alternatives to 529 plans

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gram
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alternatives to 529 plans

Post by gram » Mon May 06, 2019 11:39 am

Given no tax benefits to California residents, what other 529 alternatives exist:
just invest in target retirement fund but adjust the target date to education needs.
invest in lazy portfolio.
...

At least for the 2 alternatives above, there are no bells and whistles unlike in 529 plans.

H-Town
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Re: alternatives to 529 plans

Post by H-Town » Mon May 06, 2019 11:41 am

gram wrote:
Mon May 06, 2019 11:39 am
Given no tax benefits to California residents, what other 529 alternatives exist:
just invest in target retirement fund but adjust the target date to education needs.
invest in lazy portfolio.
...

At least for the 2 alternatives above, there are no bells and whistles unlike in 529 plans.
Best alternative: teach your kids to work and pay for their college. 2 year community college + 2 year major.

RNJ
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Re: alternatives to 529 plans

Post by RNJ » Mon May 06, 2019 11:44 am

What about the federal taxes on income and the cap gains taxes upon liquidation?

Grt2bOutdoors
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Re: alternatives to 529 plans

Post by Grt2bOutdoors » Mon May 06, 2019 11:46 am

gram wrote:
Mon May 06, 2019 11:39 am
Given no tax benefits to California residents, what other 529 alternatives exist:
just invest in target retirement fund but adjust the target date to education needs.
invest in lazy portfolio.
...

At least for the 2 alternatives above, there are no bells and whistles unlike in 529 plans.
Just to clear up any misconceptions, while certain states may choose not to offer a tax deduction or credit on your in-resident state tax return, the federal government does provide a substantial tax benefit in the form of tax free capital appreciation of 529 plans. Any state sponsored 529 plan which accumulates a value greater than that of the actual contributed amounts and is used for qualified educational expenses is tax free upon withdrawal. Other saving vehicles exist, however none offer tax free withdrawals of capital gains when used for qualified educational expenses.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
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Re: alternatives to 529 plans

Post by Grt2bOutdoors » Mon May 06, 2019 11:47 am

H-Town wrote:
Mon May 06, 2019 11:41 am
gram wrote:
Mon May 06, 2019 11:39 am
Given no tax benefits to California residents, what other 529 alternatives exist:
just invest in target retirement fund but adjust the target date to education needs.
invest in lazy portfolio.
...

At least for the 2 alternatives above, there are no bells and whistles unlike in 529 plans.
Best alternative: teach your kids to work and pay for their college. 2 year community college + 2 year major.
Tell us in more detail how that is a qualified savings alternative.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

MichCPA
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Re: alternatives to 529 plans

Post by MichCPA » Mon May 06, 2019 11:51 am

RNJ wrote:
Mon May 06, 2019 11:44 am
What about the federal taxes on income and the cap gains taxes upon liquidation?
+1, Take the federal deduction, but, if you don't have preferential state treatment, research all of the state 529s and choose the best one. You don't need to be a resident of a state to use its 529 plan.

mervinj7
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Re: alternatives to 529 plans

Post by mervinj7 » Mon May 06, 2019 11:58 am

gram wrote:
Mon May 06, 2019 11:39 am
Given no tax benefits to California residents, what other 529 alternatives exist:
just invest in target retirement fund but adjust the target date to education needs.
invest in lazy portfolio.
...

At least for the 2 alternatives above, there are no bells and whistles unlike in 529 plans.
There are many of us who live in CA and still invest in 529 plans due to the federal tax benefits. In fact, CA's own 529 plan has some of the lowest fee options available in the country.

MichCPA
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Re: alternatives to 529 plans

Post by MichCPA » Mon May 06, 2019 12:00 pm

Grt2bOutdoors wrote:
Mon May 06, 2019 11:47 am
H-Town wrote:
Mon May 06, 2019 11:41 am
gram wrote:
Mon May 06, 2019 11:39 am
Given no tax benefits to California residents, what other 529 alternatives exist:
just invest in target retirement fund but adjust the target date to education needs.
invest in lazy portfolio.
...

At least for the 2 alternatives above, there are no bells and whistles unlike in 529 plans.
Best alternative: teach your kids to work and pay for their college. 2 year community college + 2 year major.
Tell us in more detail how that is a qualified savings alternative.
Use the Dave Ramsey plan: Take 5 years off and work as a minimum wage cashier to avoid taking out a 5% loan instead of doubling you income by getting a degree and actually having a path to salary growth.

**End sarcasm**

Students should work during college, but anything over 20 per week hurts academic performance according to most studies. That might give a person some living money, but it won't pay for tuition. 529s are great, also be sure to spend 40 hours per year looking for scholarships. It will be time well spent. Also, take summer classes at community/junior college to get done in 3.5 years. Not only is it cheaper, you can start making more money faster.

david
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Re: alternatives to 529 plans

Post by david » Mon May 06, 2019 3:43 pm

mervinj7 wrote:
Mon May 06, 2019 11:58 am
gram wrote:
Mon May 06, 2019 11:39 am
Given no tax benefits to California residents, what other 529 alternatives exist:
just invest in target retirement fund but adjust the target date to education needs.
invest in lazy portfolio.
...

At least for the 2 alternatives above, there are no bells and whistles unlike in 529 plans.
There are many of us who live in CA and still invest in 529 plans due to the federal tax benefits. In fact, CA's own 529 plan has some of the lowest fee options available in the country.
Seconding this. After a whole lot of research, I went with CA's plan as it had the lowest fees, though not through vanguard or fidelity so no account integration.)

DaftInvestor
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Re: alternatives to 529 plans

Post by DaftInvestor » Mon May 06, 2019 6:23 pm

20+ years of tax free growth - use a 529

RNJ
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Re: alternatives to 529 plans

Post by RNJ » Mon May 06, 2019 7:13 pm

DaftInvestor wrote:
Mon May 06, 2019 6:23 pm
20+ years of tax free growth - use a 529
^^^^This.

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welderwannabe
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Re: alternatives to 529 plans

Post by welderwannabe » Mon May 06, 2019 7:20 pm

Grt2bOutdoors wrote:
Mon May 06, 2019 11:46 am
Other saving vehicles exist, however none offer tax free withdrawals of capital gains when used for qualified educational expenses.
What about a coverdell?
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

fabdog
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Re: alternatives to 529 plans

Post by fabdog » Mon May 06, 2019 7:27 pm

Coverdell offers the tax free withdrawals, but has income limits to contribute, and a $2k/max contribution per year.

Once 529's came out, not much use for Coverdell

Mike

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gram
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Re: alternatives to 529 plans

Post by gram » Mon May 06, 2019 9:46 pm

As per this comparison, Nevada plan wins against California plan in terms fees & expenses:
https://vanguard.wealthmsi.com/comp529m ... 2&planid2=

Which seems obvious given NV plan offers Vanguard funds.

Topic Author
gram
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how much to invest in 529 plan

Post by gram » Mon May 06, 2019 9:47 pm

[Thread merged into here, see below. --admin LadyGeek]

Is lumpsum the better option or the DCA?

How would one decide how much to invest in 529?

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fortfun
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Re: how much to invest in 529 plan

Post by fortfun » Mon May 06, 2019 9:50 pm

Here's a good starting place. I'd start early and DCA. Make sure your retirement is taken care of first.
https://personal.vanguard.com/us/whatwe ... ls?lang=en

lightnoise
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Re: how much to invest in 529 plan

Post by lightnoise » Mon May 06, 2019 9:54 pm

I ran the vanguard college calculator for a 4 year private school education 15 years from now given the current college cost inflation rate and the number it spit out is 500k-600k for those 4 years. No way in hell will I get to that number in our 529 plan but I am aiming for 250k.

Cyanide123
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Re: how much to invest in 529 plan

Post by Cyanide123 » Mon May 06, 2019 10:08 pm

lightnoise wrote:
Mon May 06, 2019 9:54 pm
I ran the vanguard college calculator for a 4 year private school education 15 years from now given the current college cost inflation rate and the number it spit out is 500k-600k for those 4 years. No way in hell will I get to that number in our 529 plan but I am aiming for 250k.
I personally would be concerned about over saving and resulting penalties if I saved 500k. I feel there are high chances that not all that money will be used. 500k just for college? That's ridiculous. I went through med school and college in half of that in the last decade. I probably would shoot for 200-300k for my children. And I will expect them to have some shared responsibility and chipping in as much as they can towards their own education.

CascadiaSoonish
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Re: how much to invest in 529 plan

Post by CascadiaSoonish » Mon May 06, 2019 10:19 pm

We decided to contribute enough to get the annual state tax break but no more, so we're expecting to need to pull significantly from other sources when the college bills come due in another decade or so. Rationale for not supercharging the 529: I haven't been particularly impressed by the performance of the available funds, so my guesstimate is that I'm not giving up much in ~10 years in tax-free earnings compared to investing the funds in taxable brokerage instead. Would love for someone to point out any flaws in my thinking here, however.

inbox788
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Re: how much to invest in 529 plan

Post by inbox788 » Mon May 06, 2019 10:27 pm

Cyanide123 wrote:
Mon May 06, 2019 10:08 pm
lightnoise wrote:
Mon May 06, 2019 9:54 pm
I ran the vanguard college calculator for a 4 year private school education 15 years from now given the current college cost inflation rate and the number it spit out is 500k-600k for those 4 years. No way in hell will I get to that number in our 529 plan but I am aiming for 250k.
I personally would be concerned about over saving and resulting penalties if I saved 500k. I feel there are high chances that not all that money will be used. 500k just for college? That's ridiculous. I went through med school and college in half of that in the last decade. I probably would shoot for 200-300k for my children. And I will expect them to have some shared responsibility and chipping in as much as they can towards their own education.
That's a scary number and I won't get there either, but it's probably accurate. Given that tuition alone can be as high as $60k today, that's $240k for 4 years. And if you add about $30k for room, board, books, and fees, you're talking about $360k. In 15 years, depending on inflation, it could double, so $720k isn't out of the question.

https://en.m.wikipedia.org/wiki/Average ... y_Earnings
https://www.forbes.com/sites/camilomald ... han-wages/

Cyanide123
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Re: how much to invest in 529 plan

Post by Cyanide123 » Mon May 06, 2019 10:42 pm

inbox788 wrote:
Mon May 06, 2019 10:27 pm


That's a scary number and I won't get there either, but it's probably accurate. Given that tuition alone can be as high as $60k today, that's $240k for 4 years. And if you add about $30k for room, board, books, and fees, you're talking about $360k. In 15 years, depending on inflation, it could double, so $720k isn't out of the question.

https://en.m.wikipedia.org/wiki/Average ... y_Earnings
https://www.forbes.com/sites/camilomald ... han-wages/
Yes, I'm perfectly aware that costs can go that high. Like I said, I finished college and med school in the last decade. I have several friends with 400-500k educational debt right now. I personally have 200k.

Attending a NY school even today will land you 350-400k in the hole. But I just don't think I'll be giving my children so much money that they can blow it off like that. A lot of really good public schools don't cost an arm and a leg. All Texas State schools cost around 17-18k in tuition. Places like UT Austin are considered top notch schools. Maybe in 20 years those places will cost 30-40k. So 250k should be a solid amount for a solid education, if the kid is choosing to spend more, then they can take the responsibility of paying for it themselves. I personally went to a private elitist top 20 college, but I've paid everything except $5000 for my own education and living.

vrr106
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Re: how much to invest in 529 plan

Post by vrr106 » Tue May 07, 2019 12:11 pm

I used to DCA but I wish I did lump sums when my kids were younger.
Very hard to answer the "how much" question which I have asked before and resulted in a 643-post thread (viewtopic.php?f=2&t=271389&start=600)
I think there are so many variables here that it's impossible to predict - in-state Vs out of state/private, scholarships, grad school potential, etc etc.
I am shooting for $200K per kid by the time they are 12 or 13 and keeping my fingers crossed for 5 years

inbox788
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Re: how much to invest in 529 plan

Post by inbox788 » Tue May 07, 2019 3:13 pm

vrr106 wrote:
Tue May 07, 2019 12:11 pm
I used to DCA but I wish I did lump sums when my kids were younger.
Very hard to answer the "how much" question which I have asked before and resulted in a 643-post thread (viewtopic.php?f=2&t=271389&start=600)
I think there are so many variables here that it's impossible to predict - in-state Vs out of state/private, scholarships, grad school potential, etc etc.
I am shooting for $200K per kid by the time they are 12 or 13 and keeping my fingers crossed for 5 years
Don't worry about it. Most of us didn't have $140k cash sitting around when the kids were younger. It won't make all that much of a difference if you stay invested. It's only the tax benefit. It's easy to look back and say what you should have done, but looking forwards, there is a lot more anxiety and uncertainty. And 5 years is a short enough period that you don't know which will turn out better. In 2006 or 2007, lump sum would have been the loser, and from our current vantage, we just don't know. And it's one less thing to worry about at tax time.

What do I mean by stay invested? You're either investing in equities in 529 or in retirement funds or taxable. Sure, letting them sit in cash isn't going to compare to a 50% 5 year growth, but the difference between 529 and taxable is only your marginal tax bracket on that gain. If you invest in bonds, lower returning funds, retirement funds or the market performs poorly, the difference is far less. And if you have to pay taxes to invest in 529, it's like Roth conversion. Take everything into the picture and plan tax efficiently.

WhiteMaxima
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Re: how much to invest in 529 plan

Post by WhiteMaxima » Tue May 07, 2019 3:22 pm

4 year cost of public university, let's say 100k per kid.

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Cycle
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Re: how much to invest in 529 plan

Post by Cycle » Tue May 07, 2019 3:34 pm

I'm putting $120k in per child before age 1. I have no idea if that is too much or too little, but anything extra could be used for grandkids or perhaps donated.
Never look back unless you are planning to go that way

mervinj7
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Re: alternatives to 529 plans

Post by mervinj7 » Tue May 07, 2019 5:16 pm

gram wrote:
Mon May 06, 2019 9:46 pm
As per this comparison, Nevada plan wins against California plan in terms fees & expenses:
https://vanguard.wealthmsi.com/comp529m ... 2&planid2=

Which seems obvious given NV plan offers Vanguard funds.
Why should it be obvious that NV 529 would be lower fees? By your own link, the CA funds have options with lower expenses. I copied and pasted below.

THE VANGUARD 529 COLLEGE SAVINGS PLAN (NV)
Age-based options: 0.15%
Static/individual options: 0.15% - 0.44%

SCHOLARSHARE COLLEGE SAVINGS PLAN -- DIRECT PLAN (CA)
Age-based options: 0.11% - 0.56%
Static/individual options: 0.00% - 0.57%

For real examples, some commonly used CA 529 options here on BH are the Index U.S. Equity Investment Portfolio with an ER of 0.08%. As far as I know, there is no U.S. equity index fund in a 529 with lower fees.

986racer
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Re: alternatives to 529 plans

Post by 986racer » Tue May 07, 2019 11:42 pm

Invest in regular taxable accounts. Use the AOTC credit to offset the capital gains when you sell them.

If your income is too high for AOTC, gift the appreciated stocks to your child and let them sell the stocks and claim the AOTC (they will get taxed at kiddie tax rates)

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Re: alternatives to 529 plans

Post by Wiggums » Wed May 08, 2019 3:05 am

986racer wrote:
Tue May 07, 2019 11:42 pm
Invest in regular taxable accounts. Use the AOTC credit to offset the capital gains when you sell them.

If your income is too high for AOTC, gift the appreciated stocks to your child and let them sell the stocks and claim the AOTC (they will get taxed at kiddie tax rates)
That’s what we did. Not the most tax effective choice but it does have its benefits.
Last edited by Wiggums on Wed May 08, 2019 8:09 am, edited 1 time in total.

3funder
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Re: alternatives to 529 plans

Post by 3funder » Wed May 08, 2019 7:25 am

RNJ wrote:
Mon May 06, 2019 7:13 pm
DaftInvestor wrote:
Mon May 06, 2019 6:23 pm
20+ years of tax free growth - use a 529
^^^^This.
AND tax-free withdrawals on qualified educational expenses. Yes, a triple tax advantage is ideal; however, a double tax advantage is nothing to scoff at.

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Re: alternatives to 529 plans

Post by goodenyou » Wed May 08, 2019 7:58 am

I vote Utah 529. Working great for me. Low cost. Good interface. Easy.
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

Topic Author
gram
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Re: alternatives to 529 plans

Post by gram » Wed May 08, 2019 10:46 pm

mervinj7 wrote:
Tue May 07, 2019 5:16 pm
gram wrote:
Mon May 06, 2019 9:46 pm
As per this comparison, Nevada plan wins against California plan in terms fees & expenses:
https://vanguard.wealthmsi.com/comp529m ... 2&planid2=

Which seems obvious given NV plan offers Vanguard funds.
Why should it be obvious that NV 529 would be lower fees? By your own link, the CA funds have options with lower expenses. I copied and pasted below.

THE VANGUARD 529 COLLEGE SAVINGS PLAN (NV)
Age-based options: 0.15%
Static/individual options: 0.15% - 0.44%

SCHOLARSHARE COLLEGE SAVINGS PLAN -- DIRECT PLAN (CA)
Age-based options: 0.11% - 0.56%
Static/individual options: 0.00% - 0.57%

For real examples, some commonly used CA 529 options here on BH are the Index U.S. Equity Investment Portfolio with an ER of 0.08%. As far as I know, there is no U.S. equity index fund in a 529 with lower fees.
You are correct.
Just that CA plan has higher expense funds at the upper limit.

Obvious part was about Vanguard fund family offered in NV plan.
I didn't compare the quality of funds between the two.

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gram
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Re: alternatives to 529 plans

Post by gram » Wed May 08, 2019 11:23 pm

As per this table below under section Other great plans to consider, NY plan seems a better choice overall:
https://www.savingforcollege.com/529-pl ... eadvantage

Topic Author
gram
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529 plan limitations

Post by gram » Thu May 09, 2019 11:12 am

[Thread merged into here, see below. -- admin LadyGeek]

Looks like there are limited number of times per annum one can change the investment options under 529 plans.
I assume it should be fine to park the cash in MM type instrument under 529 plan and DCA into other funds on a regular basis.

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goodenyou
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Re: 529 plan limitations

Post by goodenyou » Thu May 09, 2019 11:27 am

gram wrote:
Thu May 09, 2019 11:12 am
Looks like there are limited number of times per annum one can change the investment options under 529 plans.
I assume it should be fine to park the cash in MM type instrument under 529 plan and DCA into other funds on a regular basis.
Like in all other earmarked investing, your time horizon for deploying the capital should guide decisions on risk or volatility. The decision to choose a less volatile vehicle in a 529 should be timed with the student’s expenses. For me, I converted all my gains to FDIC insured instruments once I had enough and my kids were close to matriculation at college. I have piece of mind that my priority has been fully met and there is no chance of falling short. I don’t have FOMO of the limited upside during the rapid drawdown from tuition and room and board expenses.
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

markcoop
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Re: 529 plan limitations

Post by markcoop » Thu May 09, 2019 11:33 am

It's an annoying limitation. One loophole is if you have multiple kids. You can move money around between their plans and change investment options at that time.
Mark

increment
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Re: 529 plan limitations

Post by increment » Thu May 09, 2019 11:38 am

In the New York direct plan, you can reallocate the existing funds only twice per year. But you can change how new contributions are allocated as often as you like.

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gram
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Is NY 529 plan the best out there so far

Post by gram » Sat May 11, 2019 12:53 am

[Thread merged into here, see below. -- admin LadyGeek]

As per this table below under section Other great plans to consider, NY plan seems a better choice overall so far(?):
https://www.savingforcollege.com/529-pl ... eadvantage

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Re: Is NY 529 plan the best out there so far

Post by SchruteB&B » Sat May 11, 2019 7:30 am

My state offers low cost Vanguard index funds AND a $20,000 state tax deduction so NY is definitely not the best plan for me. The best plan depends on the individual.

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Re: alternatives to 529 plans

Post by LadyGeek » Sat May 11, 2019 8:11 am

gram - In order to give appropriate advice, it's best to keep all the information in one spot. I merged your 4 questions into a single thread.

You also have a separate question here: tax efficient lazy portfolio strategies

Update: Moved request for "Asking Portfolio Questions" format to other thread.
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tbini87
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Re: alternatives to 529 plans

Post by tbini87 » Sun May 19, 2019 7:05 pm

mervinj7 wrote:
Mon May 06, 2019 11:58 am
gram wrote:
Mon May 06, 2019 11:39 am
Given no tax benefits to California residents, what other 529 alternatives exist:
just invest in target retirement fund but adjust the target date to education needs.
invest in lazy portfolio.
...

At least for the 2 alternatives above, there are no bells and whistles unlike in 529 plans.
There are many of us who live in CA and still invest in 529 plans due to the federal tax benefits. In fact, CA's own 529 plan has some of the lowest fee options available in the country.
I’m in CA and just began looking into 529s for our kids. The Vanguard website said they don’t offer any services for CA 529s and compared NV plan to the CA Scholarshare plan. Is Scholarshare the only 529 plan available to CA residents? Their fees actually looked comparable to Vangurd funds which is nice.

StealthRabbit
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Re: alternatives to 529 plans

Post by StealthRabbit » Mon May 20, 2019 1:40 am

H-Town wrote:
Mon May 06, 2019 11:41 am
...

Best alternative: teach your kids to work and pay for their college. 2 year community college + 2 year major.
agree ^^^^^^

also...
Started our kids in Roths at age 12 (They had $20k each by age 18)
Used FREE FT college instead of HS in our income tax free state https://en.wikipedia.org/wiki/Running_Start
Kids had their own businesses and built their own homes BEFORE high school. (~$80k profit from each home, pre age 18)

Kids got jobs, loans, scholarships and paid their own way (as expected) So they never touched their Roth, or savings / or home equity to pay for college.

Alternative... Help kid buy a duplex / 4 plex in college town. Teach them to run it. Positive cash flows will pay for college, positive equity gain will pay for grad school. BTDT.

Alternative...
Work nights or weekends... Employer pays / reimburses for College (even Walmart does this) BTDT (Employer paid 100% for (5) of my degrees)

Alternative...
Get skilled career or certifications for high risk jobs during College summers (My kids did Alaska Fishing and Wildland Firefighting. ~$30k for 6 weeks of hard and dangerous work.) +/-

typical.investor
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Re: alternatives to 529 plans

Post by typical.investor » Mon May 20, 2019 1:58 am

gram wrote:
Mon May 06, 2019 9:46 pm
As per this comparison, Nevada plan wins against California plan in terms fees & expenses:
https://vanguard.wealthmsi.com/comp529m ... 2&planid2=

Which seems obvious given NV plan offers Vanguard funds.
I didn't like the NV plan. It has poor choices for short-term fixed income. Vanguard commented they don't control the choices when I complained about that.

Utah's My529 is better I think.

https://vanguard.wealthmsi.com/comp529m ... 1&planid2=

SovereignInvestor
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Re: alternatives to 529 plans

Post by SovereignInvestor » Mon May 20, 2019 7:14 am

The 529 had no tax on capital gains on sale and no tax in interim income. But there is the risk that the child doesn't actually go to college and the funds are wasted, no?

It's probably unlikely but the tax savings is so tiny compared to prospect of having entire sum wasted.

RobLyons
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Re: alternatives to 529 plans

Post by RobLyons » Mon May 20, 2019 7:26 am

H-Town wrote:
Mon May 06, 2019 11:41 am
gram wrote:
Mon May 06, 2019 11:39 am
Given no tax benefits to California residents, what other 529 alternatives exist:
just invest in target retirement fund but adjust the target date to education needs.
invest in lazy portfolio.
...

At least for the 2 alternatives above, there are no bells and whistles unlike in 529 plans.
Best alternative: teach your kids to work and pay for their college. 2 year community college + 2 year major.

2nd this, keeping work to a minimum, + scholarships
Local CC is currently $4848 and state school is $9736 = $29,166 per child for undergrad
"Great parenting sets the foundation for a better world"

986racer
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Re: alternatives to 529 plans

Post by 986racer » Tue May 21, 2019 6:26 pm

SovereignInvestor wrote:
Mon May 20, 2019 7:14 am
The 529 had no tax on capital gains on sale and no tax in interim income. But there is the risk that the child doesn't actually go to college and the funds are wasted, no?

It's probably unlikely but the tax savings is so tiny compared to prospect of having entire sum wasted.
That’s not what happens to the funds.

Topic Author
gram
Posts: 46
Joined: Mon Feb 18, 2019 5:51 pm

Re: how much to invest in 529 plan

Post by gram » Sun Jun 30, 2019 10:50 pm

CascadiaSoonish wrote:
Mon May 06, 2019 10:19 pm
We decided to contribute enough to get the annual state tax break but no more, so we're expecting to need to pull significantly from other sources when the college bills come due in another decade or so. Rationale for not supercharging the 529: I haven't been particularly impressed by the performance of the available funds, so my guesstimate is that I'm not giving up much in ~10 years in tax-free earnings compared to investing the funds in taxable brokerage instead. Would love for someone to point out any flaws in my thinking here, however.
Are you referring to a specific state plan or in general all of them are performing poor.

Spirit Rider
Posts: 10781
Joined: Fri Mar 02, 2007 2:39 pm

Re: alternatives to 529 plans

Post by Spirit Rider » Sun Jun 30, 2019 11:25 pm

986racer wrote:
Tue May 21, 2019 6:26 pm
SovereignInvestor wrote:
Mon May 20, 2019 7:14 am
The 529 had no tax on capital gains on sale and no tax in interim income. But there is the risk that the child doesn't actually go to college and the funds are wasted, no?

It's probably unlikely but the tax savings is so tiny compared to prospect of having entire sum wasted.
That’s not what happens to the funds.
Exactly. 529 plans are at a minimum tax deferred. If you don't use them for qualified educational expenses, only the earnings are taxable. You will also pay a 10% penalty, but only on the earnings. That hardly makes the funds wasted.

In fact during the extremely low interest rate period from 2008 - 2016, I know people who intentionally used 529 accounts as an emergency fund. The set themselves up as the beneficiary and used a 529 plan with a high interest rate stable value fund. It was a tax deferred investment with substantially higher interest rates than were available, that more than made up for the 10% penalty on withdrawal.

CascadiaSoonish
Posts: 140
Joined: Tue Feb 13, 2018 11:44 am

Re: how much to invest in 529 plan

Post by CascadiaSoonish » Mon Jul 01, 2019 5:58 pm

gram wrote:
Sun Jun 30, 2019 10:50 pm
CascadiaSoonish wrote:
Mon May 06, 2019 10:19 pm
We decided to contribute enough to get the annual state tax break but no more, so we're expecting to need to pull significantly from other sources when the college bills come due in another decade or so. Rationale for not supercharging the 529: I haven't been particularly impressed by the performance of the available funds, so my guesstimate is that I'm not giving up much in ~10 years in tax-free earnings compared to investing the funds in taxable brokerage instead. Would love for someone to point out any flaws in my thinking here, however.
Are you referring to a specific state plan or in general all of them are performing poor.
We're in our own state's 529 with a +/- 10 year horizon on the target date-style fund. I haven't done the work to drill into their investment allocations or to compare it to other state 529s, but my general sense is that we're getting most of the benefit up-front with the tax deduction. Over the past few years the investment gains haven't been all that great compared to a vanilla basket of funds in a taxable account. I'd rather pay 20% on a 80% gain than 0% on a 40% gain...

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