## Parents with pre-K kids and 529 target

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Topic Author
NextMil
Posts: 549
Joined: Wed Dec 13, 2017 12:33 pm

### Parents with pre-K kids and 529 target

Do you have a target for your 529 by a certain age? I have read thousands of posts on 529s and debates on the value of 529s vs taxable etc.

My question is that if you have a child or a few do you have a target for their 529 at a certain age before you plan to flip your investing strategy to taxable?

For example, if you had 50k set aside for a child and they hit 3rd grade, would you shift gears to taxable? Is that too early? Obviously you can switch grade level/age and amount depending on your strategy. Just trying to do the math on doubling of cash every 7 years.
Rupert
Posts: 4122
Joined: Fri Aug 17, 2012 12:01 pm

### Re: Parents with pre-K kids and 529 target

You need a goal. Use a college cost calculator to come up with a number and an estimate of how much you need to save each year to reach that number. Then decide on how much of that number you want to hold in 529 accounts. If you get a state tax deduction for 529 contributions, you need to factor that into your analysis. I wouldn't, for example, stop contributing to 529s at a particular age if I had access to a state tax deduction. I would want to take advantage of that deduction every year if possible.
TxAg
Posts: 1718
Joined: Sat Oct 17, 2009 11:09 am

### Re: Parents with pre-K kids and 529 target

4 yr old and 2 yr old here

We'd like to have \$100k per kid in a 529 but likely not gona happen.

We'll have a paid off house by then. Plus they can have a little skin in the game.
Topic Author
NextMil
Posts: 549
Joined: Wed Dec 13, 2017 12:33 pm

### Re: Parents with pre-K kids and 529 target

The goal is exactly what I am trying to figure out. The problem I am finding is that its hard to know what the cost will be in 14 years, so I am trying to hedge a little against overfunding vs. taxable. The calcs online are all over the board. In my state the tax deduction is sort of negligible so I went for higher rated 529s with greater control to use index funds.

That is why I am trying to figure out when I should start to let it ride, and switch to taxable with an earmark for college savings. Just trying to get a sense what other parents are thinking. Thanks TxAg. That is helpful to get a sense on what others are thinking. Would appreciate any other parents weighing in on their strategy as well.
3funder
Posts: 1516
Joined: Sun Oct 15, 2017 9:35 pm

### Re: Parents with pre-K kids and 529 target

NextMil wrote: Wed May 23, 2018 9:22 am The goal is exactly what I am trying to figure out. The problem I am finding is that its hard to know what the cost will be in 14 years, so I am trying to hedge a little against overfunding vs. taxable. The calcs online are all over the board. In my state the tax deduction is sort of negligible so I went for higher rated 529s with greater control to use index funds.

That is why I am trying to figure out when I should start to let it ride, and switch to taxable with an earmark for college savings. Just trying to get a sense what other parents are thinking. Thanks TxAg. That is helpful to get a sense on what others are thinking. Would appreciate any other parents weighing in on their strategy as well.
College costs, over the past few decades, have risen at a clip of 5% per year. I wouldn't expect that to rise (the cost of college would then be entirely unrealistic); however, if it slows, it would probably slow modestly. My son is three years old. I expect that the cost of college will be 3-4 times what it is now in 2033. According to Vanguard's college savings tool, my wife and I are saving enough to pay for 4 years at any out-of-state public school. We figure that's a pretty good target, and we're comfortable with it. If extra is needed, we'll have cash flow and taxable to tap.
Global stocks, US bonds, and time.
FootballFan5548
Posts: 262
Joined: Mon May 01, 2017 2:20 pm

### Re: Parents with pre-K kids and 529 target

Oppenheimer has a very good college planning tool that spits out a report if you input data. It even lets you pick colleges and then it estimates the costs based on your child's current age.

I have a 3 yr old daughter and a 1 yr old son. I've got about \$33k in her 529 and about \$22k in his. I'm adding very small amounts, like \$250 per month at the moment, but will hit it with a \$2,500 chunk usually once per year.

My goal is to hopefully have \$100k in there by the time each of them is 10 years old... and then reevaluate.
3funder
Posts: 1516
Joined: Sun Oct 15, 2017 9:35 pm

### Re: Parents with pre-K kids and 529 target

3funder wrote: Wed May 23, 2018 9:36 am
NextMil wrote: Wed May 23, 2018 9:22 am The goal is exactly what I am trying to figure out. The problem I am finding is that its hard to know what the cost will be in 14 years, so I am trying to hedge a little against overfunding vs. taxable. The calcs online are all over the board. In my state the tax deduction is sort of negligible so I went for higher rated 529s with greater control to use index funds.

That is why I am trying to figure out when I should start to let it ride, and switch to taxable with an earmark for college savings. Just trying to get a sense what other parents are thinking. Thanks TxAg. That is helpful to get a sense on what others are thinking. Would appreciate any other parents weighing in on their strategy as well.
College costs, over the past few decades, have risen at a clip of 5% per year. I wouldn't expect that to rise (the cost of college would then be entirely unrealistic); however, if it slows, it would probably slow modestly. My son is three years old. I expect that the cost of college will be 3-4 times what it is now in 2033. According to Vanguard's college savings tool, my wife and I are saving enough to pay for 4 years at any out-of-state public school/more modestly-priced private school. We figure that's a pretty good target, and we're comfortable with it. If extra is needed, we'll have cash flow and taxable to tap.
Global stocks, US bonds, and time.
kap15
Posts: 2
Joined: Thu Mar 29, 2018 4:16 pm

### Re: Parents with pre-K kids and 529 target

How much should one be contributing annually to a 529 to make sure they can fully cover the cost of college? 10K per year?
Frank Grimes
Posts: 187
Joined: Tue Mar 07, 2017 10:54 am

### Re: Parents with pre-K kids and 529 target

My kids are 3 and 1 so it's a ways off for me as well.

I use Vanguard's tool to try to ballpark where we'll be 15 years from now but it's pretty far away and there are a lot of variables to change between now and then. But it gives a good ballpark I guess.

https://vanguard.wealthmsi.com/csp.php
Rupert
Posts: 4122
Joined: Fri Aug 17, 2012 12:01 pm

### Re: Parents with pre-K kids and 529 target

kap15 wrote: Wed May 23, 2018 9:45 am How much should one be contributing annually to a 529 to make sure they can fully cover the cost of college? 10K per year?
Depends on what college you're willing to pay for. Obviously community college costs less than Harvard.

Here's what I do: I decided that my savings goal would be the total cost of attendance at my state's flagship public university. If it turns out I'm flush with cash when my kids go to college, I may contribute more, but my savings goal is still the cost of the flagship public U. I went to that college's website to find the current total cost of attendance at that school. I plugged that number into several college cost calculators. Those calculators told me what I needed to save each year to reach that goal. I think I decided to use the number produced by Vanguard's calculator because I liked their calculator best, but you could pick a different one or average the results of the various calculators together if you wish. (Most of the calculators assume a 4-6% increase in costs each year. Some of them allow you to manipulate that number. It's truly a guess as to what the actual number will be; so I don't worry too much about that.) To avoid overfunding 529s, my goal is to hold 50-75% of my total college savings in 529s and hold the rest in I Bonds and taxable accounts.

It's not a perfect method, but I really don't think there's a better way.
Posts: 786
Joined: Sat Jan 27, 2018 1:47 am
Location: Middle Earth

### Re: Parents with pre-K kids and 529 target

Rupert wrote: Wed May 23, 2018 9:55 am To avoid overfunding 529s, my goal is to hold 50-75% of my total college savings in 529s and hold the rest in I Bonds and taxable accounts.

It's not a perfect method, but I really don't think there's a better way.
+1 This is what I'm doing. my kid is less than 1 year old. I am putting \$250/month into 529, but if I get to \$100k before he's in college (highly unlikely) I'll turn off contributions. I also have taxable and I-Bonds that I anticipate using to make up the difference in college costs.
Smorgasbord
Posts: 422
Joined: Fri Jun 10, 2016 8:12 pm

### Re: Parents with pre-K kids and 529 target

NextMil wrote: Wed May 23, 2018 8:44 am My question is that if you have a child or a few do you have a target for their 529 at a certain age before you plan to flip your investing strategy to taxable?
My state, Indiana, has a very generous tax deduction for the first \$5,000 per year so that's what I contribute. With a three year old, a newborn, and currently ~\$40k in the 529 account my guess is that with another 15+ years of contributions the 529 plan will be enough to cover in-state schools, but probably not private.
FreemanB
Posts: 337
Joined: Thu May 22, 2014 5:55 am

### Re: Parents with pre-K kids and 529 target

I wouldn't worry about coming up with an exact figure now. As others have stated, there are too many variables and it is too far out to really do more than guess. A few years ago, when I was deciding on a number, I faced the same problem. Many calculators were giving wildly different estimations. Finally, I picked a number that would be my goal to have in savings when my daughter started college(Now about 13 years away). I just checked the Oppenheimer calculator mentioned above, and my number is right in line with what it is estimating, so that calculator may work for you as well.(I suspect some calculators may over-inflate their estimations to encourage you to save more money, invested in their company, of course) As college gets closer and cost estimations start to get firmer, I can adjust my savings as needed. However, I'm also not concerned with having 100% of college funded on her first day(Savings will likely continue during school, in case of grad school or additional expenses), or even funding it 100% from savings. As long as I have enough in savings to ensure that any shortfall will be easy to make up with cash flow, then I can stop worrying about it. I may end up with 75%, 100%, or even 125%+ of what is needed, but I won't have to stress about it now or later.

As for 529 vs taxable, that's really up to your comfort level and any future plans for the money. As stated above, you should always contribute enough to maximize any state tax deduction in the 529 plan. Beyond that is up to you. I'm personally saving all college-earmarked funds in a 529 plan, with the intent to use any extra funds either for graduate school or just saving for possible grandchildren, nieces/nephews, etc. In terms of finding a use for the extra money, there are much worse problems to have
renue74
Posts: 1874
Joined: Tue Apr 07, 2015 7:24 pm

### Re: Parents with pre-K kids and 529 target

I started a 529 for each of my kids at birth (15 and 13). I had used the auto investment option for most of that time, plus contributed extra when I could and when I got large bonuses, etc.

Late last year, both kids hit the \$100K mark and we stopped the auto invest, plus I don't contribute any other. I also changed the "aggressive" portfolio asset allocation to a moderate one. No need to lose the farm right before the chickens lay eggs.

We live in SC and state schools run about \$25K/year.

The last I looked, I think we had contributed about \$40K or \$50K per child to their funds, the rest was portfolio gains.

I graduated from UNC-Chapel Hill in 1996. I remember the full cost of my college career was \$21K. (good times)
luap
Posts: 19
Joined: Fri Apr 06, 2018 8:30 pm

### Re: Parents with pre-K kids and 529 target

For establishing a 529 target, I use Vanguard's "How much do I need to save?" (https://vanguard.wealthmsi.com/csp.php) tool as my benchmark with a 7% rate of return and 4% rate of expected college cost increase. Absent of knowing if or where our kids will attend college - or how the landscape of higher education will change over the next 10+ years - our default goal is to be able to 100% cover the cost of our kids' attendance at our alma mater (or a school w/ equivalent costs). That is the best 'target' we have at our disposal, and we sock away the calculator's prescribed contribution each month.

I'm not too concerned with overfunding, as there is an age gap between our children, and I can halt and shift account excesses to the younger if the situation arises, or earmark for grandchildren if I am lucky enough to have them one day. Also, like most Bogleheads, I watch my accounts like a hawk and will continuously adjust contributions as necessary as life unfolds.
ivk5
Posts: 1144
Joined: Thu Sep 22, 2016 9:05 am

### Re: Parents with pre-K kids and 529 target

We contribute up to limit of state tax benefit, then rest in taxable. Tax drag of ~30 bps isn’t enough to make me feel any urgency to sacrifice liquidity.
bligh
Posts: 1347
Joined: Wed Jul 27, 2016 9:13 pm

### Re: Parents with pre-K kids and 529 target

I am using an approach I like to call "Match and Track". I looked at the cost of tuition and fees (not room and board)* for the nearby state universities, and decided to contribute as much and as fast as I could, to get to 4x that number for each kid. After that I would monitor each year, look at market gains plus the current tuition and fees at those universities and top up if needed. If the market has been doing well and I stay at or above that Tuition & fees number, I do nothing. If the market goes down, or the tuition & fees go up, I hope to contribute to make up the shortfall.

An Example, adjust the numbers to match your needs. The numbers would be higher if you include room and board:
If the target university tuition and fees is \$15K, and you are planning to pay for 4 years of university. For each kid, you would save 4*15K = \$60K and stop. Let's say you managed to do this by the time the kid turned 6 years old. Now each year after that, your plan would be to not contribute a single dollar. You would keep track of the balance and compare with the current tuition and fees. Let's say the kid turns 10, the market hasn't done so well, and the 529 balance is \$70K and the tuition & fees is now 20K. This would mean you have a \$10K shortfall (\$20K * 4 = \$80K) .. and you would need to start the contributions back up again to try to make it up as best as you can. Now let's say, the kid turns 13 and the market has done well and now the 529 balance is 90K while the tuition & fees is still stuck at \$20K. You are now overfunded... you do nothing. These are just snapshot years, but you would want to do this every year and continue for each kid until it is time to pay for university. Hence the "Match and Track".. you keep funding until you get to the point where you could fund the kid's university today, and then you help the 529 plan track the cost of the university going forward.

* My situation:
- I currently do not want to overfund the 529 plan if possible. I am open to doing so, just not right now.
- There is no state tax benefit for me
- I hope to cash flow/pay from taxable any costs not covered by the 529 plan.
marcopolo
Posts: 3869
Joined: Sat Dec 03, 2016 10:22 am

### Re: Parents with pre-K kids and 529 target

We have a Soph in college and a Junior in HS. We started contributing to 529 plans for each of them a month after each was born.
We filled other tax-advantaged space first. We then put some into 529 and rest into taxable investments.
We kept this up for each child until their account values hit \$200k. For the older one that was in 11th grade. For the younger one, it was during 9th grade. The accounts continued to grow after that due to favorable markets in recent years.

The idea was to be able to fund all of flagship state school, or most of out-state or private school. My older son ended up going to flagship in-state school, so he will have more than half his account left. It will be available for graduate school if he chooses. Otherwise, we will simply let it keep growing. It can serve as an additional safety net if things go really south, more likely it will be a great head start for the grand kids. The younger one has not yet decided where he wants to go to school.
Once in a while you get shown the light, in the strangest of places if you look at it right.
rcjchicity
Posts: 205
Joined: Fri Nov 29, 2013 5:07 pm
Location: Where do you think?

### Re: Parents with pre-K kids and 529 target

TxAg wrote: Wed May 23, 2018 8:59 am 4 yr old and 2 yr old here

We'd like to have \$100k per kid in a 529 but likely not gona happen.

We'll have a paid off house by then. Plus they can have a little skin in the game.
We have kids the same age & the same \$100k per child goal in a 529, with taxable savings/investments as the source after that.

We should be able to hit that goal several years before the oldest would be going to college. We'd stop contributions then, unless 1) our kids are in private school, 2) there's still the ability to use a 529 for private K-12, and 3) there's still a state tax deduction and the ability to contribute to and withdraw from a 529 in short order.

Lots of "ifs" for that, so likely going to stop contributing at \$100k.
novemberrain
Posts: 619
Joined: Wed May 09, 2018 12:26 pm

### Re: Parents with pre-K kids and 529 target

Nice!
Last edited by novemberrain on Fri Dec 18, 2020 12:44 am, edited 1 time in total.
ReformedSpender
Posts: 555
Joined: Fri Mar 16, 2018 1:24 pm
Location: Stone's Throw from Vanguard

### Re: Parents with pre-K kids and 529 target

novemberrain wrote: Wed May 23, 2018 12:52 pm Plus if they choose some deadbeat major, I will not fund anything.
Had a nice chuckle on that statement

Market history shows that when there's economic blue sky, future returns are low, and when the economy is on the skids, future returns are high. The best fishing is done in the most stormy waters.
Posts: 786
Joined: Sat Jan 27, 2018 1:47 am
Location: Middle Earth

### Re: Parents with pre-K kids and 529 target

novemberrain wrote: Wed May 23, 2018 12:52 pm
Plus if they choose some deadbeat major, I will not fund anything.
Just curious, from a practical standpoint, do kids generally choose majors as a freshman? I honestly don't recall when I chose mine (which honestly would probably fall on your list of deadbeat majors, lol).
Topic Author
NextMil
Posts: 549
Joined: Wed Dec 13, 2017 12:33 pm

### Re: Parents with pre-K kids and 529 target

Thanks all. Seems like there are really two mainstream strategies developing, invest until you feel you have enough with a target of \$100k, or fill up heavy on the front end and ride. I am in the former camp, but I think there is merit to the second camp, which is what I had been thinking. I also like the idea of pegging to whatever the current going rate is and making adjustments along the way. That and making sure the little rascals pick something that isn't a deadbeat major.

I have been doing \$200 a month per kid, and adding in financial gifts from relatives, and plus ups here and there.

I think it will be interesting to see what everyone does that wants their kids to have "skin the game" which I agree with, but if you have the cash to pay for all of it, and you take a tax hit by not spending it down, what the strategy will be. Maybe have them pay you a certain amount and stick into an account for them for a rainy day?

Thanks again for all your thoughtful responses.
cusetownusa
Posts: 500
Joined: Thu Mar 27, 2014 9:54 am

### Re: Parents with pre-K kids and 529 target

Interesting discussion...I just played around with that Vanguard tool which is great.

I have a 5 and 3 year old and after playing around with that tool it looks like College could cost anywhere from something minimal or nothing to \$600,000 plus each.

I live in NY and if AGI is below \$125,000 tuition is free (not room and board) for SUNY/CUNY schools. There is a decent chance I will retire before my kids go to college which would keep my AGI below the \$125,000 (assuming this gets adjusted for inflation over the years). On the flip side, a Private school like Cornell could cost around \$600,000 for 4/5 years of tuition and room and board. I am not sure what type of financial aid would be available and how to plan for that.

So basically I learned that I have no idea what a safe and reasonable amount I should save in a 529...if any at all.
financiallycurious
Posts: 63
Joined: Mon Nov 21, 2016 4:43 pm

### Re: Parents with pre-K kids and 529 target

My goal was to have \$100,000 in my first born's 529 plan by kindergarten . \$100,000 is about the current tuition + living expenses at our state flagship university, which is a pretty good school. In my mind, I have an obligation to pay for his education at our best state school, and once I have fulfilled that obligation, I can focus on other things. To the extent that the 529 plan returns outpace college inflation, he will have options beyond our state school, or he'll have some leftover money for graduate school. I will have accomplished my goal in about 4 months (by the start of first grade, so missed my target by a year), just before the birth of our second child, so it looks like I'll be starting all over.
novemberrain
Posts: 619
Joined: Wed May 09, 2018 12:26 pm

### Re: Parents with pre-K kids and 529 target

Nice!
Last edited by novemberrain on Fri Dec 18, 2020 12:44 am, edited 1 time in total.
LiterallyIronic
Posts: 1483
Joined: Sat Dec 05, 2015 10:36 am

### Re: Parents with pre-K kids and 529 target

NextMil wrote: Wed May 23, 2018 8:44 am Do you have a target for your 529 by a certain age?
Our kid is 1. The target is \$10,000 by age 18. Like you, I'm not sure if 529 is the way to go, but I'm leaning towards it.
alfaspider
Posts: 3181
Joined: Wed Sep 09, 2015 4:44 pm

### Re: Parents with pre-K kids and 529 target

novemberrain wrote: Wed May 23, 2018 12:52 pm
Plus if they choose some deadbeat major, I will not fund anything.
Ha. I chose a "deadbeat" major. I'm not a dead beat (well at least not financially). It's not about the major, but having a realistic plan for what you will do after graduation. I'm on track for FI by 40

Speaking to the OP: I've been wrestling with this question myself. My not-quite 2yr old is coming up on \$100k and I can't decide if I should cut it off or not. One one hand, if private colleges really do continue at 5% annual increases for the next 18 years, I will be leaving money on the table by saving taxable. On the other hand, I will feel awfully silly if my kid wants to go to state school and I'm sitting with 3x expenses in the account. Since I don't have any state tax incentive, it makes the most sense to fund a 529 mostly up front and then let it ride rather than make continuous contributions up through matriculation.
sailaway
Posts: 2530
Joined: Fri May 12, 2017 1:11 pm

### Re: Parents with pre-K kids and 529 target

novemberrain wrote: Wed May 23, 2018 12:52 pm
Plus if they choose some deadbeat major, I will not fund anything.
One brother was a computer science major, the other a chemistry major. Mom admitted, while I was still in grad school, that even with my humanities degree and this silly grad school thing, I was more financially stable than either of them. Time has only confirmed that assessment and we have now reached a point where I fully expect to retire before I reach their current ages.
casualflower
Posts: 334
Joined: Thu Jul 16, 2015 9:36 am

### Re: Parents with pre-K kids and 529 target

My 529 goal is to be able to fund 2 years of the cost of in-state attendance at a good state school. I consider that to be the upper end of what to put in a 529. I'm more concerned about over-funding a 529 than under-funding it.

I think cash-flowing or taxable accounts for education is fine too. The benefit of tax-free growth is nice and, depending on the state, there are some reasonable tax advantages. But that's balanced by the restrictions on the use of the money and the uncertainty of whether my kids will even go to college or have to pay for it if they do.

This, of course, is only after full funding retirement accounts.

And I see two paths to funding the 529: front load it all today, or front load the year's contributions on Jan 1 each year. Which one you choose depends on the state tax deduction.
novemberrain
Posts: 619
Joined: Wed May 09, 2018 12:26 pm

### Re: Parents with pre-K kids and 529 target

Nice!
Last edited by novemberrain on Fri Dec 18, 2020 12:44 am, edited 1 time in total.
novemberrain
Posts: 619
Joined: Wed May 09, 2018 12:26 pm

### Re: Parents with pre-K kids and 529 target

Nice!
Last edited by novemberrain on Sat Dec 19, 2020 11:12 am, edited 1 time in total.
sailaway
Posts: 2530
Joined: Fri May 12, 2017 1:11 pm

### Re: Parents with pre-K kids and 529 target

novemberrain wrote: Wed May 23, 2018 9:58 pm
sailaway wrote: Wed May 23, 2018 3:50 pm

One brother was a computer science major, the other a chemistry major. Mom admitted, while I was still in grad school, that even with my humanities degree and this silly grad school thing, I was more financially stable than either of them.
The fact that your mom predicted that even before you guys started working indicates it was the person doing these majors rather than the major itself that was the determinant of the outcome.
You misunderstood the timing. Even though they had already been working in their major fields for years, I was handling my finances better as a humanities grad student than they were as professionals who had respected majors.

And yet, my whole point was indeed that the person is more important than the major and I would not be the person I am today if I had not chosen to completely remove myself from family pressures to follow a "real" major and from sibling rivalry. Let your kids chose their own dang majors.
HereToLearn
Posts: 686
Joined: Sat Mar 17, 2018 5:53 pm

### Re: Parents with pre-K kids and 529 target

In response to a couple of the questions....

Some students apply to college as a specific major or to a college within a university. This varies widely by type of school. More likely in pre-professional programs and at many state universities. It is almost impossible to graduate as an Engineer in four years unless the student starts in Engineering as a freshman. Same with nursing.

Anyone who has looked at the state system in California may have heard the term 'impacted major'. Some majors have enrollment caps because the demand is greater than the # of seats for that major. (Computer Science as an example.) Liberal Arts colleges almost never require students to declare a major before enrolling.

About students having some skin in the game....a student can only borrow \$5500 his first year, \$6000 his second year, and then increasing by \$500 each year. \$5500 will only make a dent in room & board costs. Any loan amounts in excess of these student limits are taken out by the parents.

And for the NYS resident referencing the cost of Cornell--as a NYS resident, you can discount that cost if your child attends one of the three 'contract' colleges at the university. Presently the difference is \$18K/year for NYS residents attending a contract college.
MrBeaver
Posts: 366
Joined: Tue Nov 14, 2017 4:45 pm

### Re: Parents with pre-K kids and 529 target

We have two 1 year olds.

Our goals:
• Cashflow enough from income/taxable to capture all likely tax credits, likely somewhere between \$2500-10k per year. (taxable act with -tax drag and +tax credit at end is better than no tax drag and no credit)
• Cover 25-50% of expected room/board/tuition with 529/ESA, but not more than 50% so it will most likely be used up. Unused funds will go to graduate school or grandkids.
To fulfil that, we did 8k lump for each at birth, and are doing 2.5k each per year (2k in ESA, 500 in 529). I’m less aggressive than some in 529s because we get no state deduction and are on the border of still being in 0% Qualified Dividend rate, though that is (hopefully) unlikely to continue through until they are in school. We are hen trying to put enough away in taxable for flexibility.

If the balance is on track to cover more than 50% of tuition, room, and board, then we will likely continue contributing but start spending out of the ESA for qualified costs during primary/secondary school (family computing equipment, internet service, etc.)

In general, I’m more concerned with retaining flexibility than with not having enough saved. There are a lot of variables that I’ll have a better handle on by the time they are 4-8 years from college (costs, scholarship likelihood, legislation, income, college choice, etc.).

I also favor taxable over 529 because I want to have cash I can invest in learning opportunities before college (tutoring, camps, music lessons, etc.). I don’t want to starve their thirst for learning under the auspices that I need to provide for their growth later in college.
growingup
Posts: 22
Joined: Thu Aug 06, 2015 6:21 am

### Re: Parents with pre-K kids and 529 target

I'm targeting 75% of in-state tuition, room & board by the time they are 18.
novemberrain
Posts: 619
Joined: Wed May 09, 2018 12:26 pm

### Re: Parents with pre-K kids and 529 target

Nice!
Last edited by novemberrain on Sat Dec 19, 2020 11:11 am, edited 1 time in total.
mike_in_ny
Posts: 42
Joined: Sat Dec 23, 2017 9:48 am

### Re: Parents with pre-K kids and 529 target

I'm on the back half of this decision now, with kids in 7th, 8th, and 12th grade, and struggled with the similar questions. I don't have an answer, but some thoughts that may help.

As background, between the 3 kids, I have about \$500k in their 529s, more than half of which is growth. I view this as about \$50k of savings in taxes (20% of \$250k). I basically front loaded it and stopped contributing at some point. Thank you bull market! My oldest is going to a private school to study engineering with a sizeable merit award (~60% tuition).

My thoughts:
1) The largest advantage is in the growth of the 529 and the lack of capital gains--so it really only makes sense to be aggressive. If you don't get any growth you can pull it out without penalty/cost. That said, I have a lot of gains and moved it to very conservative last October -- the thought being "once you've won the game, stop playing"

2) I had no idea how much college would cost for my HS senior until March as all her letters/award packages came in. Its the craziest large purchase I'll ever make (times 3!) I planned for somewhere between in-state and out of state public.

3) There is alot of merit aid out there, even for families that would not get need based. Its hard to justify full price at a private when others are giving sizeable discounts. A good reference is "college confidential" a free board where people discuss their acceptance/rejection and scholarships. I'd suggest looking at a few target schools -- you will usually see a link for "class of 2022"-- to get a better idea of merit.

Good luck!
keystone
Posts: 641
Joined: Tue Aug 28, 2012 12:34 pm

### Re: Parents with pre-K kids and 529 target

My ultimate 529 goal is to have enough to fund three years at our state school. My son is 4 now and we're at 25.5K which is enough to cover one year, I feel like we're on track. I plan to be retired well before my son starts school, so I imagine I won't be contributing anything to the account past age 9 or 10. Any shortfalls can be covered by my taxable or tax advantaged accounts.
alfaspider
Posts: 3181
Joined: Wed Sep 09, 2015 4:44 pm

### Re: Parents with pre-K kids and 529 target

novemberrain wrote: Thu May 24, 2018 1:20 am
alfaspider wrote: Wed May 23, 2018 3:24 pm
My not-quite 2yr old is coming up on \$100k
But I must ask, how did you achieve that without triggering gift taxes ?
My child was born in November. Each spouse made the exempt limit contribution for 2016, 2017, and 2018 for a total of \$86k invested (per-couple limit increased from 28 to 30 for 2018). However, you can make a lump sum contribution for the first five years, so it's actually possible to contribute \$150k at birth.
Rupert
Posts: 4122
Joined: Fri Aug 17, 2012 12:01 pm

### Re: Parents with pre-K kids and 529 target

alfaspider wrote: Thu May 24, 2018 8:13 am
novemberrain wrote: Thu May 24, 2018 1:20 am
alfaspider wrote: Wed May 23, 2018 3:24 pm
My not-quite 2yr old is coming up on \$100k
But I must ask, how did you achieve that without triggering gift taxes ?
My child was born in November. Each spouse made the exempt limit contribution for 2016, 2017, and 2018 for a total of \$86k invested (per-couple limit increased from 28 to 30 for 2018). However, you can make a lump sum contribution for the first five years, so it's actually possible to contribute \$150k at birth.
Just to add to alfaspider's answer: You don't actually pay gift tax unless you exceed the lifetime exemption. You do have to file a gift tax return if you exceed the annual exemption.
alfaspider
Posts: 3181
Joined: Wed Sep 09, 2015 4:44 pm

### Re: Parents with pre-K kids and 529 target

Rupert wrote: Thu May 24, 2018 9:15 am
alfaspider wrote: Thu May 24, 2018 8:13 am
novemberrain wrote: Thu May 24, 2018 1:20 am
alfaspider wrote: Wed May 23, 2018 3:24 pm
My not-quite 2yr old is coming up on \$100k
But I must ask, how did you achieve that without triggering gift taxes ?
My child was born in November. Each spouse made the exempt limit contribution for 2016, 2017, and 2018 for a total of \$86k invested (per-couple limit increased from 28 to 30 for 2018). However, you can make a lump sum contribution for the first five years, so it's actually possible to contribute \$150k at birth.
Just to add to alfaspider's answer: You don't actually pay gift tax unless you exceed the lifetime exemption. You do have to file a gift tax return if you exceed the annual exemption.
Yes. I should have mentioned that as well.
bligh
Posts: 1347
Joined: Wed Jul 27, 2016 9:13 pm

### Re: Parents with pre-K kids and 529 target

I am curious, do you guys consider your 529 balance as a ratio of your net worth? There was a thread (more than a year ago I think) where Klangfool (I think it was him) had asked a question of a poster "How much of your net worth are you willing to spend to get your kids through college?" I am paraphrasing of course.

I thought this made a sound point and so I have intentionally limited my 529 plan balances to not go above (at least via contributions) a certain percentage of my total portfolio. Do other people consider this at all?
marcopolo
Posts: 3869
Joined: Sat Dec 03, 2016 10:22 am

### Re: Parents with pre-K kids and 529 target

bligh wrote: Thu May 24, 2018 11:42 am I am curious, do you guys consider your 529 balance as a ratio of your net worth? There was a thread (more than a year ago I think) where Klangfool (I think it was him) had asked a question of a poster "How much of your net worth are you willing to spend to get your kids through college?" I am paraphrasing of course.

I thought this made a sound point and so I have intentionally limited my 529 plan balances to not go above (at least via contributions) a certain percentage of my total portfolio. Do other people consider this at all?
I did not strictly set a percentile, but sure in the back of mind i kept sight of the idea that retirement needs to come first, so the 529s would need to be a relatively small fraction of both annual contributions, as well as of the overall portfolio. I could have front loaded it (gaining most tax-free growth), but did not do that just for this reason.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Rupert
Posts: 4122
Joined: Fri Aug 17, 2012 12:01 pm

### Re: Parents with pre-K kids and 529 target

bligh wrote: Thu May 24, 2018 11:42 am I am curious, do you guys consider your 529 balance as a ratio of your net worth? There was a thread (more than a year ago I think) where Klangfool (I think it was him) had asked a question of a poster "How much of your net worth are you willing to spend to get your kids through college?" I am paraphrasing of course.

I thought this made a sound point and so I have intentionally limited my 529 plan balances to not go above (at least via contributions) a certain percentage of my total portfolio. Do other people consider this at all?
No. "Net worth," to me, is a meaningless number I have little control over. It is comprised of a lot of hypotheticals (e.g., how much is my home equity worth?) and changes daily based on fluctuating market conditions. College, on the other hand, is going to cost what it's going to cost. If my goal is to pay for it (or to pay for half of it or whatever), then the percentage of my net worth that the cost of college (or my college savings) represents is irrelevant to me. (But note that I wouldn't save for college at all unless my other important savings goals, especially retirement, were met first. I think of these goals as buckets with different time horizons and thus different asset allocations. I never think of them in terms of percentage of net worth.)
novemberrain
Posts: 619
Joined: Wed May 09, 2018 12:26 pm

### Re: Parents with pre-K kids and 529 target

Nice!
Last edited by novemberrain on Sat Dec 19, 2020 11:11 am, edited 1 time in total.
novemberrain
Posts: 619
Joined: Wed May 09, 2018 12:26 pm

### Re: Parents with pre-K kids and 529 target

Nice!
Last edited by novemberrain on Sat Dec 19, 2020 11:12 am, edited 1 time in total.
staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 9:40 am

### Re: Parents with pre-K kids and 529 target

Everyone is different and factors like: How much do you have to save per year AFTER retirement accounts, how many kids, are you trying to cover grad. school as well, your asset allocation within the 529 plan, will you be okay having leftover money in the accounts after it is all said and done, how confident are you that you can cash flow part of it at the time, are you okay with student loans, the cost of the expected schools, etc... all help come to some vague answer.

Our story: We save plenty after retirement savings to max both mom and dad annual gift tax exemption for each kid 529 plan, we are good with paying for grad school, and we are good with leftover money as I LOVE the 529 as a poor man's educational trust. So all said and done we were maxing out 28k per kid/ year BEFORE they were born. We stopped for the first as it will get us around 75% of the expected costs if it doubles in 10 years. The second kid I will continue until we get to the same level then wait for doubling. If it doesn't then I will pay from cash flow.

As you can tell it is not an easy question to answer and everyone has to do what they feel comfortable and able to financially.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
gluskap
Posts: 83
Joined: Mon Nov 13, 2017 2:07 pm

### Re: Parents with pre-K kids and 529 target

My plan is to cover just tuition and fees for 4 years at an in-state college. I use the Scholarshare529.com website to see what the cost will be when my currently 4 year old daughter will go to college. Tuition right now is at \$13,260/year for UCLA which is our alma mater. When my daughter is 18 using a projected 5% cost of inflation for college costs we will need \$113k. So roughly when we save about \$100k we'll probably stop contributing. She can always live at home if she goes to UCLA so that's why I'm not counting room and board costs. I'm more worried about overfunding than underfunding as we can always cash flow or pull from taxable if we need to. If for some reason she gets a scholarship or say decides to go to community college then transfer then extra money can go towards grad school or saved for grandkids. So I think this is a reasonable amount to save.
dogagility
Posts: 1292
Joined: Fri Feb 24, 2017 6:41 am

### Re: Parents with pre-K kids and 529 target

mike_in_ny wrote: Thu May 24, 2018 1:45 am 2) I had no idea how much college would cost for my HS senior until March as all her letters/award packages came in. Its the craziest large purchase I'll ever make (times 3!)
I've been in a similar place with my kids now a freshman and a senior in college. For us, the total cost was really an unknown up until they each made a college decision in April of their HS senior year. This was because they each had in state flagship and private colleges of various costs still on the table. At the low end was state flagship with a cost of about \$120K and at the high end private college at about \$160K. The decision where to attend was a discussion between us and the kids factoring in all kinds of variables, including the cost of attendance. However, I was grateful that our kids had a choice... that's really what I wanted to give our kids with our savings plan... a choice for where to attend.
mike_in_ny wrote: Thu May 24, 2018 1:45 am 3) There is alot of merit aid out there, even for families that would not get need based. Its hard to justify full price at a private when others are giving sizeable discounts. A good reference is "college confidential" a free board where people discuss their acceptance/rejection and scholarships.
RE: merit aid. How much is "out there" really depends upon the selectivity and popularity of a college. Merit aid is a marketing tool to attract top students to a college. Ivy League-caliber colleges give out very little merit aid. They don't have to because the demand far outweighs the supply.
Lower tier private colleges give out merit aid like candy, and the sticker price is only that... a sticker price that hardly anyone actually pays. Each college has a net price calculator; plug some numbers in to get an estimate.

Agree college confidential is a great site and addictive when your kids are in HS!
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife