Help With 529 Plan

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Travis1
Posts: 49
Joined: Sun Jul 19, 2015 11:37 pm

Help With 529 Plan

Post by Travis1 » Sat Aug 18, 2018 5:47 am

Greetings All,

I am looking to start a 529 for my daughter and had a few questions. I'm not going to use the regular question format because I don't believe it applies, and I hope that is okay. Any and all information would be very, very much appreciated. Questions are below:

1. Would you recommend Vanguard as the company of choice to start a 529?
2. In my research I noticed a lot of discussion about state plans. I currently live in D.C., doubt we will be here long term, and don't know where we will end up. Would we need to sign up through a state plan? Should we sign up through a state plan?
3. Her grandparents have already set up a 529 plan for her, and I see that the maximum one can apply toward costs is currently $10,000 per year (do I have that right?). Can she simultaneously draw off of two 529 plans? If so, could she withdraw more than the $10,000 per year limit if using both plans?
4. If I were to have more children, should I open separate plans for them?


As I said, I very much appreciate the advice and information available here. You all do a great service, and thanks in advance for any help!

DarkHelmetII
Posts: 153
Joined: Mon Jul 24, 2017 12:25 pm

Re: Help With 529 Plan

Post by DarkHelmetII » Sat Aug 18, 2018 6:05 am

1)) Generally, yes Vanguard is good. But see #2.

2) DC has "state" tax deduction IF you us DC College Savings Plan. Please do the due diligence yourself confirming the fine print etc... but my understanding is that after two years from starting your plan, you can then move money into another state's plan that is more / cheaper investment options (DC is not horrible but there are better options in my view) avoiding claw back of the DC level tax benefit.

3) I myself am still a little lost on limits etc.. so won't answer this.

4) Welcome others' input but I personally don't think this makes a big difference. You can always add / remove beneficiaries as you have more children. Those are changes you can make years down the road. Focus on changes that, if not made today, will impact your finances down the road - namely the state level tax breaks and investment expenses / options. To my understanding DC state tax deduction is $4,000 per spouse (if married filing separately) and $8,000 if married filing jointly ... so the bigger question is how many account owners you have rather than beneficiaries.

informal guide
Posts: 200
Joined: Mon Aug 29, 2016 10:26 am

Re: Help With 529 Plan

Post by informal guide » Sat Aug 18, 2018 8:54 am

Further to #4:

It is generally better to open separate accounts for each child. First, many 529 investors use age-based investments -- if you do, you want the appropriate investment mix for each child's funds. Second, and more importantly, when you get to withdrawal time, you need to associate the withdrawal with a person for tax reporting purposes. The good news is that few 529 plan providers have low balance or account opening charges, so that second account doesn't add extra costs.

Spirit Rider
Posts: 8872
Joined: Fri Mar 02, 2007 2:39 pm

Re: Help With 529 Plan

Post by Spirit Rider » Sat Aug 18, 2018 9:41 am

The $10K/year withdrawal limit only applies to distributions for K-12 qualified educational expenses.

There is no dollar limit on 529 plan distributions for college. Distributions are tax-free if made for qualified educational expenses.

There is also a very large 529 balance limit on contributions. This is $300K - $500K depending on the state 529 plan. This could be a possible reason for separate 529 plans for each child.

529 plan contributions are considered completed gifts to the beneficiary. There is a gift tax annual exclusion (2018 = $15K) and a special 529 five-year exclusion (2018 = $75K). Note: these exclusions are per donor per donee (529 plan beneficiary). That is another reason for separate 529 plans for each child

You can contribute more than this by filing form 709 and applying any excess against your lifetime gift/estate tax exclusion (2018 ~= $11.2M. There is no actual tax until the lifetime exclusion is exceeded.

Without going into the details. If there is possible eligibility for financial aid. It is best to have roughly 1/2 in a parental owned 529 plan and 1/2 in a grandparent owned 529 plan. Then the parent's 529 plan is used for everything but the last 2 1/2 years and the grandparent's 529 plan is used for the last 2 1/2 years.

DarkHelmetII
Posts: 153
Joined: Mon Jul 24, 2017 12:25 pm

Re: Help With 529 Plan

Post by DarkHelmetII » Sat Aug 18, 2018 6:18 pm

Spirit Rider wrote:
Sat Aug 18, 2018 9:41 am
Without going into the details. If there is possible eligibility for financial aid. It is best to have roughly 1/2 in a parental owned 529 plan and 1/2 in a grandparent owned 529 plan. Then the parent's 529 plan is used for everything but the last 2 1/2 years and the grandparent's 529 plan is used for the last 2 1/2 years.
Can you elaborate? I just don't understand this.

Grt2bOutdoors
Posts: 19293
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Help With 529 Plan

Post by Grt2bOutdoors » Sat Aug 18, 2018 6:56 pm

DarkHelmetII wrote:
Sat Aug 18, 2018 6:18 pm
Spirit Rider wrote:
Sat Aug 18, 2018 9:41 am
Without going into the details. If there is possible eligibility for financial aid. It is best to have roughly 1/2 in a parental owned 529 plan and 1/2 in a grandparent owned 529 plan. Then the parent's 529 plan is used for everything but the last 2 1/2 years and the grandparent's 529 plan is used for the last 2 1/2 years.
Can you elaborate? I just don't understand this.
When you apply for financial aid, the child must state their income including gifts received. The amount of income is considered in the calculation of financial aid. The look back period is 2 years. But by junior year, any monies received by grandparents will not be considered in calculating income for child, thereby reducing chance of negatively impacting your financial aid.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

workerbeeengineer
Posts: 110
Joined: Thu Jun 02, 2016 12:22 am

Re: Help With 529 Plan

Post by workerbeeengineer » Sat Aug 18, 2018 7:16 pm

We've been happy with Vanguard for our 529. We reside in California, but are using the Vanguard 529 plan sponsored or offered by Nevada. Good choice of investment options. We went more conservative as our child approached 18 years old. By start of senior year in high school, all the money was in the Vanguard Interest Accumulation Fund. She has just started at one of the University of California campuses. We set up the 529 withdrawals to transfer electronically into our (the parent's) checking account. Couple of small withdrawals so far, with glitch-free transfers. Hope it stays that way! Best of luck!

HEDGEFUNDIE
Posts: 980
Joined: Sun Oct 22, 2017 2:06 pm

Re: Help With 529 Plan

Post by HEDGEFUNDIE » Sat Aug 18, 2018 7:37 pm

Do the DC plan. The upfront income tax deduction you will get far outweighs any differences in fund providers or lower expense ratios that other states might offer.

Once you stop contributing (or move out of DC), you can rollover the plan to any other state’s 529 at no cost.

Spirit Rider
Posts: 8872
Joined: Fri Mar 02, 2007 2:39 pm

Re: Help With 529 Plan

Post by Spirit Rider » Sat Aug 18, 2018 9:59 pm

Grt2bOutdoors wrote:
Sat Aug 18, 2018 6:56 pm
DarkHelmetII wrote:
Sat Aug 18, 2018 6:18 pm
Spirit Rider wrote:
Sat Aug 18, 2018 9:41 am
Without going into the details. If there is possible eligibility for financial aid. It is best to have roughly 1/2 in a parental owned 529 plan and 1/2 in a grandparent owned 529 plan. Then the parent's 529 plan is used for everything but the last 2 1/2 years and the grandparent's 529 plan is used for the last 2 1/2 years.
Can you elaborate? I just don't understand this.
When you apply for financial aid, the child must state their income including gifts received. The amount of income is considered in the calculation of financial aid. The look back period is 2 years. But by junior year, any monies received by grandparents will not be considered in calculating income for child, thereby reducing chance of negatively impacting your financial aid.
To expound on what @Grt2bOutdoors stated.

A parental or student owned 529 plan is considered a parental asset. It is assessed at a maximum rate of 5.64% for the FAFSA EFC with distributions exempt from income assessment.

A third party (grandparent, etc...) owned 529 is exempt from asset assessment, but distributions are treated as untaxed income to the student assessed at a maximum rate of 50% for the FAFSA EFC.

Starting with the 2017/18 school year. FAFSA uses the prior prior year for assessments.

Travis1
Posts: 49
Joined: Sun Jul 19, 2015 11:37 pm

Re: Help With 529 Plan

Post by Travis1 » Sun Aug 19, 2018 3:00 pm

DarkHelmetII wrote:
Sat Aug 18, 2018 6:05 am
1)) Generally, yes Vanguard is good. But see #2.

2) DC has "state" tax deduction IF you us DC College Savings Plan. Please do the due diligence yourself confirming the fine print etc... but my understanding is that after two years from starting your plan, you can then move money into another state's plan that is more / cheaper investment options (DC is not horrible but there are better options in my view) avoiding claw back of the DC level tax benefit.

3) I myself am still a little lost on limits etc.. so won't answer this.

4) Welcome others' input but I personally don't think this makes a big difference. You can always add / remove beneficiaries as you have more children. Those are changes you can make years down the road. Focus on changes that, if not made today, will impact your finances down the road - namely the state level tax breaks and investment expenses / options. To my understanding DC state tax deduction is $4,000 per spouse (if married filing separately) and $8,000 if married filing jointly ... so the bigger question is how many account owners you have rather than beneficiaries.
Thanks a lot for the information, and thanks very much to everyone who responded. I really do appreciate it.

One question regarding #2 - do I have to roll it over to another state plan, and if so do I have to live in that state? Or is it possible to start with the DC plan and roll it over to Vanguard from there?

Thanks again!

HereToLearn
Posts: 198
Joined: Sat Mar 17, 2018 5:53 pm

Re: Help With 529 Plan

Post by HereToLearn » Sun Aug 19, 2018 3:03 pm

"so the bigger question is how many account owners you have rather than beneficiaries."

I didn't think you could have two owners on the same 529 account. However, I thought that a couple could still take the $30K federal deduction when contributing to a 529 account owned by one person FBO the student. I may be wrong....

Broken Man 1999
Posts: 1513
Joined: Wed Apr 08, 2015 11:31 am

Re: Help With 529 Plan

Post by Broken Man 1999 » Sun Aug 19, 2018 4:29 pm

HereToLearn wrote:
Sun Aug 19, 2018 3:03 pm
"so the bigger question is how many account owners you have rather than beneficiaries."

I didn't think you could have two owners on the same 529 account. However, I thought that a couple could still take the $30K federal deduction when contributing to a 529 account owned by one person FBO the student. I may be wrong....



Could you please elaborate on your statement I bolded, please?

I know that some states allow 529 contributions to reduce state taxes, but I am not aware of Federal deductions for 529 contributions.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

HereToLearn
Posts: 198
Joined: Sat Mar 17, 2018 5:53 pm

Re: Help With 529 Plan

Post by HereToLearn » Sun Aug 19, 2018 5:14 pm

Broken Man 1999 wrote:
Sun Aug 19, 2018 4:29 pm
HereToLearn wrote:
Sun Aug 19, 2018 3:03 pm
"so the bigger question is how many account owners you have rather than beneficiaries."

I didn't think you could have two owners on the same 529 account. However, I thought that a couple could still take the $30K federal deduction when contributing to a 529 account owned by one person FBO the student. I may be wrong....



Could you please elaborate on your statement I bolded, please?

I know that some states allow 529 contributions to reduce state taxes, but I am not aware of Federal deductions for 529 contributions.

Broken Man 1999
@Broken Man---SO sorry! Complete disaster there. What I should have said is:

Each spouse is allowed to contribute $15K per child per year w/o triggering the gift tax threshold, or having to fill out Form 709 to allow for the five year catch-up contribution. NOT federal deduction, as I said above.

The point I was trying to make (and missed) was that AFAIK, a couple can contribute $30K to one child one year, but that the account can only have one owner. Of course, I have zero credibility now!

Broken Man 1999
Posts: 1513
Joined: Wed Apr 08, 2015 11:31 am

Re: Help With 529 Plan

Post by Broken Man 1999 » Sun Aug 19, 2018 6:51 pm

HereToLearn wrote:
Sun Aug 19, 2018 5:14 pm
Broken Man 1999 wrote:
Sun Aug 19, 2018 4:29 pm
HereToLearn wrote:
Sun Aug 19, 2018 3:03 pm
"so the bigger question is how many account owners you have rather than beneficiaries."

I didn't think you could have two owners on the same 529 account. However, I thought that a couple could still take the $30K federal deduction when contributing to a 529 account owned by one person FBO the student. I may be wrong....



Could you please elaborate on your statement I bolded, please?

I know that some states allow 529 contributions to reduce state taxes, but I am not aware of Federal deductions for 529 contributions.

Broken Man 1999
@Broken Man---SO sorry! Complete disaster there. What I should have said is:

Each spouse is allowed to contribute $15K per child per year w/o triggering the gift tax threshold, or having to fill out Form 709 to allow for the five year catch-up contribution. NOT federal deduction, as I said above.

The point I was trying to make (and missed) was that AFAIK, a couple can contribute $30K to one child one year, but that the account can only have one owner. Of course, I have zero credibility now!
Whew! Had me wondering for a minute!

No worries, I haven't funded the grandkids 529 plans that much anyway. They certainly won't be funded at $15K to $30K a year/per grandchild.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

passiveTiger
Posts: 73
Joined: Tue Apr 17, 2018 9:22 pm

Re: Help With 529 Plan

Post by passiveTiger » Sun Aug 19, 2018 9:37 pm

Travis1 wrote:
Sat Aug 18, 2018 5:47 am
Greetings All,

I am looking to start a 529 for my daughter and had a few questions. I'm not going to use the regular question format because I don't believe it applies, and I hope that is okay. Any and all information would be very, very much appreciated. Questions are below:

1. Would you recommend Vanguard as the company of choice to start a 529?
2. In my research I noticed a lot of discussion about state plans. I currently live in D.C., doubt we will be here long term, and don't know where we will end up. Would we need to sign up through a state plan? Should we sign up through a state plan?
3. Her grandparents have already set up a 529 plan for her, and I see that the maximum one can apply toward costs is currently $10,000 per year (do I have that right?). Can she simultaneously draw off of two 529 plans? If so, could she withdraw more than the $10,000 per year limit if using both plans?
4. If I were to have more children, should I open separate plans for them?

As I said, I very much appreciate the advice and information available here. You all do a great service, and thanks in advance for any help!
1. Vanguard funds are a component of several state 529 plans. Nevada's plan (AKA "The Vanguard 529 Plan") is not the only one. For example, the NY 529 direct plan is composed entirely of Vanguard funds with a flat 0.15% ER (https://www.nysaves.org/home/which-inve ... olios.html).

2. Use the plan that provides you the best overall value for your tax situation. If state income tax is not a factor in the future, NY and Utah are among the best. The NY plan is probably the lowest fixed ER plan but not a lot of fund choices. The Utah plan has a good mix of low cost and fund choice.

3. The gift exclusion limit for you is $15,000 and $15,000 for your spouse. You can each do the five-year front-loading option and contribute $75,000 each. The $10,000 tax-free withdrawal limit is for K-12 tuition and fees. There is a wide range of expenses that qualify for college and university expenses - e.g., books, supplies, computers and peripherals, internet and related services, and room and board.

4. Yes. You could also open one for yourself, fund it, and then change the beneficiary to an unborn child after it is born. Keep in mind limits, etc. for whether a beneficiary change or transfer will be applicable.

Broken Man 1999
Posts: 1513
Joined: Wed Apr 08, 2015 11:31 am

Re: Help With 529 Plan

Post by Broken Man 1999 » Mon Aug 20, 2018 8:30 am

One thing I like about the Vanguard 529 Plan is it can be listed in the account sections of your overall Vanguard account. Very easy to set up automatic contributions. Easy to make changes.

Originally I funded my grandchildren's 529 plan via Florida's 529 plan. As each grandchild's balance reached $3000+, I transferred them to Vanguard. All four 529 plans are at Vanguard now.

The Vanguard 529 Plan ER isn't the absolute lowest, but it beats my state's 529 plan handily.

In retirement, I am valuing simplicity more and more. A wee bit of savings is no longer adequate to entice me to have multiple accounts scattered over several investment entities. Been there, done that, not interested at this time.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

jj45
Posts: 24
Joined: Tue Jan 02, 2018 4:02 pm

Re: Help With 529 Plan

Post by jj45 » Mon Aug 20, 2018 10:19 am

Spirit Rider wrote:
Sat Aug 18, 2018 9:59 pm
Starting with the 2017/18 school year. FAFSA uses the prior prior year for assessments.
The private schools that give the most need-based aid use the CSS-Profile in addition to FAFSA. CSS-Profile does use the prior-prior year as the year they require tax returns, they made the switch the same time FAFSA did. But the form asks you to include prior year income and current year income as well. I have not heard anything about how they use this information. Each school gets to do whatever they want. I don't think there is any guarantee that distributions and other changes in income in prior and current years won't impact financial aid. It would be interesting to learn more.

Travis1
Posts: 49
Joined: Sun Jul 19, 2015 11:37 pm

Re: Help With 529 Plan

Post by Travis1 » Wed Oct 24, 2018 6:56 pm

Once again I'd like to thank everyone for their contributions to this thread. I got distracted for a bit but am following up now.

The information was very much appreciated!

mervinj7
Posts: 669
Joined: Thu Mar 27, 2014 3:10 pm

Re: Help With 529 Plan

Post by mervinj7 » Wed Oct 24, 2018 10:29 pm

Travis1 wrote:
Wed Oct 24, 2018 6:56 pm
Once again I'd like to thank everyone for their contributions to this thread. I got distracted for a bit but am following up now.

The information was very much appreciated!
Did you decide on the DC plan in order to take advantage of the tax benefits? Seems like the obvious choice to me.

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