Should I put extra money in 529 or brokerage account?

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Should I put extra money in 529 or brokerage account?

Post by greenjb » Sun Apr 15, 2018 6:27 pm

I'm eager for advice on what I should do with $20K I had left over after paying taxes this year: Should I add it to my kids' (ages 8 and 11) 529 accounts? Or should I invest it in my (non-tax-advantaged) brokerage account with the idea of maximizing long-term gains?

My wife and I live in MD and invest the full $10K in our kids' 529s that the state of MD allows us to deduct from our state taxes (a nice bonus!). But I've never added money beyond that. On the one hand, putting the $20K here would mean it's tax-advantaged. And it's not like the money would go to waste -- I'm pretty sure tuition costs will exceed whatever we've saved by the time our kids get to college.

But on the other hand, the 529s are invested in target-date funds that'll become more conservative as my kids approach college age. So the $20K might not perform as well over the next 10 years as it would if it were invested in the 3-fund Vanguard portfolio that I use in my brokerage account.

I feel like I can make an argument either way -- but can't decide which is better. Is there a Boglehead rule of thumb for my situation? Thanks for any help folks.

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Re: Should I put extra money in 529 or brokerage account?

Post by Grt2bOutdoors » Sun Apr 15, 2018 9:13 pm

Gains are taxed at 15% in a regular account, gains in 529 plan are taxed at 0%.
Known expenses are sum of 529 plan + some unknown amount.
Markets can go up, they can also fall. You can always change the track of the 529 plan if you wish, you are allowed two changes per year (not recommending it).

I'd plunk the money into the 529 plan if you are on track to be fully funded for retirement this year with the idea that is $20K+ less in student loans down the line.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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