Is this a good time to invest in 529 plan?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
van_sun_38
Posts: 80
Joined: Tue Apr 07, 2020 12:56 pm

Is this a good time to invest in 529 plan?

Post by van_sun_38 »

Hi,

I have been following Bogleheads forum for a couple of years, which has helped me tremendously in staying in course. I am still new to the investing world and would love some feedback. We recently had a baby and we started thinking about putting money away for her college education. My husband and I both have our own personal retirement accounts (mine is with Vanguard and his is with Fidelity). We are thinking of opening a joint account for our daughter college fund. I have some questions:
1) Is this a good time to invest in 529 fund? I read through some threads and some people actually stop putting money in 529 plan? I wonder why?
2) If we do decide to invest in 529, which brokerage account do you suggest and what index fund? I was thinking of Vanguard, debating between vtsax or vtsmx.
3) And folks here have joint investment account? How has it worked for you? What are some of the tips to manage it and mitigate disagreement?

Some background: We are both in early 30s, both working. Although our jobs are affected by the Covid-19 (reduced hours), we live in a good market area that we can find another job if needed. We also have 2 year worth of emergency fund in the worst case scenario.

Thank you very much. Appreciate your feedback!
bloom2708
Posts: 8271
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Is this a good time to invest in 529 plan?

Post by bloom2708 »

Does your state have a 529 plan and do they offer any state tax breaks to contribute?

Two primary advantages of the 529.

1. Many states give a tax break for contributing some amount
2. With ~18 years until the first funds are needed, the funds can grow tax free if used for qualifying college (and before now) expenses.

We did 50% to 529 and 50% to a taxable account for each kid. Not knowing if a kid might get a scholarship or not go to college.

If your state offers no incentive, then you can open up a Vanguard 529 and have access to their low cost funds. Also check the expense ratios if you have a state plan.

It is a big future expense if your kid/kids go. Never hurts to start saving. But, I would prioritize pre-tax 401k and Roth IRA for each of you before 529.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
LeftCoastIV
Posts: 220
Joined: Wed May 01, 2019 7:19 pm

Re: Is this a good time to invest in 529 plan?

Post by LeftCoastIV »

529s provide great tax advantages. If you are confident your child will go to college, saving early will limit your need to sell other assets (taxable event), or use current cash flow (ordinary income taxes) to pay for school.

I would be nervous lump summing right now, given the volatility, so I'd suggest putting auto-investments in place, so it just functions on auto-pilot. That's what we do.
Mode32
Posts: 196
Joined: Mon Mar 02, 2020 1:24 pm

Re: Is this a good time to invest in 529 plan?

Post by Mode32 »

bloom2708 wrote: Tue Apr 07, 2020 2:48 pm If your state offers no incentive, then you can open up a Vanguard 529 and have access to their low cost funds. Also check the expense ratios if you have a state plan.
Doesn't the 529 Plan have to be associated with some state (it doesn't have to match the state you live in)...I didn't know you can just go to Vanguard and start a 529???
bloom2708
Posts: 8271
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Is this a good time to invest in 529 plan?

Post by bloom2708 »

Mode32 wrote: Tue Apr 07, 2020 2:59 pm
bloom2708 wrote: Tue Apr 07, 2020 2:48 pm If your state offers no incentive, then you can open up a Vanguard 529 and have access to their low cost funds. Also check the expense ratios if you have a state plan.
Doesn't the 529 Plan have to be associated with some state (it doesn't have to match the state you live in)...I didn't know you can just go to Vanguard and start a 529???
I've never done it.

https://investor.vanguard.com/529-plan/open-account

Seems like you can.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
decapod10
Posts: 676
Joined: Thu Dec 28, 2017 6:46 pm

Re: Is this a good time to invest in 529 plan?

Post by decapod10 »

bloom2708 wrote: Tue Apr 07, 2020 3:02 pm
Mode32 wrote: Tue Apr 07, 2020 2:59 pm
bloom2708 wrote: Tue Apr 07, 2020 2:48 pm If your state offers no incentive, then you can open up a Vanguard 529 and have access to their low cost funds. Also check the expense ratios if you have a state plan.
Doesn't the 529 Plan have to be associated with some state (it doesn't have to match the state you live in)...I didn't know you can just go to Vanguard and start a 529???
I've never done it.

https://investor.vanguard.com/529-plan/open-account

Seems like you can.
I believe officially this is the Nevada 529 plan.
LeftCoastIV
Posts: 220
Joined: Wed May 01, 2019 7:19 pm

Re: Is this a good time to invest in 529 plan?

Post by LeftCoastIV »

We picked the Utah plan because it offers Vanguard funds (e.g. low cost). We do not live in Utah. Our state only offered a pre-paid tuition plan.
Topic Author
van_sun_38
Posts: 80
Joined: Tue Apr 07, 2020 12:56 pm

Re: Is this a good time to invest in 529 plan?

Post by van_sun_38 »

LeftCoastIV wrote: Tue Apr 07, 2020 4:04 pm We picked the Utah plan because it offers Vanguard funds (e.g. low cost). We do not live in Utah. Our state only offered a pre-paid tuition plan.
That's interesting. How did you come across that plan? We don't live in Utah either. How flexible is the plan in terms of out of state tuition/covers non tuition cost, etc?
lakpr
Posts: 6268
Joined: Fri Mar 18, 2011 9:59 am

Re: Is this a good time to invest in 529 plan?

Post by lakpr »

van_sun_38 wrote: Wed Apr 08, 2020 10:45 am
LeftCoastIV wrote: Tue Apr 07, 2020 4:04 pm We picked the Utah plan because it offers Vanguard funds (e.g. low cost). We do not live in Utah. Our state only offered a pre-paid tuition plan.
That's interesting. How did you come across that plan? We don't live in Utah either. How flexible is the plan in terms of out of state tuition/covers non tuition cost, etc?
We picked the New York plan which also has Vanguard funds. Can't speak to the Utah plan, but for NY plan simply go to this link and open an account and contribute: https://www.nysaves.org/nytpl/enrollmen ... Collect.cs
Mode32
Posts: 196
Joined: Mon Mar 02, 2020 1:24 pm

Re: Is this a good time to invest in 529 plan?

Post by Mode32 »

lakpr wrote: Wed Apr 08, 2020 10:47 am
van_sun_38 wrote: Wed Apr 08, 2020 10:45 am
LeftCoastIV wrote: Tue Apr 07, 2020 4:04 pm We picked the Utah plan because it offers Vanguard funds (e.g. low cost). We do not live in Utah. Our state only offered a pre-paid tuition plan.
That's interesting. How did you come across that plan? We don't live in Utah either. How flexible is the plan in terms of out of state tuition/covers non tuition cost, etc?
We picked the New York plan which also has Vanguard funds. Can't speak to the Utah plan, but for NY plan simply go to this link and open an account and contribute: https://www.nysaves.org/nytpl/enrollmen ... Collect.cs
+1

If your state doesn't offer a 529 Plan that you are satisfied with, you do have the option to shop around. Keep in mind, if you live in certain states and you have 529 Plan through them, you can get a tax break. Before committing to a specific state 529 plan, consider above and the quality as well as expense ratios (ER) of the funds available. We found that there can be markups in 529 Plans.
Mode32
Posts: 196
Joined: Mon Mar 02, 2020 1:24 pm

Re: Is this a good time to invest in 529 plan?

Post by Mode32 »

lakpr wrote: Wed Apr 08, 2020 10:47 am
van_sun_38 wrote: Wed Apr 08, 2020 10:45 am
LeftCoastIV wrote: Tue Apr 07, 2020 4:04 pm We picked the Utah plan because it offers Vanguard funds (e.g. low cost). We do not live in Utah. Our state only offered a pre-paid tuition plan.
That's interesting. How did you come across that plan? We don't live in Utah either. How flexible is the plan in terms of out of state tuition/covers non tuition cost, etc?
We picked the New York plan which also has Vanguard funds. Can't speak to the Utah plan, but for NY plan simply go to this link and open an account and contribute: https://www.nysaves.org/nytpl/enrollmen ... Collect.cs
+1

If your state doesn't offer a 529 Plan that you are satisfied with, you do have the option to shop around. Keep in mind, if you live in certain states and you have 529 Plan through them, you can get a tax break. Before committing to a specific state 529 plan, consider above and the quality as well as expense ratios (ER) of the funds available. We found that there can be markups in 529 Plans.
$questions
Posts: 65
Joined: Mon Mar 02, 2020 9:31 am

Re: Is this a good time to invest in 529 plan?

Post by $questions »

My 529 is with Fidelity and, since it's the MA state plan, we get a tax deduction based on how much we contribute. Also, they have lower fees than Vanguard (which doesn't even offer a plan for MA).

Check Fidelity - they tend to have so many options and products and even lower fees than Vanguard.
The Broz
Posts: 242
Joined: Tue Feb 11, 2020 5:09 pm

Re: Is this a good time to invest in 529 plan?

Post by The Broz »

We went with NY for the time being. Both NY and Ohio have Vanguard options without requiring a minimum amount to invest (we were just starting as well). We had plans to move to Ohio, and I think you get a tax break for everything you put in (so if we saved a bunch in NY and then move it to Ohio after being residents, I think all of that money becomes deductible).
I think you should absolutely start saving if you can afford it. I would not necessarily dump a ton in right now on the thought that "stocks are cheap", but would just consider that everything going on now as noise - so just set up some auto-contribution like you normally would and fund it that way.
I have been thinking of "front loading" our 529, meaning that we would still make regular contributions. But rather than making a $150/mo contribution from now thru college, maybe we get the accounts up to $20k in the near term by scrimping and saving (e.g. making $1k/mo contribution for 20 months) and then maybe just put in a token $50/mo thereafter and let compounding do the work. I don't consider this market timing, as I was thinking about this months ago as a way of considering college savings as "checked off the list", as opposed to "in progress".
The Broz
Posts: 242
Joined: Tue Feb 11, 2020 5:09 pm

Re: Is this a good time to invest in 529 plan?

Post by The Broz »

Not sure I saw an answer on your VTSAX vs. VTSMX question. If I am not mistaken (double check at vanguard.com), but I think they are the same fund - one just has lower minimum and higher expenses than the other. Obviously if you meet the higher minimum requirement, go with that.
I chose the "aggressive" portfolio with NY which is 60% Total Stock Market / 40% Total International Stock Market. Over time, I will migrate that do gradually phase out the stocks and add in bond/cash options.
lakpr
Posts: 6268
Joined: Fri Mar 18, 2011 9:59 am

Re: Is this a good time to invest in 529 plan?

Post by lakpr »

The Broz wrote: Wed Apr 08, 2020 12:57 pm Not sure I saw an answer on your VTSAX vs. VTSMX question. If I am not mistaken (double check at vanguard.com), but I think they are the same fund - one just has lower minimum and higher expenses than the other. Obviously if you meet the higher minimum requirement, go with that.
I chose the "aggressive" portfolio with NY which is 60% Total Stock Market / 40% Total International Stock Market. Over time, I will migrate that do gradually phase out the stocks and add in bond/cash options.
Actually VTSMX has been discontinued, and the VTSAX minimum is lowered from $10k to $3k. Yes they WERE different share classes of the same underlying fund.
User avatar
Wiggums
Posts: 2960
Joined: Thu Jan 31, 2019 8:02 am

Re: Is this a good time to invest in 529 plan?

Post by Wiggums »

I like 50% in 529 and the rest in taxable.

If you put it all in taxable, you get maximum flexibility, but you will it will get partially taxed st the parents rate as the child gets older.

Whatever you decide, put your contribution on auto pilot so that the contributions just happen without you. ignore the market conditions and watch the account grow!
Broken Man 1999
Posts: 5341
Joined: Wed Apr 08, 2015 11:31 am
Location: West coast of Florida, inland on high ground!

Re: Is this a good time to invest in 529 plan?

Post by Broken Man 1999 »

I use Vanguard's 529 (they team with Nevada) plan even though my state (Florida) has a 529 plan that features Vanguard funds.

By using Vanguard's 529 plan I can sign into Vanguard, and I can manage our TIRAs, Roths, taxable brokerage account, our VA (for now) and our four 529 plans for the grandchildren.

I am a lazy person by nature, and I like the convenience of having just one sign-up to manage most everything in our financial arena.

Our 529 plans are not the primary source for funds for college expenses, so if I have to pay an extra basis point for ease of management, so be it.

Florida has no state income tax, so no benefit for us for that reason.

I would be very surprised if a grandchild doesn't go to college, considering the education level all parents have. But, with four plans being funded, I'm sure any funds not utilized by one grandchild would be used for another. I have no worry that the plans will be all be drained.

Our 529 plans are funded each month automatically by a contribution of $100 for each grandchild.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
Topic Author
van_sun_38
Posts: 80
Joined: Tue Apr 07, 2020 12:56 pm

Re: Is this a good time to invest in 529 plan?

Post by van_sun_38 »

Broken Man 1999 wrote: Wed Apr 08, 2020 3:54 pm I use Vanguard's 529 (they team with Nevada) plan even though my state (Florida) has a 529 plan that features Vanguard funds.

By using Vanguard's 529 plan I can sign into Vanguard, and I can manage our TIRAs, Roths, taxable brokerage account, our VA (for now) and our four 529 plans for the grandchildren.

I am a lazy person by nature, and I like the convenience of having just one sign-up to manage most everything in our financial arena.



Broken Man 1999
That's awesome that you are gifting your grandchildren with the college fund! Do you just set up the Vanguard 529 fund like a normal brokerage fund? Do both you and your spouse share the same TIRAs, Roths, taxable brokerage accounts? That would make it so easy!
Broken Man 1999
Posts: 5341
Joined: Wed Apr 08, 2015 11:31 am
Location: West coast of Florida, inland on high ground!

Re: Is this a good time to invest in 529 plan?

Post by Broken Man 1999 »

van_sun_38 wrote: Thu Apr 09, 2020 5:24 pm
Broken Man 1999 wrote: Wed Apr 08, 2020 3:54 pm I use Vanguard's 529 (they team with Nevada) plan even though my state (Florida) has a 529 plan that features Vanguard funds.

By using Vanguard's 529 plan I can sign into Vanguard, and I can manage our TIRAs, Roths, taxable brokerage account, our VA (for now) and our four 529 plans for the grandchildren.

I am a lazy person by nature, and I like the convenience of having just one sign-up to manage most everything in our financial arena.



Broken Man 1999
That's awesome that you are gifting your grandchildren with the college fund! Do you just set up the Vanguard 529 fund like a normal brokerage fund? Do both you and your spouse share the same TIRAs, Roths, taxable brokerage accounts? That would make it so easy!
Vanguard has a separate setup for 529 plans, very easy to open. Once they are set up they appear in the owner's listing of accounts, if you desire.

The only joint accounts DW and I have is a taxable joint brokerage account, and the VA.

TIRAs and Roths are individual accounts, they cannot be joint/shared. I also manage my BIL's investments at Vanguard. I have agent status for DW and BIL.One sign on allows me to see and transact on everyone's accounts. Easy to manage.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
Topic Author
van_sun_38
Posts: 80
Joined: Tue Apr 07, 2020 12:56 pm

Re: Is this a good time to invest in 529 plan?

Post by van_sun_38 »

[/quote]

That's awesome that you are gifting your grandchildren with the college fund! Do you just set up the Vanguard 529 fund like a normal brokerage fund? Do both you and your spouse share the same TIRAs, Roths, taxable brokerage accounts? That would make it so easy!
[/quote]

Vanguard has a separate setup for 529 plans, very easy to open. Once they are set up they appear in the owner's listing of accounts, if you desire.


[/quote]

Thanks for sharing! What funds do you have in the Vanguard 529 account? How does tax work for the account? I read somewhere that there's not really any tax benefit to open 529 account, but want to verify that.
decapod10
Posts: 676
Joined: Thu Dec 28, 2017 6:46 pm

Re: Is this a good time to invest in 529 plan?

Post by decapod10 »

van_sun_38 wrote: Fri Apr 10, 2020 11:04 am
That's awesome that you are gifting your grandchildren with the college fund! Do you just set up the Vanguard 529 fund like a normal brokerage fund? Do both you and your spouse share the same TIRAs, Roths, taxable brokerage accounts? That would make it so easy!
[/quote]

Vanguard has a separate setup for 529 plans, very easy to open. Once they are set up they appear in the owner's listing of accounts, if you desire.


[/quote]

Thanks for sharing! What funds do you have in the Vanguard 529 account? How does tax work for the account? I read somewhere that there's not really any tax benefit to open 529 account, but want to verify that.
[/quote]

Investment options in 529 accounts are limited. The options are listed on Vanguard's 529 page.

If you use the 529 for qualified reasons (i.e. for allowed educational expenses), then a 529 works like a Roth account. You put post-tax money into it, then the earnings are tax free. That is one major tax benefit.

The other potential tax benefit is that some states allow a tax deduction if you contribute to a 529. Like Maryland, for example. However, in order to capture this tax benefit, you must contribute to the state 529 that you live in. If you live in Maryland, you need to open a Maryland 529. Some states do not offer this tax deduction, like California, so if you live in California there's no particular benefit in opening a California 529. Californians just open whichever state 529 they like the best.

Again, Vanguard is the Nevada 529.
Topic Author
van_sun_38
Posts: 80
Joined: Tue Apr 07, 2020 12:56 pm

Re: Is this a good time to invest in 529 plan?

Post by van_sun_38 »

Thanks for the explanation. Yeah it seems like it works just like ROTH IRA. My state doesn't have income tax.

You are right, Vanguard 529 seems a bit limited in fund options.
Lalamimi
Posts: 628
Joined: Mon Jun 24, 2019 4:22 pm
Location: Texas

Re: Is this a good time to invest in 529 plan?

Post by Lalamimi »

Hoping to revive this for additional information. We have 2 young grand girls (20 mo and 4yr olds). The 4 yr old has a Growth Fund of America 529A with American Funds, opened by her Great-Aunt several years ago. Not sure of the amount, but I see the fees are crazy. 3.5% front load, 12.1b .23%, .7% expense ratio.
Would direct buy of the Utah 529 referenced here be a good choice for us to purchase for both girls, then move this 529 into the 4 yr old's account? I believe the Great Aunt is the owner. We are in Texas, so no tax break for anyone. Thanks much.
BogleDan
Posts: 28
Joined: Sun Jun 03, 2018 5:49 pm

Re: Is this a good time to invest in 529 plan?

Post by BogleDan »

lakpr wrote: Wed Apr 08, 2020 10:47 am We picked the New York plan which also has Vanguard funds. Can't speak to the Utah plan, but for NY plan simply go to this link and open an account and contribute: https://www.nysaves.org/nytpl/enrollmen ... Collect.cs
I also use the NY plan (CA resident). It had Vanguard target date funds, which is what I wanted. I also have accounts with Nebraska's plan. (You can have accounts with as many states as you like).
Lalamimi
Posts: 628
Joined: Mon Jun 24, 2019 4:22 pm
Location: Texas

Re: Is this a good time to invest in 529 plan?

Post by Lalamimi »

Thank you Bogle Dan. I have reviewed and compared NY to the Nevada and Utah. Will discuss with my daughter. Not too confident in the state of NY right now, though.
RetiredCSProf
Posts: 534
Joined: Tue Feb 28, 2017 4:59 pm

Re: Is this a good time to invest in 529 plan?

Post by RetiredCSProf »

I am in CA. I chose Vanguard aggressive age-based -- I think it's the Nevada plan. They will be changing their glide path options as of 30 Oct 2020. The main change is that the glide path will adjust more frequently -- also, there is more flexibility in the options.
Grt2bOutdoors
Posts: 23159
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Is this a good time to invest in 529 plan?

Post by Grt2bOutdoors »

Lalamimi wrote: Tue Sep 29, 2020 8:03 pm Hoping to revive this for additional information. We have 2 young grand girls (20 mo and 4yr olds). The 4 yr old has a Growth Fund of America 529A with American Funds, opened by her Great-Aunt several years ago. Not sure of the amount, but I see the fees are crazy. 3.5% front load, 12.1b .23%, .7% expense ratio.
Would direct buy of the Utah 529 referenced here be a good choice for us to purchase for both girls, then move this 529 into the 4 yr old's account? I believe the Great Aunt is the owner. We are in Texas, so no tax break for anyone. Thanks much.
You’d have to get the a Great Aunt to agree to the move and give up ownership OR the great aunt can simply move her account to the Utah plan and remain the owner.

I use the Utah plan, good mix of Vanguard funds and their fees are still low but no longer the lowest. The one thing I always liked about Utah was their good selection of funds and age based allocation plans and none of this 40 percent holding of international funds in the age based plans - not sure if the latter still holds. If you don’t like age based allocation you can create a customized mix. I started out with an age based global moderate fund (had I stayed domestic only I’d have a lot more in the account) and transitioned to a customized mix. No regrets as it has done good enough.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Lalamimi
Posts: 628
Joined: Mon Jun 24, 2019 4:22 pm
Location: Texas

Re: Is this a good time to invest in 529 plan?

Post by Lalamimi »

thank you both.
Post Reply