(many states = $20K per year for state college - this is $80K for undergrad. If this is your goal you are done at $160K assuming tuition cost increases will approximate growth in the accounts.).
Are you planning on funding post-graduate work (if either desire to go there) - what are those costs?
If you don't spend it all do you feel financially secure otherwise - e.g. fully funded retirement accounts? Are you okay passing these funds down to another generation if they don't get used - or taking the 10% growth penalty?
Massachusetts State Colleges are just about $30k a year. I don't have to worry about that because my son's at a private college....$65k. And no, it's not MIT, Yale, Harvard, BU, BC, Brown, Dartmouth or one of the other 50 local New England colleges that are more expensive. I wish I could deduct contributions to a 529 but can't.
I can't deduct contributions either but the 20 years of growth is tax free regardless. Anyone with young kids that wants to fund their kids colleges should use 529 regardless of whether or not contributions are deductible.

And many MA state colleges are not $30k per year (for example UMass Amherst is but UMass Dartmouth is not and umass Dartmouth has some good programs. Similarly for several other state universities. In fact - I think umass amherst may be the only one that high). There are choices for parents that don't want to pay a $65K price tag. I only mention this because parents with young children need to realize they don't need to pay $65K a year if they don't want to. If you can afford to and what to that's great - but their are great schools across the country that provide great educations at lower costs.
I just double checked in-state-resident Tuition/Fee/Room+Board Numbers to make sure I'm still right about MA prices.
UMass Amherst is around $30K.
BUT the following are around $25K and under:
UMASS Dartmouth:
UMASS Lowell
Salem State
Worcester State
And the following are around $20K and under:
Framingham State
Fitchburg U
Westfield U
Bridgewater
Mass College of Liberal Arts

Additionally - in MA - you can go to a Community College for around $5K a year (if you commute) and get into a program were your guaranteed to transfer to one of the 4 years - this can save a lot of money. I'm not trying to pick on Jack - but people throw around these high-end numbers and make other folks who have younger kids not realize they have choices and don't have to pay top prices.
Post Reply