529 help

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Newone88
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Joined: Sat Oct 07, 2017 3:26 pm

529 help

Post by Newone88 » Sat Oct 07, 2017 3:42 pm

I currently am married with 2 kids, 6yo and 3yo. Both have a 529 plan from Utah, but I am an IL resident.

I'm trying to figure out how to further fund their 529 plans.
I'm considering a partial "superfund" where I put in a lump sum of $70k into each kids account and my wife would then add $10k each annually.
This allows us to take advantage of IL state tax deduction which is $20K maximum.

I'm not sure if I should be considering other ideas...no superfund? more superfund (if I can)?

Ideally I would aim to have a balance of about $850K combined in their 529s

Thanks in advance!

letsgobobby
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Re: 529 help

Post by letsgobobby » Sat Oct 07, 2017 7:30 pm

go for it if you have the cash.

beehappy
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Re: 529 help

Post by beehappy » Sat Oct 07, 2017 8:33 pm

Newone88 wrote:
Sat Oct 07, 2017 3:42 pm
I currently am married with 2 kids, 6yo and 3yo. Both have a 529 plan from Utah, but I am an IL resident.

I'm trying to figure out how to further fund their 529 plans.
I'm considering a partial "superfund" where I put in a lump sum of $70k into each kids account and my wife would then add $10k each annually.
This allows us to take advantage of IL state tax deduction which is $20K maximum.

I'm not sure if I should be considering other ideas...no superfund? more superfund (if I can)?

Ideally I would aim to have a balance of about $850K combined in their 529s

Thanks in advance!
You'll probably overfund at that rate. How much do they currently have in their 529s? You may want to pop your numbers into a college calculator to see how they play out. Personal Capital has a nice one.

Newone88
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Joined: Sat Oct 07, 2017 3:26 pm

Re: 529 help

Post by Newone88 » Sat Oct 07, 2017 8:38 pm

beehappy wrote:
Sat Oct 07, 2017 8:33 pm
You'll probably overfund at that rate. How much do they currently have in their 529s? You may want to pop your numbers into a college calculator to see how they play out. Personal Capital has a nice one.
Thanks, I use Personal Capital so I'll check out the calculator. I currently have 68K for the 6yo and 55k for the 3yo.

veindoc
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Re: 529 help

Post by veindoc » Sat Oct 07, 2017 8:40 pm

Can you get the illinois state tax deduction contributing to the Utah plan?

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badbreath
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Re: 529 help

Post by badbreath » Sat Oct 07, 2017 8:59 pm

You'll probably overfund at that rate
I agree you could only put in $500 to $1000 in the 529 and it will be good. You may want to take the leftover and up your 401k or taxable.

As they say you can get a student loan but not take a retirement loan.
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

Constant Chaos
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Re: 529 help

Post by Constant Chaos » Sun Oct 08, 2017 7:50 am

mrsytf wrote:
Sat Oct 07, 2017 8:40 pm
Can you get the illinois state tax deduction contributing to the Utah plan?
No, you can't. Per the IL 529 Bright Start site:

If you live in Illinois, you also get some added state tax benefits. Contributions to your Bright Start account are tax deductible. You’ll enjoy a deduction of up to $10,000 per parent, per year ($20,000 if married and filing jointly)

beehappy
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Re: 529 help

Post by beehappy » Sun Oct 08, 2017 9:55 am

Constant Chaos wrote:
Sun Oct 08, 2017 7:50 am
mrsytf wrote:
Sat Oct 07, 2017 8:40 pm
Can you get the illinois state tax deduction contributing to the Utah plan?
No, you can't. Per the IL 529 Bright Start site:

If you live in Illinois, you also get some added state tax benefits. Contributions to your Bright Start account are tax deductible. You’ll enjoy a deduction of up to $10,000 per parent, per year ($20,000 if married and filing jointly)
OP can contribute to the Illinois plan to get the deductible, then roll over to the Utah plan after tax season

beehappy
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Re: 529 help

Post by beehappy » Sun Oct 08, 2017 9:57 am

Newone88 wrote:
Sat Oct 07, 2017 8:38 pm
beehappy wrote:
Sat Oct 07, 2017 8:33 pm
You'll probably overfund at that rate. How much do they currently have in their 529s? You may want to pop your numbers into a college calculator to see how they play out. Personal Capital has a nice one.
Thanks, I use Personal Capital so I'll check out the calculator. I currently have 68K for the 6yo and 55k for the 3yo.
Their college calculator is new. You can find it under the retirement planner, when you click the "+" sign to add returenrbt spending goals. It'll also tell you if you risk overriding, and by how much.

Edit - I think the feature is only available on the computer web-based version and not on the apps.
Last edited by beehappy on Sun Oct 08, 2017 10:15 am, edited 1 time in total.

Sportswhiz00
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Re: 529 help

Post by Sportswhiz00 » Sun Oct 08, 2017 10:02 am

beehappy wrote:
Sun Oct 08, 2017 9:55 am
Constant Chaos wrote:
Sun Oct 08, 2017 7:50 am
mrsytf wrote:
Sat Oct 07, 2017 8:40 pm
Can you get the illinois state tax deduction contributing to the Utah plan?
No, you can't. Per the IL 529 Bright Start site:

If you live in Illinois, you also get some added state tax benefits. Contributions to your Bright Start account are tax deductible. You’ll enjoy a deduction of up to $10,000 per parent, per year ($20,000 if married and filing jointly)
OP can contribute to the Illinois plan to get the deductible, then roll over to the Utah plan after tax season
I believe that Illinois recaptures he tax benefit if one rolls to another state such that this would not work

mcraepat9
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Re: 529 help

Post by mcraepat9 » Sun Oct 08, 2017 10:08 am

Sportswhiz00 wrote:
Sun Oct 08, 2017 10:02 am
beehappy wrote:
Sun Oct 08, 2017 9:55 am
Constant Chaos wrote:
Sun Oct 08, 2017 7:50 am
mrsytf wrote:
Sat Oct 07, 2017 8:40 pm
Can you get the illinois state tax deduction contributing to the Utah plan?
No, you can't. Per the IL 529 Bright Start site:

If you live in Illinois, you also get some added state tax benefits. Contributions to your Bright Start account are tax deductible. You’ll enjoy a deduction of up to $10,000 per parent, per year ($20,000 if married and filing jointly)
OP can contribute to the Illinois plan to get the deductible, then roll over to the Utah plan after tax season
I believe that Illinois recaptures he tax benefit if one rolls to another state such that this would not work
Correct the rollover approach will be subject to recapture. https://www.brightstartsavings.com/tax-center/
Amateur investors are not cool-headed logicians.

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dogagility
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Re: 529 help

Post by dogagility » Sun Oct 08, 2017 10:14 am

Newone88 wrote:
Sat Oct 07, 2017 3:42 pm
You'll probably overfund at that rate. How much do they currently have in their 529s? You may want to pop your numbers into a college calculator to see how they play out. Personal Capital has a nice one.
Identifying a target for college funding 15 years from now is difficult. However, I think the OP has a good number ($850K) in mind for his three kids. Four years at a sleep away state flagship university for a kid starting in 2017 can range from 80K - 140K. Four years at UIUC (OP's home state flagship) will cost about $136K starting in 2017 (including 5% for college cost inflation). Running these numbers out 15 years at 5% inflation for UIUC for three kids is about 850K.

If a kid goes to a private school and is full pay, the 4 year cost could be over $500K (per child!) in 15 years.

OP, you're on track IMO. Only you know your kids and the educational expectations you have for your kids. Reconsider your target amount as your kids age and your financial situation changes.

As far as funding your 529, get all of your state tax deductions, choose low cost funds, and use an appropriate asset allocation for your risk tolerance and time horizon.
Taking "risk" since 1995.

doneat53
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Joined: Tue Jul 04, 2017 1:23 pm

Re: 529 help

Post by doneat53 » Sun Oct 08, 2017 10:20 am

I'd be careful with overfunding a 529. That seems like a lot of money for education even at the most expensive schools and then you have the growth of that money.

I would consider also having a bank account in their name where you can contribute to and then transfer to the 529 as the numbers become more clear.

You might even consider a ROTH for them if they have earned income.

Another unknown here that becomes more apparent after about 13 yoa.... is that the kids don't always have the same education plans as you do (free or not).

Just some thoughts.

David Scubadiver
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Re: 529 help

Post by David Scubadiver » Sun Oct 08, 2017 10:51 am

dogagility wrote:
Sun Oct 08, 2017 10:14 am
Newone88 wrote:
Sat Oct 07, 2017 3:42 pm
You'll probably overfund at that rate. How much do they currently have in their 529s? You may want to pop your numbers into a college calculator to see how they play out. Personal Capital has a nice one.
Identifying a target for college funding 15 years from now is difficult. However, I think the OP has a good number ($850K) in mind for his three kids. Four years at a sleep away state flagship university for a kid starting in 2017 can range from 80K - 140K. Four years at UIUC (OP's home state flagship) will cost about $136K starting in 2017 (including 5% for college cost inflation). Running these numbers out 15 years at 5% inflation for UIUC for three kids is about 850K.

If a kid goes to a private school and is full pay, the 4 year cost could be over $500K (per child!) in 15 years.

OP, you're on track IMO. Only you know your kids and the educational expectations you have for your kids. Reconsider your target amount as your kids age and your financial situation changes.

As far as funding your 529, get all of your state tax deductions, choose low cost funds, and use an appropriate asset allocation for your risk tolerance and time horizon.
He has 2 kids.

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dogagility
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Re: 529 help

Post by dogagility » Sun Oct 08, 2017 11:16 am

^You're right. My bad. Sped through the thread and thought the OP had three. OP will likely be saving too much money, unless kids are going to Swarthmore and/or professional grad school.
Taking "risk" since 1995.

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unclescrooge
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Re: 529 help

Post by unclescrooge » Sun Oct 08, 2017 11:41 am

dogagility wrote:
Sun Oct 08, 2017 10:14 am
Newone88 wrote:
Sat Oct 07, 2017 3:42 pm
You'll probably overfund at that rate. How much do they currently have in their 529s? You may want to pop your numbers into a college calculator to see how they play out. Personal Capital has a nice one.
Identifying a target for college funding 15 years from now is difficult. However, I think the OP has a good number ($850K) in mind for his three kids. Four years at a sleep away state flagship university for a kid starting in 2017 can range from 80K - 140K. Four years at UIUC (OP's home state flagship) will cost about $136K starting in 2017 (including 5% for college cost inflation). Running these numbers out 15 years at 5% inflation for UIUC for three kids is about 850K.

If a kid goes to a private school and is full pay, the 4 year cost could be over $500K (per child!) in 15 years.

OP, you're on track IMO. Only you know your kids and the educational expectations you have for your kids. Reconsider your target amount as your kids age and your financial situation changes.

As far as funding your 529, get all of your state tax deductions, choose low cost funds, and use an appropriate asset allocation for your risk tolerance and time horizon.
College costs can't grow infinitely. There's limited value inn paying $500k on an education that only lands you a $50k/yr job.

Newone88
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Joined: Sat Oct 07, 2017 3:26 pm

Re: 529 help

Post by Newone88 » Sun Oct 08, 2017 12:03 pm

Thanks for all the replies! Definitely a lot of good things to consider here. For IL, I would open separate 529s in IL Bright Directions plan and keep my Utah separate. I would plan to roll over the Utah plan into IL when they are closer to college time. I'll have to check and make sure that plan would work.

I see a lot of comments that I may be overfunding and this is the part that I'm struggling with a little. I understand I can always contribute to a taxable instead, I'm just trying to take advantage of the tax advantage the 529 provides (unfortunately we are in the highest marginal tax bracket, even though this is a good "problem" to have). I have no idea whether my kids will even end up going to college or if they'll deserve me paying for it :) . A lot of my family (probably over 90%) have gone onto some sort of higher education beyond undergrad. Most of my extended family has MD, masters, PhD, or JDs, even though this may mean nothing when it comes time for my kids.

The Roth idea is very interesting to me and coincidentally, I was looking into this option last night!

Lots of things for me to consider! Thanks again. I just joined this site and it's awesome!

EHEngineer
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Re: 529 help

Post by EHEngineer » Sun Oct 08, 2017 12:16 pm

Newone88 wrote:
Sun Oct 08, 2017 12:03 pm
Thanks for all the replies! Definitely a lot of good things to consider here. For IL, I would open separate 529s in IL Bright Directions plan and keep my Utah separate. I would plan to roll over the Utah plan into IL when they are closer to college time. I'll have to check and make sure that plan would work.

I see a lot of comments that I may be overfunding and this is the part that I'm struggling with a little. I understand I can always contribute to a taxable instead, I'm just trying to take advantage of the tax advantage the 529 provides (unfortunately we are in the highest marginal tax bracket, even though this is a good "problem" to have). I have no idea whether my kids will even end up going to college or if they'll deserve me paying for it :) . A lot of my family (probably over 90%) have gone onto some sort of higher education beyond undergrad. Most of my extended family has MD, masters, PhD, or JDs, even though this may mean nothing when it comes time for my kids.

The Roth idea is very interesting to me and coincidentally, I was looking into this option last night!

Lots of things for me to consider! Thanks again. I just joined this site and it's awesome!
Another thing to consider: You have 8 years to do direct payment of kids' college costs. You don't need to have the full amount in the 529 when the kids are a freshman in college. If you average your "contributions" over the roughly next 20 years with the first 12 going to 529 and the next 8 going directly to college costs, then your risk of overfunding is much reduced.

Edit to add: If you contribute $30,000 per year for the next 20 years, the existing 529 balances plus a little growth you will get to your number. However, the total 529 contribution would be more like $500k because you will stop contributing in 12 years, ie 2029. The rest of the contributions will be direct pay.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

letsgobobby
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Re: 529 help

Post by letsgobobby » Sun Oct 08, 2017 1:47 pm

What's wrong with overfunding 529s?

Newone88
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Re: 529 help

Post by Newone88 » Sun Oct 08, 2017 2:33 pm

letsgobobby wrote:
Sun Oct 08, 2017 1:47 pm
What's wrong with overfunding 529s?
The main one is using 529 money for anything excluded from qualified educational expenses is subject to paying taxes on the interest and a 10% penalty on top of that.

If it does get overfunded, the money can be transferred between children, and I believe it can even be transferred to other relatives or yourself, say if you wanted to go back to school for another degree. I haven't looked into the laws regarding transfer though, and my very limited understanding is that these laws may be getting more difficult with transferability (but someone please correct me if this is incorrect).

letsgobobby
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Re: 529 help

Post by letsgobobby » Sun Oct 08, 2017 3:32 pm

Newone88 wrote:
Sun Oct 08, 2017 2:33 pm
.

If it does get overfunded, the money can be transferred between children, and I believe it can even be transferred to other relatives or yourself, say if you wanted to go back to school for another degree.
Right. In other words, there is no problem with overfunding a 529 (in your situation).
I haven't looked into the laws regarding transfer though, and my very limited understanding is that these laws may be getting more difficult with transferability (but someone please correct me if this is incorrect).
There is no new law that has affected beneficiary changes. There have been discussions, but nothing more, about 529s for years. I don't make my 529 plans based on these discussions.

I wouldn't intentionally put in more than I need, but I wouldn't worry about happening to overfund. We may have overfunded, or maybe we've underfunded - we won't know for at least a decade. But the overfunding scenario doesn't worry me.

Newone88
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Joined: Sat Oct 07, 2017 3:26 pm

Re: 529 help

Post by Newone88 » Sun Oct 08, 2017 8:59 pm

letsgobobby wrote:
Sun Oct 08, 2017 3:32 pm
Newone88 wrote:
Sun Oct 08, 2017 2:33 pm
.

If it does get overfunded, the money can be transferred between children, and I believe it can even be transferred to other relatives or yourself, say if you wanted to go back to school for another degree.
Right. In other words, there is no problem with overfunding a 529 (in your situation).
I haven't looked into the laws regarding transfer though, and my very limited understanding is that these laws may be getting more difficult with transferability (but someone please correct me if this is incorrect).
There is no new law that has affected beneficiary changes. There have been discussions, but nothing more, about 529s for years. I don't make my 529 plans based on these discussions.

I wouldn't intentionally put in more than I need, but I wouldn't worry about happening to overfund. We may have overfunded, or maybe we've underfunded - we won't know for at least a decade. But the overfunding scenario doesn't worry me.
Thanks! This is pretty much in line with what I've been thinking.

clydewolf
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Re: 529 help

Post by clydewolf » Mon Oct 09, 2017 9:05 am

Any law changes would likely grandfather 529 accounts somehow.

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