How Much for 529 Plan

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Hogan773
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How Much for 529 Plan

Post by Hogan773 » Wed May 17, 2017 4:57 pm

I have 3 kids and a single 529 Plan in the name of my oldest child.

I've been donating 20K per year to this plan which is the maximum where I can get a tax benefit in my state.

The account now has > 300K in it, in the 100% equity option.

My kids are 12, 9 and 6.

Shall I keep contributing the 20K every year at least for the next 6 years I assume? That would have the account > 500K. Actually I need to look but I might hit the max contribution limit before then, in which case I would open a second 529 in the name of my second child right?

Just wondering whether anyone decides they have "too much" in their 529. I can do the basic rule of thumb math to say "50K per year x 4 years x 3 kids = 600K needed in today's dollars" which would suggest I don't have "enough" yet. But I also know that things happen and maybe one kid goes to community college for the first 2 years or my kids go to a state school that isn't 50K etc etc.

Probably too hard to analyze "for sure" as you have no idea what your true educational needs will be, nor do you know what education inflation costs will be in the next 6-16 years. My take is therefore to just keep hitting it with the 20K donation as it gets a known tax benefit today, and if for some reason I overshoot, then I might have to do some extra dancing later on such as give some of the money to a nephew or grandchild or something.

Thoughts?

renue74
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Re: How Much for 529 Plan

Post by renue74 » Wed May 17, 2017 5:02 pm

I have 2 kids, 12 and 14. Each have $100K in their 529 plans. In 4 years, the estimation for a 4 year public school in my state is $130K.

I've stopped contributing.

Remember also, you don't spend the whole pot the 1st year. So theoretically, my 14 year old still has 8 more years of investments...though year 4-8, there will be some withdrawals and my 12 year old has 10 more years.

I think that if I come up short the last couple of years, I can find some $ from our taxable account to cover.

The amount I was contributing to their 529s, I started adding to my taxable account.

Finance-MD
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Re: How Much for 529 Plan

Post by Finance-MD » Wed May 17, 2017 5:03 pm

do you have enough for your retirement?
if you're not concerned about retirement, i'd say make sure to get the state tax deduction while you're earning income.
The money in a 529 can always be taken out with penalties, but you can save a lot on the tax protected space over time. The post-tax portion of your money can come out tax free as well from my understanding, so you're really only taking a hit on the growth portion. Since that growth is tax free, it can become a wash if you pay a penalty since you got the tax deduction.
Also, a kid may want to use for grad school or carry forward for their own kids.
If you have the means to do it without shorting your retirement an you can get the tax deduction now... by all means.

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bligh
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Re: How Much for 529 Plan

Post by bligh » Wed May 17, 2017 5:11 pm

Finance-MD wrote:do you have enough for your retirement?
if you're not concerned about retirement, i'd say make sure to get the state tax deduction while you're earning income.
The money in a 529 can always be taken out with penalties, but you can save a lot on the tax protected space over time. The post-tax portion of your money can come out tax free as well from my understanding, so you're really only taking a hit on the growth portion. Since that growth is tax free, it can become a wash if you pay a penalty since you got the tax deduction.
Also, a kid may want to use for grad school or carry forward for their own kids.
If you have the means to do it without shorting your retirement an you can get the tax deduction now... by all means.
+1. OP sounds like they would he will be fine. With those kind of numbers I imagine he isn't skimping on his own retirement. If the kids don't need it all. you can pull it out when you like or give it to the grand kids.

You can think of it as a kind of tax deferred retirement account with no RMDs but a flat 10% withdrawal fee + income tax on gains and an option to use tax free for education. :)

Hogan773
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Re: How Much for 529 Plan

Post by Hogan773 » Wed May 17, 2017 5:14 pm

Finance-MD wrote:do you have enough for your retirement?
if you're not concerned about retirement, i'd say make sure to get the state tax deduction while you're earning income.
The money in a 529 can always be taken out with penalties, but you can save a lot on the tax protected space over time. The post-tax portion of your money can come out tax free as well from my understanding, so you're really only taking a hit on the growth portion. Since that growth is tax free, it can become a wash if you pay a penalty since you got the tax deduction.
Also, a kid may want to use for grad school or carry forward for their own kids.
If you have the means to do it without shorting your retirement an you can get the tax deduction now... by all means.
I feel secure re: retirement savings and always fund the retirement first (would never fund the 529 ahead of maxing out retirement)

Your answer is sort of what I felt...might as well grab the tax deduction today and I will PROBABLY end up using the money as intended for education. But as the account gets larger I started to wonder how likely it was that I might overshoot in reality.....

I guess the consequences of overshooting aren't that severe esp because there is flexibility for grad school, grandkids, etc

I will keep on course then and not worry about overshooting

Grt2bOutdoors
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Re: How Much for 529 Plan

Post by Grt2bOutdoors » Wed May 17, 2017 5:14 pm

Given your children's ages, do you have any reason to believe they will not attend college? Time to fund another account for child number 2.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Finance-MD
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Re: How Much for 529 Plan

Post by Finance-MD » Wed May 17, 2017 5:26 pm

bligh wrote:
Finance-MD wrote:do you have enough for your retirement?
if you're not concerned about retirement, i'd say make sure to get the state tax deduction while you're earning income.
The money in a 529 can always be taken out with penalties, but you can save a lot on the tax protected space over time. The post-tax portion of your money can come out tax free as well from my understanding, so you're really only taking a hit on the growth portion. Since that growth is tax free, it can become a wash if you pay a penalty since you got the tax deduction.
Also, a kid may want to use for grad school or carry forward for their own kids.
If you have the means to do it without shorting your retirement an you can get the tax deduction now... by all means.
+1. OP sounds like they would he will be fine. With those kind of numbers I imagine he isn't skimping on his own retirement. If the kids don't need it all. you can pull it out when you like or give it to the grand kids.

You can think of it as a kind of tax deferred retirement account with no RMDs but a flat 10% withdrawal fee + income tax on gains and an option to use tax free for education. :)
+1 - if i lived in a tax deduction state, we'd be filling these up :)

Finance-MD
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Re: How Much for 529 Plan

Post by Finance-MD » Wed May 17, 2017 5:31 pm

Hogan773 wrote:
Finance-MD wrote:do you have enough for your retirement?
if you're not concerned about retirement, i'd say make sure to get the state tax deduction while you're earning income.
The money in a 529 can always be taken out with penalties, but you can save a lot on the tax protected space over time. The post-tax portion of your money can come out tax free as well from my understanding, so you're really only taking a hit on the growth portion. Since that growth is tax free, it can become a wash if you pay a penalty since you got the tax deduction.
Also, a kid may want to use for grad school or carry forward for their own kids.
If you have the means to do it without shorting your retirement an you can get the tax deduction now... by all means.
I feel secure re: retirement savings and always fund the retirement first (would never fund the 529 ahead of maxing out retirement)

Your answer is sort of what I felt...might as well grab the tax deduction today and I will PROBABLY end up using the money as intended for education. But as the account gets larger I started to wonder how likely it was that I might overshoot in reality.....

I guess the consequences of overshooting aren't that severe esp because there is flexibility for grad school, grandkids, etc

I will keep on course then and not worry about overshooting
You're winning the game :)
If I had a tax deduction, we'd max out our tax benefit annually for perpetuity even without a child and help create an endowment.
baby #1 is coming in 3 months... we may still frontload it and have undergrad completely funded before her first birthday.
Financial goals are some of the only goals we can check off at any time as early as possible... do it and don't look back. sure beats "spending" the money :).

NiceUnparticularMan
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Re: How Much for 529 Plan

Post by NiceUnparticularMan » Wed May 17, 2017 5:46 pm

One thing you should probably look into is whether you would have to pay back the tax deduction if you withdrew for non-qualified expenses.

But ultimately I don't think that should deter you. You've got so many options for qualified expenses between three kids, yourselves, possibly grandkids, and so on. Moreover, even without the tax deduction and with the penalty, it still isn't necessarily a bad deal to end up with some extra in 529s. For example, if, say, you used them for longer-term income-generating assets, the tax-free income compounding might outweigh the eventual penalty (it is harder to beat stocks since they tend to have less tax-drag and then get a lot of return for capital gains taxed at lower rates).

One tip, though--you could consider opening up new accounts periodically. The reason is I believe the way the rules work, they average out withdrawals between contributions and gains. So, when you start withdrawing, you could start with the accounts with the largest percentage of gains, working down to the accounts with the lowest percentage of gains. If you ended up some extra, it would then be in the accounts with the lowest percentages of gains, and you might at that point just take non-qualified withdrawals of contributions and leave relatively little behind.

I wouldn't go crazy with this, however. But, say, an extra account or two as college is approaching for the last couple kids and you are sticking the money in lower-growth asset mixes anyway might not be a bad idea.

dogagility
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Re: How Much for 529 Plan

Post by dogagility » Wed May 17, 2017 6:45 pm

I've one kid in college (junior) and another starting in the fall. I spent quite a bit of time trying to figure out "how much was enough" in my 529. In the end, you never truly know until you receive the bill in the summer, but you can guestimate within a reasonable amount (10% over the four years).

Here's my suggestion.
1) Expect to have $1500 come out of your non-529 savings/year/child. This is the amount you have to spend ($4000) out of pocket to receive the $2500 tax credit. (Assuming this credit remains unchanged in the coming years)
2) Each college has a "net price calculator" on their website. These are fairly accurate if you are not a business owner, own a farm, or are divorced.
Predict your financial situation in the future (or use current income and savings) and run the numbers. Another tricky part is knowing what numbers to plug in for your kid's GPA and test scores... just put in something reasonable based upon how smart/hardworking you think your kiddos are.
3) Run the NPC for your state's flagship and a few private colleges. Unless your kiddo is tippy-top, you shouldn't expect much, if any, non-loan aid from public colleges. Know that directional state universities, community college, or living at home can significantly reduce costs.
4) Loans. Currently, each kiddo can take out about $6000/year in student loans in their name. Taking out these loans is a family decision; as is taking out parent plus loans. It's generally a poor idea to burden students (or yourself) with a onerous amount of student debt.
5) Add about 4.5% inflation/year if you're estimating costs using today's numbers.

What does this mean in the "real world" today? My first spawn had an unweighted GPA of 3.5 and an ACT of 30. Four years for her at a state flagship is about $120,000. At private liberal arts colleges, the range after merit aid was $100,000 - $175,000. My other spawn had an unweighted GPA of 3.8 and an ACT of 27. Her costs after merit aid were similar.

It's great you're saving early... cause sending your kids to a sleep-away college aint cheap!

dogagility
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Re: How Much for 529 Plan

Post by dogagility » Wed May 17, 2017 7:06 pm

As an add-on to my previous post. The college confidential website has a wealth of information... it's the bogleheads equivalent for parents and students wondering about being admitted to and paying for college.

veindoc
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Re: How Much for 529 Plan

Post by veindoc » Wed May 17, 2017 7:38 pm

Is your tax deduction per beneficiary? If so you are missing out on additional deductions. For example, in Ohio I get a $2k tax deduction per beneficiary. We have three accounts for each kid so we get a $6k deduction. If I were to open an account with my and/or my husband as beneficiary that would be an additional $2k each. Double check with your state. Also if you anticipate having 2 or more kids in college simultaneously that is another reason to have more than one 529 since you can only have one beneficiary per account at a time.

masteraleph
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Re: How Much for 529 Plan

Post by masteraleph » Wed May 17, 2017 7:45 pm

As others have said, given the ages, I'd start a new 529 so that you can be able to pay for more than one kid at the same time.

The other question is what you want to pay for. You've already noted the private university vs. public university vs. community college (vs. not going to college at all) issue, but what about grad school? If you're looking to pay for medical school, dental school, law school, etc. for any or all of them, that's going to take a substantial amount more. If you're not looking to pay for that, the calculation is very different. This also affects the number of 529s you need- child #1 will be 24 when child #2 is 21 and child #3 is 18; if you're paying for med. school, then you'll be paying for all 3 at once.

Hogan773
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Re: How Much for 529 Plan

Post by Hogan773 » Fri May 19, 2017 2:45 pm

mrsytf wrote:Is your tax deduction per beneficiary? If so you are missing out on additional deductions. For example, in Ohio I get a $2k tax deduction per beneficiary. We have three accounts for each kid so we get a $6k deduction. If I were to open an account with my and/or my husband as beneficiary that would be an additional $2k each. Double check with your state. Also if you anticipate having 2 or more kids in college simultaneously that is another reason to have more than one 529 since you can only have one beneficiary per account at a time.
oh crud.....seriously? I missed that

I figured I could take money out of the account for multiple kids at once, even if titled in the name of child 1.

So yeah, my kids are 3 years apart each. So I cannot take any money out of the account for Child 2 during that year while he overlaps with Child 1?

Ugggggggggggggggggggggggggggghhhhhhhhhhhhhhhhhhhh

Is this a universal thing for all 529s?

If true then I totally messed up but I guess I can fix it. Just stop contributing to the account immediately and open a second. Or maybe just open one for each kid and be done with it. Shoot. So if I assume the current account might be up to 500K with growth and no future contributions, it could make sense to assume that I can repurpose that account for my youngest child once the oldest is out of college. But does that complicate if I open a new 529 for my youngest now? Can I repurpose one account in their name while they also have another one?

As to the deduction, I am 99.9% certain the limit is 20K per year TOTAL, not PER ACCOUNT. It is Illinois. But given I seem to have missed an important detail as mentioned above, I should check again. Will be totally PO'ed if I have been missing out on another 40K of tax benefits but I highly doubt they would give 20K PER ACCOUNT....could be a very large number.....

Hogan773
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Re: How Much for 529 Plan

Post by Hogan773 » Fri May 19, 2017 3:16 pm

Also...by any chance might I have the ability to slice up my current 300K into two more accounts right now? (I saw something in another Boglehead about how it is "easy to transfer between kids accounts")

TheGipper
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Re: How Much for 529 Plan

Post by TheGipper » Fri May 19, 2017 4:40 pm

Hogan773 wrote:Also...by any chance might I have the ability to slice up my current 300K into two more accounts right now? (I saw something in another Boglehead about how it is "easy to transfer between kids accounts")
Yes. Just create two new accounts for the other siblings with the same custodian. You may transfer freely between the accounts.

Hogan773
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Re: How Much for 529 Plan

Post by Hogan773 » Fri May 19, 2017 5:55 pm

TheGipper wrote:
Hogan773 wrote:Also...by any chance might I have the ability to slice up my current 300K into two more accounts right now? (I saw something in another Boglehead about how it is "easy to transfer between kids accounts")
Yes. Just create two new accounts for the other siblings with the same custodian. You may transfer freely between the accounts.
Mmmkay awesome, thanks

But that brings me to another question or angle

Why then can't we be back to the strategy of massing all (or nearly all) of the money in a single 529 until we have better visibility on how it will be used and by whom? For example, if I end up with $600K in a 529 under my eldest child, and I have $150 bucks in accounts for my other kids, and I have an overlap situation between Kid 1 and Kid 2, can't I just "transfer freely" between the $600,000 account and the $150 account with a better estimate of Kid 2's needs right near the time? For example can I transfer $40,000 from the Big account to the Small account and then one week later take $40,000 out to pay for Kid #2's tuition? And I guess if the answer is Yes, then logically extend that to ask why one wouldn't just wait and set up the accounts when Kid #2 is 18 years old and heading off to college, and then be able to "transfer freely" from the Big account rather than setting up an account for him today.

By the way I'm not heavily opposed to setting up accounts today for Kid 2 and Kid 3, and I may do so. But want to understand the game board before I make my move. I really do like the idea of having as much money in a single account for flexibility and then it can be sliced later. Although as I type this, I guess that argument can work backwards too, and thus if I end up with $200,000, $200,000 and $200,000 in each account, I still have a similar "flexibility" as I could transfer between accounts 10 years from now to adjust for what is happening/being used at the time.

NiceUnparticularMan
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Re: How Much for 529 Plan

Post by NiceUnparticularMan » Fri May 19, 2017 6:31 pm

Again as I understand it, you'd probably be better off doing successive accounts just because that way you can minimize the penalty if you end up overfunded.

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Gamma Ray
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Re: How Much for 529 Plan

Post by Gamma Ray » Fri May 19, 2017 6:54 pm

renue74 wrote:I have 2 kids, 12 and 14. Each have $100K in their 529 plans. In 4 years, the estimation for a 4 year public school in my state is $130K.
Wow, which state is that.
Even NY colleges cost under $10k/yr. Even state universities are under $10k, and medical schools are about $35k/yr.

Am I being naive thinking that NY City University (CUNY) schools are great places to get education. Places like Hunter College with their amazing language and literature programs or Baruch with their business and accounting degrees.

Based on this I was thinking of putting $50k in there now and with about $5k per year until my son is ready for college, more than 10 yrs expecting to have about $150 or so by end of 10 yrs in the account.

HopeToGolf
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Re: How Much for 529 Plan

Post by HopeToGolf » Sat May 20, 2017 3:00 am

Gamma Ray wrote:
renue74 wrote:I have 2 kids, 12 and 14. Each have $100K in their 529 plans. In 4 years, the estimation for a 4 year public school in my state is $130K.
Wow, which state is that.
Even NY colleges cost under $10k/yr. Even state universities are under $10k, and medical schools are about $35k/yr.

Am I being naive thinking that NY City University (CUNY) schools are great places to get education. Places like Hunter College with their amazing language and literature programs or Baruch with their business and accounting degrees.

Based on this I was thinking of putting $50k in there now and with about $5k per year until my son is ready for college, more than 10 yrs expecting to have about $150 or so by end of 10 yrs in the account.
Gammaray

My guess is OP is looking at total cost of attendance. Your NY school estimates do not include room and board.

marcopolo
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Re: How Much for 529 Plan

Post by marcopolo » Sat May 20, 2017 2:26 pm

Gamma Ray wrote:
renue74 wrote:I have 2 kids, 12 and 14. Each have $100K in their 529 plans. In 4 years, the estimation for a 4 year public school in my state is $130K.
Wow, which state is that.
Even NY colleges cost under $10k/yr. Even state universities are under $10k, and medical schools are about $35k/yr.

Am I being naive thinking that NY City University (CUNY) schools are great places to get education. Places like Hunter College with their amazing language and literature programs or Baruch with their business and accounting degrees.

Based on this I was thinking of putting $50k in there now and with about $5k per year until my son is ready for college, more than 10 yrs expecting to have about $150 or so by end of 10 yrs in the account.

Penn St. in-state tuition/fees, room/board (all things you can use 529 to fund) is over $30-35k/yr. depending on major and number of credits accrued. For some reason they charge junior and senior a few thousand a year more than freshman.
Once in a while you get shown the light, in the strangest of places if you look at it right.

marcopolo
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Re: How Much for 529 Plan

Post by marcopolo » Sat May 20, 2017 2:36 pm

Hogan773 wrote:I have 3 kids and a single 529 Plan in the name of my oldest child.

I've been donating 20K per year to this plan which is the maximum where I can get a tax benefit in my state.

The account now has > 300K in it, in the 100% equity option.

My kids are 12, 9 and 6.

Shall I keep contributing the 20K every year at least for the next 6 years I assume? That would have the account > 500K. Actually I need to look but I might hit the max contribution limit before then, in which case I would open a second 529 in the name of my second child right?

Just wondering whether anyone decides they have "too much" in their 529. I can do the basic rule of thumb math to say "50K per year x 4 years x 3 kids = 600K needed in today's dollars" which would suggest I don't have "enough" yet. But I also know that things happen and maybe one kid goes to community college for the first 2 years or my kids go to a state school that isn't 50K etc etc.

Probably too hard to analyze "for sure" as you have no idea what your true educational needs will be, nor do you know what education inflation costs will be in the next 6-16 years. My take is therefore to just keep hitting it with the 20K donation as it gets a known tax benefit today, and if for some reason I overshoot, then I might have to do some extra dancing later on such as give some of the money to a nephew or grandchild or something.

Thoughts?
I don't know if there is a "right" answer. i think 529 plans have a lot of advantages. Others here have indicated they see no need/advantage in using them.

I only have 2 kids, but followed your "rule of thumb" approach almost exactly. Two separate 529 plans. Stopped contributing to each when balance hit $200k. Invested in age-based portfolio. Figure it would cover in-state expenses comfortably. Can cash-flow rest if needed. Luckily, fist child chose to go to flagship in-state school. Anything leftover will likely just grow until needed for eventual grand kids. (that's the plan/hope anyway)
Once in a while you get shown the light, in the strangest of places if you look at it right.

veindoc
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Re: How Much for 529 Plan

Post by veindoc » Sat May 20, 2017 7:38 pm

In 4 years, the estimation for a 4 year public school in my state is $130K.
Which state is that?
Ohio State is $20k/year. I know people who paid less for college than they did for a private high school education.

veindoc
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Re: How Much for 529 Plan

Post by veindoc » Sat May 20, 2017 7:48 pm

Keep in mind this.

The maximum aggregate account balance per Designated Beneficiary is $400,000 and, once such maximum is reached, no further Contributions for the benefit of the same Designated Beneficiary will be allowed, although the Account balance may continue to increase due to appreciation of its holdings.


I don't know how much you want to have saved per kid, but you are at $300,000 now. In five years with contributions alone you would get to $400,000 and that might not leave enough for kid#3 depending where #1 and # 2 decide to go and how much of it you fund.

veggivet
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Re: How Much for 529 Plan

Post by veggivet » Sat May 20, 2017 8:18 pm

I ended up with a 60k surplus in my daughter's 529, and a 250k surplus in her Coverdell account. I figure her kids will be all set if/when she has any. If not, the funds are hers and she'll happily pay the 10% penalty on the gains. So I would fund up to the 400k max as long as all your retirement accounts are fully funded. Sounds like you're in good shape...and so are your kids.

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Gamma Ray
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Re: How Much for 529 Plan

Post by Gamma Ray » Sat May 20, 2017 8:52 pm

mrsytf wrote:
In 4 years, the estimation for a 4 year public school in my state is $130K.
Which state is that?
Ohio State is $20k/year. I know people who paid less for college than they did for a private high school education.
I suppose that's including room & board?
veggivet wrote:I ended up with a 60k surplus in my daughter's 529, and a 250k surplus in her Coverdell account. I figure her kids will be all set if/when she has any. If not, the funds are hers and she'll happily pay the 10% penalty on the gains. So I would fund up to the 400k max as long as all your retirement accounts are fully funded. Sounds like you're in good shape...and so are your kids.
Wow, $310k surplus? How did that happen?
Can you (or she) use those as part of continuing education, for example certificate or extra credit programs in the college she attended? Or does it have to be Masters, PhD, etc.?
HopeToGolf wrote:
My guess is OP is looking at total cost of attendance. Your NY school estimates do not include room and board.
You are right, for some reason, back of my mind: City College = Close to home, no add'l room and board necessary. Of course that's just for City college, considering it would take about 1 hour if you take public transportation, or if you drove to one, about same time. If it's State, things will be different. Still low tuition but if you couple with room & board, definitely no less than $20k/yr. I don't know why I always assume kids will stay with us during college.

veggivet
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Re: How Much for 529 Plan

Post by veggivet » Sat May 20, 2017 9:23 pm

Gamma Ray,
I can use the funds for any qualified expense if I enroll as a full time student at any accredited college. She can use the funds for any graduate school program if she wishes. A more likely scenario is that she will use the funds for her kids. I ended up with the large surplus in her Coverdell because of a lucky investment in the 'forbidden fruit' of the Garden of Eden. I figured that I could take a bit of a gamble with that account since it was much smaller than her 529 initially, (contributions are limited to $2000/yr.) and her 529 was well diversified among Vanguard index funds.

samsmith
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Re: How Much for 529 Plan

Post by samsmith » Sat May 20, 2017 10:17 pm

Illinois is $20K total for a married couple per year to get state deduction - not per beneficiary.
And while I don't want to get into a debate on the relative value of public vs private college, but I would like to gently point out that if one of the OP's kids goes to a private school his estimate of $50K per year is optimistic. Many private colleges are now mid $60s. In fact, since the OP is from Illinois, he might want to check on what Northwestern has listed as its estimated tuition and fees for undergraduates

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Gamma Ray
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Re: How Much for 529 Plan

Post by Gamma Ray » Sat May 20, 2017 10:21 pm

veggivet wrote:Gamma Ray,
I can use the funds for any qualified expense if I enroll as a full time student at any accredited college. She can use the funds for any graduate school program if she wishes. A more likely scenario is that she will use the funds for her kids. I ended up with the large surplus in her Coverdell because of a lucky investment in the 'forbidden fruit' of the Garden of Eden. I figured that I could take a bit of a gamble with that account since it was much smaller than her 529 initially, (contributions are limited to $2000/yr.) and her 529 was well diversified among Vanguard index funds.
$2000 limit was why I was shocked to see how much the Coverdell grew, and that's something else I've been concerned with my potential 529. While I can go in extremely aggressive (not sure what that would be these days) for the first 7,5 yrs, then another 4 yrs more conservative. I've been trying to find some guidance on 529 fund selection based on what's available, or which state to go with (since I will contribute bulk $50k in first year, I am not worried about the very little tax benefit NYS gives. Is there a discussion somewhere on how to make the most out of 529 accounts?

Whatever it is, would you all agree that I do not waste any more time and put down the $50k I've set aside for education now first?

Hogan773
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Re: How Much for 529 Plan

Post by Hogan773 » Mon May 22, 2017 4:57 pm

mrsytf wrote:Keep in mind this.

The maximum aggregate account balance per Designated Beneficiary is $400,000 and, once such maximum is reached, no further Contributions for the benefit of the same Designated Beneficiary will be allowed, although the Account balance may continue to increase due to appreciation of its holdings.


I don't know how much you want to have saved per kid, but you are at $300,000 now. In five years with contributions alone you would get to $400,000 and that might not leave enough for kid#3 depending where #1 and # 2 decide to go and how much of it you fund.
But this is per Kid, not per Me. Meaning if I were to hit 400K in the Account for Kid 1, I can't contribute there anymore but I could contribute to different accounts for Kid 2 and Kid 3.

Hogan773
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Re: How Much for 529 Plan

Post by Hogan773 » Mon May 22, 2017 4:59 pm

NiceUnparticularMan wrote:Again as I understand it, you'd probably be better off doing successive accounts just because that way you can minimize the penalty if you end up overfunded.
Ok but if there is full flex then can't you create accounts and move the money to them? Is there anything that says you cannot create an account for an 18 year old and transfer money from your other 529 to this new 529? is there a minimum holding period?

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Re: How Much for 529 Plan

Post by NiceUnparticularMan » Mon May 22, 2017 5:28 pm

Hogan773 wrote:
NiceUnparticularMan wrote:Again as I understand it, you'd probably be better off doing successive accounts just because that way you can minimize the penalty if you end up overfunded.
Ok but if there is full flex then can't you create accounts and move the money to them? Is there anything that says you cannot create an account for an 18 year old and transfer money from your other 529 to this new 529? is there a minimum holding period?
So here is the logic.

As I understand it, when you make withdrawals, it is prorated between contributions and earnings in THAT account. You can't specify earnings first, then contributions, or anything like that.

OK, so consider two scenarios:

(A) I put $200,000 into one 529, it then grows to $400,000, and then I put in another $100,000. For simplicity, we'll assume the second contribution has no gains.

(B) I put $200,000 into one 529, it then grows to $400,000, and then I put another $100,000 into a second account, with again no gains on that.

OK, now you use your 529 savings to pay for your kids' colleges. But oh no, Kid #1 uses $200,000, and Kid #2 uses $200,000. You have overfunded.

In Scenario (A), you use the 529 for Kid #1, then Kid #2. You withdraw the remaining $100,000. This is 40% gains ($200,000/$500,000), so you pay tax on $40,000 PLUS a $4,000 penalty PLUS maybe state tax deduction recapture.

In Scenario (B) you use the first 529 for Kids #1 and #2. You then withdraw the remaining $100,000 from the second account. This is 0% gains, so you pay no tax and no penalty.

This works too in the more complex case where you just have a lower gains percentage in the second account, which is likely if it is later in time and you use a more conservative mix. Then you might still have some taxes and penalty, but it could be a lot smaller than if it was all one big account.

Note, though, at one time if you had multiple accounts for the same beneficiary in the same state, they had to be aggregated. So we opened our first for KId #1 in Utah, then our second for Kid #2 in WVA. But I believe that rule was repealed in 2015 (you might want to double check).

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Re: How Much for 529 Plan

Post by veindoc » Mon May 22, 2017 9:58 pm

But this is per Kid, not per Me. Meaning if I were to hit 400K in the Account for Kid 1, I can't contribute there anymore but I could contribute to different accounts for Kid 2 and Kid 3.
Yes. It is per account.

I found this on the FAQ on the bright start plan.

Can I roll over money from one 529 plan to another 529 plan?
Yes, you can roll over from one plan to another once per year. This will not incur taxes and penalties if the funds from the first account are deposited into the new account within 60 days from the distribution from the first account.

I would also suggest checking out www.collegeconfidential.com for specific answers about splitting your current 529 into thirds. That I am not familiar with.

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Re: How Much for 529 Plan

Post by Hogan773 » Wed Jun 07, 2017 2:09 pm

As a follow up here, I ended up creating a second account for Child #2. It is conveniently shown all together with my original account on the website. I will fund that #2 account now going forward.

To answer some of the other issues discussed here, in my 529 at least, I verified that I can move money between the various accounts (Child #1 to Child #2) AT ANY TIME and via a quick phone call to the servicer. So yes, I could theoretically move $10K from the larger Child 1 account when he is 21 over to the smaller Child 2 account when he is 18, and a couple hours later "withdraw" the money from Child 2 account for the benefit of Child 2. So there is lots of flexibility here.

Each account incurs a $10 annual maintenance fee, although I just got an email that they are improving the program by eliminating that and also lowering the fees. Even so, I think I will just stick with 2 529s for now for my 3 kids. If there is no overlap between #1 and #3, then I can just retitle to #3's name once #1 is out of school. If there is overlap, or if I change my mind as we get closer, I can easily open a third account for Child #3 and it could be immediately funded via transfers from the other account(s). See no real need to have 3 accounts working today

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Gamma Ray
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Re: How Much for 529 Plan

Post by Gamma Ray » Thu Jun 08, 2017 12:34 am

What is the AA for the younger kids' fund?

Hogan773
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Re: How Much for 529 Plan

Post by Hogan773 » Thu Jun 08, 2017 8:50 am

Gamma Ray wrote:What is the AA for the younger kids' fund?
Both of them are on 100% Equity Index right now. (12yr old and 9yr old)

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Re: How Much for 529 Plan

Post by ecotone » Thu Jun 08, 2017 9:09 am

Hogan773,

Are you going to adjust your AA based on the changes at Bright Start? I have an account (no children yet) with, what looks like, a similar AA as you. The new funds look like a good change. Thoughts?

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DaftInvestor
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Re: How Much for 529 Plan

Post by DaftInvestor » Thu Jun 08, 2017 9:45 am

Additional items to consider regarding "How much should I fund"
1) As others have alluded to - certainly take care of Retirement saving needs first
2) More students are moving on to graduate school than ever before. If you plan on paying beyond 4-years it wouldn't hurt to have more for this reason.
3) Extra funds could be used by your children or your grand-children at any time in the future.
4) Extra funds can be withdrawn with a 10% penalty on EARNINGS only (in addition to taxes). This penalty isn't really that high considering the fact that you otherwise are getting 20+ years of tax-free growth if used for college.

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Gamma Ray
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Re: How Much for 529 Plan

Post by Gamma Ray » Thu Jun 08, 2017 4:34 pm

DaftInvestor wrote:Additional items to consider regarding "How much should I fund"
1) As others have alluded to - certainly take care of Retirement saving needs first
While retirement is really important, when you say "take care of retirement savings" most people assume it's for tax advantaged retirement savings, so once they cap tax advantaged funds, they move onto other tax advantaged funds before investing in taxable funds (for retirement or for general savings). I think that's something to consider, because at higher amounts, it makes more sense to save towards education with a tax free growth instead of saving for retirement and paying taxes.

Isn't it?

Not sure if anyone did a comparison but the taxable retirement vs tax deferred vs tax advantaged chart in the wiki reflects a good amount of info on this subject.
DaftInvestor wrote: 4) Extra funds can be withdrawn with a 10% penalty on EARNINGS only (in addition to taxes). This penalty isn't really that high considering the fact that you otherwise are getting 20+ years of tax-free growth if used for college.
While I learned the penalty is on earnings, I always thought it was like Roth (you could take the contributions while leaving earnings and avoid penalties) it doesn't work like that, they make you pay penalties on PORTION of each withdrawal. I am not at my desk to find the literature but it was explained in another thread as well.

Hogan773
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Re: How Much for 529 Plan

Post by Hogan773 » Fri Jun 09, 2017 11:06 am

ecotone wrote:Hogan773,

Are you going to adjust your AA based on the changes at Bright Start? I have an account (no children yet) with, what looks like, a similar AA as you. The new funds look like a good change. Thoughts?
Not sure - haven't looked closely. It does appear that they are going to offer a new capability to basically just choose your own investment(s) in a variety of different funds including some like Vanguard International, Vanguard REIT, etc.

If the costs are the same, I might take advantage of that and start dialing in a little Asset Allocation here, especially as my kids get older. I had only chosen the 100% Equity Index for now because if I remember correctly the next option down was already something like 40% bonds and I didn't want to be that conservative. I chose the Index to get the much lower expense ratios (something like 15bp) vs their other "portfolio" option which I think was 40 or 50bp.

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