Yet another 529 superfund question

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skteam
Posts: 50
Joined: Wed Jun 24, 2015 6:03 pm

Yet another 529 superfund question

Post by skteam » Tue Oct 17, 2017 12:04 pm

My wife and I are going to try to "superfund" our kid's 529s next year. They are 2 and 4 and currently have about 70k between their 529s. We will not be able to get to the superfund max in one year but can make a real dent if we make it a high priority. But I'm not sure that we really need to hit the max in order to do what we want to do.

Our goal is to fund the 529s well enough that we are not likely to have to worry about saving anything more for college going forward (assume expensive private college). My question is, how much would you try to save by the end of next year (when they will be 3 and 5) in order to achieve that? My simple calculation says that about $300k ought to do it, because a 5% return on $300k for 13 years yields about $285k for each kid, or $70k per year for four years for each kid.

Am I right? Thoughts appreciated.

WhiteMaxima
Posts: 516
Joined: Thu May 19, 2016 5:04 pm

Re: Yet another 529 superfund question

Post by WhiteMaxima » Tue Oct 17, 2017 12:21 pm

Super fund at one point is very risky. What if the fund lost 20% the next day you put money in. If I were you, I will put in FDIC insured option 1st and slowly DCA into 80/20. Once the kid grow to 16 17, change it to 20/80.

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Yet another 529 superfund question

Post by Spirit Rider » Tue Oct 17, 2017 1:23 pm

The maximum an individual can contribute to a 529 in a year is 5 * annual exclusion (2017 = $14K) = $70K. This means that each of you can contribute $70K to each child = $140K/child = $280K total.

However, you should understand that any contribution >= the annual exclusion is always treated as a five-year contribution. Then this is applied equally over the five years. If any of the previous contributions were from a single individual > the annual exclusion, you already have the remainder of a five-year contribution. You must factor that into any future any contributions. Also, if next year you do not do the maximum, you have to factor in any remaining five-year contributions including next year's five-year contribution for any future contributions within their respective five-year contribution periods.

skteam
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Joined: Wed Jun 24, 2015 6:03 pm

Re: Yet another 529 superfund question

Post by skteam » Tue Oct 17, 2017 2:58 pm

Thanks. We have never exceeded the gift tax limits before, so as I understand it we can make the entire 5 year contribution next year if we want--we won't actually hit the limit next year but will exceed the 14k/parent limit, thus starting the 5 year superfund period. We will likely hit the total 5 year limit across 2018 and 2019.

What I'm trying to figure out is how much in total I should try to save by the time the kids at 3 and 5 in order to call it quits on further college savings. My ballpark target is about $300k total across both kids, but am hoping for a reality check on that figure.

Ron Scott
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Joined: Tue Apr 05, 2016 5:38 am

Re: Yet another 529 superfund question

Post by Ron Scott » Tue Oct 17, 2017 10:11 pm

skteam wrote:
Tue Oct 17, 2017 2:58 pm
What I'm trying to figure out is how much in total I should try to save by the time the kids at 3 and 5 in order to call it quits on further college savings. My ballpark target is about $300k total across both kids, but am hoping for a reality check on that figure.
It's hard to crystal ball college costs but if you end up with ~$550k-$600k to support 2 kids through 4 years each at a private college your numbers seem good.

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CollegePrudens
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Location: SF Bay Area

Re: Yet another 529 superfund question

Post by CollegePrudens » Tue Oct 17, 2017 10:25 pm

skteam wrote:
Tue Oct 17, 2017 12:04 pm
<SNIP>

$70k per year for four years for each kid.

This sounds about right for private colleges at current prices, but you may want to investigate the costs for specific institutions that you are interested in and potentially do some additional math to factor in different asset growth rates and cost increases.

The paragraph below is not directly relevant for your purposes, but I am including it here as reference:
I am in California and investigating local in-state Universities for saving purposes. One of these is UC Davis. At UC Davis, between 2008-09 and 2017-18, tuition went up at a CAGR of 4.75%. That is higher than the CAGR for inflation (although I don't have all the inflation numbers handy) but lower than the CAGR of the S&P 500 Index over the same period.
Live as if you were to die tomorrow; learn as if you were to live forever - Gandhi

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