How much are your 529 Contributions

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Topic Author
socialforums2019
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How much are your 529 Contributions

Post by socialforums2019 »

Trying to find out a "logical" way to determine monthly 529 contributions. Ideally, would like to cover 100% of college cost (tuition, housing, dining, books) and just trying to see how much others are contributing and how they made that determination. Or if its better to do a portion in 529 and then cash flow the rest.
livesoft
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Re: How much are your 529 Contributions

Post by livesoft »

If your family is eligible for the American Opportunity Tax Credit, then that is a better deal than 529 plan: Pay $4,000 a year and get $2,500 a year back. You cannot use 529 funds to do that, but need to use taxable income for the $4,000. That's like a 2500 / 4000 = 62.5% return on your money in about a day.

To answer your question: We did not contribute to 529 plans on a schedule, but every so often added some money. For our youngest, college was about $20,000 to $22,000 total annual expenses which is list price and no financial aid.
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tenkuky
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Re: How much are your 529 Contributions

Post by tenkuky »

State tax deduction is 10K per year; so doing $1000 per month for 1st 10 months of the year.
In state all-in with no aid is ~ $27K per year. We should have enough for 4 year instate or 3 years private or out-of-state.
runner540
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Re: How much are your 529 Contributions

Post by runner540 »

My goal is $6k/year ($500/month). Doing that for 18 years with no real growth would cover 4 years instate. Plus any growth, grandparent contributions, and bonuses will get closer to covering private or grad school.
Edit: no state tax break
Last edited by runner540 on Sat Sep 12, 2020 9:50 am, edited 1 time in total.
donaldfair71
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Re: How much are your 529 Contributions

Post by donaldfair71 »

333.33.

We get a 4k/account/year deduction. I figure I’ll also spend 4k out of pocket when the time comes to get the AOTC
Soon2BXProgrammer
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Re: How much are your 529 Contributions

Post by Soon2BXProgrammer »

I personally attempted to fund the 529's for both of my children as fast as cashflow would allow. (Note i already was maxing every other type of account, and had a paid off house, i am a logical one goal then the next type person). I stopped when the accounts reached roughly 75% of today's price of college.

I now sort of treat the accounts like managing a micro pension fund. I do a once a year funding analysis to see what is the funding ratio based on (1) the new price of 4 years (2) the new account balance (3) time to first withdrawal. With these three items I make two yearly decisions (1) are any additional contributions needed (2) is the asset allocation still correct (I do not want to take undo risk, if i don't need to)

I don't want to over-fund the 529, but i want ample funds available. There is a delicate dance that has to be played.
BernardShakey
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Re: How much are your 529 Contributions

Post by BernardShakey »

I too struggled with this question 20 years ago. I sort of bounded the problem by first assuming both my children (toddlers at the time) would go to public in-state university and live away from home. After estimating those dollars, I looked at the numbers for both kids going to private schools. For me, at the time, the private school numbers were so astronomical that I outright dismissed the idea of saving that much and went for contributing enough for 4 years, in-state public, living away.

For many years, I saved like $200-300 a month per child. Later, as earnings increased, I ramped it up a little to $450 per child. I was never eligible for any state tax deduction or other credits.

In later years, it turned out, one child would go to private college, and so 529 savings were further increased. Needless to say, part of that education has had to be cash flowed from current earnings.

My advice...settle on what you are going to be willing to pay for and save aggressively for that. If you have the means, you can set your target a little higher but make sure retirement savings are robust first. Also, don't completely rule out graduate and professional school. I know a lot of us draw the line at 4 years of undergrad but when the time comes and your kids have opportunities and have done the work to get there, it's nice to have a little more in the coffers. Good luck!
An important key to investing is having a well-calibrated sense of your future regret.
KlangFool
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Re: How much are your 529 Contributions

Post by KlangFool »

OP,


I do not contribute to 529. It makes zero financial sense for me. I pay my kids' college education out of my annual savings.


KlangFool
stoptothink
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Re: How much are your 529 Contributions

Post by stoptothink »

We get a 5% state tax deduction up to $4k/yr per account, so that's what we do. My kids are 8 and 5, they already have enough to almost cover 4yrs at the same local university my wife will graduate from this semester. We have very cost-effective in-state options and I (at least ATM) don't feel responsible for covering the extra if our children decide they want to go out of state or to an expensive private. We've discussed stopping contributions after '21 and just throwing more in VTSAX, but a decision hasn't been made.
3funder
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Re: How much are your 529 Contributions

Post by 3funder »

Annual gift tax limit for one parent per child (there are two of us, but that's our formula) = $15,000/year or $1,250/month.
Topic Author
socialforums2019
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Re: How much are your 529 Contributions

Post by socialforums2019 »

KlangFool wrote: Sat Sep 12, 2020 10:17 am OP,


I do not contribute to 529. It makes zero financial sense for me. I pay my kids' college education out of my annual savings.


KlangFool
Interesting take. Care to elaborate on that?
Eddiecaps1980
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Re: How much are your 529 Contributions

Post by Eddiecaps1980 »

I have a 13/16 year old that will start school in 5/2 years respectively. I have 100k total in 529 and I put 1k/ month. I plan to pay for all the first kids college (transfer one kids balance to the other) if I have to and cash flow the second kids if the 12k/year is not enough by the time the second one graduates. If the firsts scholarships are significant I will trim back on contributions. I assume with no scholarships that 100k per kid is about right. Don’t know if this is adequate or not but that’s what I’m doing. Open for comments / criticism.
BernardShakey
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Re: How much are your 529 Contributions

Post by BernardShakey »

KlangFool wrote: Sat Sep 12, 2020 10:17 am OP,


I do not contribute to 529. It makes zero financial sense for me. I pay my kids' college education out of my annual savings.


KlangFool
Might not be suitable for everyone but for those who earn above the limits for Roth contributions and have a state tax deduction, 529 plans offer tax free earnings which is a pretty sweet deal ---- 529s are a solid, fairly low cost, long term savings vehicle.
An important key to investing is having a well-calibrated sense of your future regret.
KlangFool
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Re: How much are your 529 Contributions

Post by KlangFool »

socialforums2019 wrote: Sat Sep 12, 2020 10:23 am
KlangFool wrote: Sat Sep 12, 2020 10:17 am OP,


I do not contribute to 529. It makes zero financial sense for me. I pay my kids' college education out of my annual savings.


KlangFool
Interesting take. Care to elaborate on that?
socialforums2019,


At my income (12%/22% tax bracket) /saving (50K to 60K per year) level, it does not make sense to save for college education. My annual saving is good enough to pay for my 2 kids' college education. 30K per kid per year.


KlangFool
Topic Author
socialforums2019
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Re: How much are your 529 Contributions

Post by socialforums2019 »

BernardShakey wrote: Sat Sep 12, 2020 10:31 am
KlangFool wrote: Sat Sep 12, 2020 10:17 am OP,


I do not contribute to 529. It makes zero financial sense for me. I pay my kids' college education out of my annual savings.


KlangFool
Might not be suitable for everyone but for those who earn above the limits for Roth contributions and have a state tax deduction, 529 plans offer tax free earnings which is a pretty sweet deal ---- 529s are a solid, fairly low cost, long term savings vehicle.
In the "great state" of California, we get no tax-breaks with 529 contributions.
BernardShakey
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Re: How much are your 529 Contributions

Post by BernardShakey »

socialforums2019 wrote: Sat Sep 12, 2020 10:35 am
BernardShakey wrote: Sat Sep 12, 2020 10:31 am
KlangFool wrote: Sat Sep 12, 2020 10:17 am OP,


I do not contribute to 529. It makes zero financial sense for me. I pay my kids' college education out of my annual savings.


KlangFool
Might not be suitable for everyone but for those who earn above the limits for Roth contributions and have a state tax deduction, 529 plans offer tax free earnings which is a pretty sweet deal ---- 529s are a solid, fairly low cost, long term savings vehicle.
In the "great state" of California, we get no tax-breaks with 529 contributions.
Right, and even then I use 529. It's still a good option if you can't contribute to a Roth.
An important key to investing is having a well-calibrated sense of your future regret.
KlangFool
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Re: How much are your 529 Contributions

Post by KlangFool »

BernardShakey wrote: Sat Sep 12, 2020 10:37 am
socialforums2019 wrote: Sat Sep 12, 2020 10:35 am
BernardShakey wrote: Sat Sep 12, 2020 10:31 am
KlangFool wrote: Sat Sep 12, 2020 10:17 am OP,


I do not contribute to 529. It makes zero financial sense for me. I pay my kids' college education out of my annual savings.


KlangFool
Might not be suitable for everyone but for those who earn above the limits for Roth contributions and have a state tax deduction, 529 plans offer tax free earnings which is a pretty sweet deal ---- 529s are a solid, fairly low cost, long term savings vehicle.
In the "great state" of California, we get no tax-breaks with 529 contributions.
Right, and even then I use 529. It's still a good option if you can't contribute to a Roth.

BernardShakey,

To be precise, you could always contribute to Roth. You cannot contribute directly to Roth when your income is high enough. But, you could always contribute to the Roth via the backdoor method,.

https://www.bogleheads.org/wiki/Backdoor_Roth


KlangFool
KlangFool
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Re: How much are your 529 Contributions

Post by KlangFool »

OP,

The followings are the list of questions that you should ask.


A) Can you afford to save for college education? Is your FI/Retirement fully funded? Would it be fully funded if you are permanently unemployed/under-employed in your 40s or 50s?


B) Do you need to save for college education?


i) If your annual saving is high enough, why do you need to save for college education? Your annual savings can "cash flow" the college education.


ii) If your annual saving is not high enough, why do you think you can afford to save for college education? See question (A).


C) If you want to save for college education, what is the best way to do it?


i) Roth IRAs


ii) Taxable account. At low income/tax bracket, long-term capital gain tax rate = 0%.


iii) 529?


Which account works the best for you?


D) What are your assumptions? Would you be unemployed/under-employed while your kids go to college?


Save for retirement/FI first. You cannot borrow for your retirement/FI. The kids can borrow for their college education.

KlangFool
BernardShakey
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Re: How much are your 529 Contributions

Post by BernardShakey »

KlangFool wrote: Sat Sep 12, 2020 10:56 am OP,

The followings are the list of questions that you should ask.


A) Can you afford to save for college education? Is your FI/Retirement fully funded? Would it be fully funded if you are permanently unemployed/under-employed in your 40s or 50s?


B) Do you need to save for college education?


i) If your annual saving is high enough, why do you need to save for college education? Your annual savings can "cash flow" the college education.


ii) If your annual saving is not high enough, why do you think you can afford to save for college education? See question (A).


C) If you want to save for college education, what is the best way to do it?


i) Roth IRAs


ii) Taxable account. At low income/tax bracket, long-term capital gain tax rate = 0%.


iii) 529?


Which account works the best for you?


D) What are your assumptions? Would you be unemployed/under-employed while your kids go to college?


Save for retirement/FI first. You cannot borrow for your retirement/FI. The kids can borrow for their college education.

KlangFool
Klang Fool - the OP gave no indication he/she is not saving adequately for retirement first. He/She is just trying to figure out how much to save, presumably above and beyond retirement savings. For many who earn above the limit for Roth contributions, have a T-IRA that make backdoor Roth difficult (Pro Rata rules), and are in the 15% LTCG territory, 529's makes a lot sense.
An important key to investing is having a well-calibrated sense of your future regret.
KlangFool
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Re: How much are your 529 Contributions

Post by KlangFool »

BernardShakey wrote: Sat Sep 12, 2020 11:03 am
Klang Fool - the OP gave no indication he/she is not saving adequately for retirement first. He/She is just trying to figure out how much to save, presumably above and beyond retirement savings. For many who earn above the limit for Roth contributions, have a T-IRA that make backdoor Roth difficult (Pro Rata rules), and are in the 15% LTCG territory, 529's makes a lot sense.

BernardShakey,

Correct! OP gives no indication of savings and/or income level. So, it is premature to think that 529 contribution is the right answer.


KlangFool
Topic Author
socialforums2019
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Re: How much are your 529 Contributions

Post by socialforums2019 »

BernardShakey wrote: Sat Sep 12, 2020 11:03 am
KlangFool wrote: Sat Sep 12, 2020 10:56 am OP,

The followings are the list of questions that you should ask.


A) Can you afford to save for college education? Is your FI/Retirement fully funded? Would it be fully funded if you are permanently unemployed/under-employed in your 40s or 50s?


B) Do you need to save for college education?


i) If your annual saving is high enough, why do you need to save for college education? Your annual savings can "cash flow" the college education.


ii) If your annual saving is not high enough, why do you think you can afford to save for college education? See question (A).


C) If you want to save for college education, what is the best way to do it?


i) Roth IRAs


ii) Taxable account. At low income/tax bracket, long-term capital gain tax rate = 0%.


iii) 529?


Which account works the best for you?


D) What are your assumptions? Would you be unemployed/under-employed while your kids go to college?


Save for retirement/FI first. You cannot borrow for your retirement/FI. The kids can borrow for their college education.

KlangFool
Klang Fool - the OP gave no indication he/she is not saving adequately for retirement first. He/She is just trying to figure out how much to save, presumably above and beyond retirement savings. For many who earn above the limit for Roth contributions, have a T-IRA that make backdoor Roth difficult (Pro Rata rules), and are in the 15% LTCG territory, 529's makes a lot sense.
Total annual savings is $40-$50K on base salary. Retirement is funded $30-$32K annually by maxing out 401K and $12K additional taxable (Employer does 401K match, but haven't taken that into consideration in my numbers).

I receive $30-$50K in additional savings which I don't take into account above. These dollars are allocated where needed (e.g. additional retirement for the year, college funds, rainy-day funds, etc.)
KlangFool
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Re: How much are your 529 Contributions

Post by KlangFool »

socialforums2019 wrote: Sat Sep 12, 2020 11:14 am

Total annual savings is $40-$50K on base salary. Retirement is funded $30-$32K annually by maxing out 401K and $12K additional taxable (Employer does 401K match, but haven't taken that into consideration in my numbers).

I receive $30-$50K in additional savings which I don't take into account above. These dollars are allocated where needed (e.g. additional retirement for the year, college funds, rainy-day funds, etc.)

socialforums2019,

<<Retirement is funded $30-$32K annually by maxing out 401K>>

The maximum contribution for 401K is $19,500 per account. 401K is not retirement account. It is tax-advantaged account. You can withdraw the money out of 401K penalty free before 59.5 years old.


<<$12K additional taxable >>


Why you are not contributing this money to the Roth IRAs?


Your annual savings (70K to 100K) is high enough to pay for your kid's college education. Why do you need to save for college education?


KlangFool
BoglePablo
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Re: How much are your 529 Contributions

Post by BoglePablo »

Tl;dr - just saved a few hundred a month per kid from birth.

My public in-state BSc was fully funded by parents so our goal is to try to give our kids the same kind of head start.

We decided to just sock away a few hundred/mo per kid from birth, whatever was within our budget after other savings buckets were filled. This ranged from $100-$500 as careers developed / lives evolved. All cash gifts (b-day, xmas) as well.

Now they're older, they might get like 25% of any gifts, but the majority goes into college fund.

Eventually decided about $100k total per kid was a nice round number as a goal. If it costs more, we'll figure out out then (cash flow, loans, sell a kidney, etc). If we hit that goal before college time, we'll figure it out then (keep saving, redirect to after tax, midlife crisis Trans Am, etc). Monthly saving stabilized to $500 per kid.

We get a state tax break and the 529 has Vanguard index funds.

Older kid is sophomore in HS now and we might meet our goal a litle early.

- Pablo
BernardShakey
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Re: How much are your 529 Contributions

Post by BernardShakey »

BoglePablo wrote: Sat Sep 12, 2020 11:53 am Tl;dr - just saved a few hundred a month per kid from birth.

My public in-state BSc was fully funded by parents so our goal is to try to give our kids the same kind of head start.

We decided to just sock away a few hundred/mo per kid from birth, whatever was within our budget after other savings buckets were filled. This ranged from $100-$500 as careers developed / lives evolved. All cash gifts (b-day, xmas) as well.

Now they're older, they might get like 25% of any gifts, but the majority goes into college fund.

Eventually decided about $100k total per kid was a nice round number as a goal. If it costs more, we'll figure out out then (cash flow, loans, sell a kidney, etc). If we hit that goal before college time, we'll figure it out then (keep saving, redirect to after tax, midlife crisis Trans Am, etc). Monthly saving stabilized to $500 per kid.

We get a state tax break and the 529 has Vanguard index funds.

Older kid is sophomore in HS now and we might meet our goal a litle early.

- Pablo
Great advice above.
My last post on this topic. Put money, above and beyond your retirement savings, in the 529's ---- it will be there when you need it. Keeping it elsewhere and it can get used for home improvements, cars, vacations, etc. Not sure of your age, marital status, number of kids, but you never know how things will be in the future (job, health, etc.). My advice, put it away now. Save early and often. Just decide how much based public vs private, year to withdrawal, etc. and do it like BoglePablo outlines above.
An important key to investing is having a well-calibrated sense of your future regret.
chenzi
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Re: How much are your 529 Contributions

Post by chenzi »

We put money into 529s after exhausting all our monthly savings and investments - max out 401K (18K) + max after-tax contributions (up to 50ishK) for both my spouse and me separately, max after-tax IRA contributions, and then $ 2.4K/month on 529s in total (1.2K per child) for 8 and 3-year-old. My 8-year-old has 90K and our 3-year-old has 70K as of now. Still debating if we should stop when the contributions hit say 120K / kid and then keep it as it is.
Topic Author
socialforums2019
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Re: How much are your 529 Contributions

Post by socialforums2019 »

KlangFool wrote: Sat Sep 12, 2020 11:37 am
socialforums2019 wrote: Sat Sep 12, 2020 11:14 am

Total annual savings is $40-$50K on base salary. Retirement is funded $30-$32K annually by maxing out 401K and $12K additional taxable (Employer does 401K match, but haven't taken that into consideration in my numbers).

I receive $30-$50K in additional savings which I don't take into account above. These dollars are allocated where needed (e.g. additional retirement for the year, college funds, rainy-day funds, etc.)

socialforums2019,

<<Retirement is funded $30-$32K annually by maxing out 401K>>

The maximum contribution for 401K is $19,500 per account. 401K is not retirement account. It is tax-advantaged account. You can withdraw the money out of 401K penalty free before 59.5 years old.


<<$12K additional taxable >>


Why you are not contributing this money to the Roth IRAs?


Your annual savings (70K to 100K) is high enough to pay for your kid's college education. Why do you need to save for college education?


KlangFool
Yes, maxing $19.5K and then putting $12K into backdoor IRA.

Reasons for 529 is because if the money is contributed there, out of sight, out of mind and therefore I won't have the feeling like we have more money than we actually have since they money would be ear tagged for schooling. Also, the value of tax free growth?
KlangFool
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Re: How much are your 529 Contributions

Post by KlangFool »

socialforums2019 wrote: Sat Sep 12, 2020 1:08 pm

Yes, maxing $19.5K and then putting $12K into backdoor IRA.

Reasons for 529 is because if the money is contributed there, out of sight, out of mind and therefore I won't have the feeling like we have more money than we actually have since they money would be ear tagged for schooling. Also, the value of tax free growth?

socialforums2019,

<< I won't have the feeling like we have more money than we actually have since they money would be ear tagged for schooling. >>

Back to question #1.


1) How do you know that your retirement/FI is fully funded?


2) What is your annual expense?


3) What is your retirement/FI number?


You cannot borrow for retirement/FI.

If you are fully employed while your kids go to college, you can "cash flow" the college education. However, if you are permanently unemployed and under-employed while your kids go to college, you cannot afford to pay for a college education with the 529. So, why are you saving for a college education?

KlangFool
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ram
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Re: How much are your 529 Contributions

Post by ram »

We always put in enough to get the state tax credit. Later once mortgage was all paid up, we diverted that payment to 529 accounts. We ended up over contributing. (kids got substantial scholarships)
Ram
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Re: How much are your 529 Contributions

Post by Jack FFR1846 »

We only saved in savings bonds because at the time, Mass did not give anything for 529 contributions. When they did start giving tax breaks up to $2k per couple per year of contributions, I made that max contribution to get my $100 in state tax savings. I would put the $2k in and then pull it right back out. Grandparent help was not expected and helped a ton.
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runner540
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Re: How much are your 529 Contributions

Post by runner540 »

ram wrote: Sat Sep 12, 2020 3:23 pm We always put in enough to get the state tax credit. Later once mortgage was all paid up, we diverted that payment to 529 accounts. We ended up over contributing. (kids got substantial scholarships)
You know you can take out the amount of the scholarships?
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ram
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Re: How much are your 529 Contributions

Post by ram »

runner540 wrote: Sat Sep 12, 2020 3:49 pm
ram wrote: Sat Sep 12, 2020 3:23 pm We always put in enough to get the state tax credit. Later once mortgage was all paid up, we diverted that payment to 529 accounts. We ended up over contributing. (kids got substantial scholarships)
You know you can take out the amount of the scholarships?
I did not know it during the years that they got the scholarships. Can it be taken out many years later ( like you can do in a HSA). I am OK with letting it grow tax free for the next generation. It is in 100% stocks and doing quite well.
Ram
FandangoDave5010
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Re: How much are your 529 Contributions

Post by FandangoDave5010 »

I have one grandchild, age nine. My wife and I are adequately covered by pensions and social security. Since getting RMD's from our IRA's, we have been contributing $1000/month to her 529 Account. Another $5000+ is added each year as a Christmas/Birthday gift. Her balance with Vanguard is currently $165,000. Contributions will continue until she goes to college. There is also the possibility of using some of it for private school tuition if her parents relocate and inherit our house.

Strange, but during most of our working years we were going from paycheck to paycheck. (This included the unwise purchase of a second home on the Jersey Shore; however, we did enjoy the weekend trips to the ocean beach.)

.
psy1
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Re: How much are your 529 Contributions

Post by psy1 »

The conventional wisdom is to contribute a "full" amount to a 529 account to cover education expenses. That is what I did and I regret it.

There are not many rules, yet there are too many rules.

The big limitation is 2 trades per year. Yes, it used to be one and now it has "deregulated" to a max of two trades a year. Once you meet the threshold, the investments are stuck. The rules are too paternalistic for me.

Yes, you can do some generation skipping taxes and so on, but I would rather just put the money in a tax efficient but taxable account and retain full control.
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dogagility
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Re: How much are your 529 Contributions

Post by dogagility »

socialforums2019 wrote: Sat Sep 12, 2020 8:44 am Trying to find out a "logical" way to determine monthly 529 contributions. Ideally, would like to cover 100% of college cost (tuition, housing, dining, books) and just trying to see how much others are contributing and how they made that determination. Or if its better to do a portion in 529 and then cash flow the rest.
I would first determine a range for how much the degree will cost. Use Net Price Calculators for several types of colleges. Then add 4% inflation. At the end of the day, many parents with young kids save an amount equal to the expected cost of an in state flagship university.

Adjust as the years go by. Your financial situation will change.

However, I would not expect to receive any need-based aid. Merit aid at many private colleges (not the tippy top ones) is given out like candy... the college cost on the website is just a sticker price that most people don't pay. Merit aid at public universities is very limited.

If you're adequately saving for retirement, I don't agree with others posting that you should "cash flow" college expenses. Save in some vehicle.
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mjb
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Re: How much are your 529 Contributions

Post by mjb »

socialforums2019 wrote: Sat Sep 12, 2020 8:44 am Trying to find out a "logical" way to determine monthly 529 contributions. Ideally, would like to cover 100% of college cost (tuition, housing, dining, books) and just trying to see how much others are contributing and how they made that determination. Or if its better to do a portion in 529 and then cash flow the rest.
Something to consider is 529 assets in most circumstances still count as assets for FAFSA. Retirement savings do not. Annual contributions into retirement account so count as income for the FAFSA even if tax deductible.

So from an overall perspective, in most cases maxing retirement contributions first and then adding leftover savings to a 529 is a better overall return. Then assume to reduce retirement contributions during your child's college years and pay as much costs out of income. If you search there are a few threads explaining this in more detail.

FWIW, this is the strategy i am taking.

Nothing in this post is intended to be specific financial, legal, or tax advice
SchruteB&B
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Re: How much are your 529 Contributions

Post by SchruteB&B »

ram wrote: Sat Sep 12, 2020 3:58 pm
runner540 wrote: Sat Sep 12, 2020 3:49 pm
ram wrote: Sat Sep 12, 2020 3:23 pm We always put in enough to get the state tax credit. Later once mortgage was all paid up, we diverted that payment to 529 accounts. We ended up over contributing. (kids got substantial scholarships)
You know you can take out the amount of the scholarships?
I did not know it during the years that they got the scholarships. Can it be taken out many years later ( like you can do in a HSA). I am OK with letting it grow tax free for the next generation. It is in 100% stocks and doing quite well.
The rules governing 529s (IRS Pub 970) do not specifically say. Conventional wisdom seems to be that to be safe you should do everything in the same year. A good community discussion of the issue: https://ttlc.intuit.com/community/colle ... /00/825550
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JonnyDVM
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Re: How much are your 529 Contributions

Post by JonnyDVM »

Up to the state tax deduction annually currently 8k per child. I’ve mentioned this here before, but I did some digging. Researched some things on the internet. Made a few phone calls. It turns out colleges will accept money that doesn’t come out of a 529. A Roth IRA. Taxable investments. Savings accounts. They’ll take it. Doesn’t matter.

Overfunding a 529 is an expensive error. It’s not hard to find prior examples of people who have done just that posting here with the replies consistently “roll it over to your grandchildren” or “take a $90,000 pottery class”. I’d prefer to not be in that situation.
Last edited by JonnyDVM on Sun Sep 13, 2020 9:43 pm, edited 1 time in total.
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SchruteB&B
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Re: How much are your 529 Contributions

Post by SchruteB&B »

JonnyDVM wrote: Sun Sep 13, 2020 7:34 am Up to the state tax deduction annually currently 8k per child. I’ve mentioned this here before, but I did some digging. Researched some things on the internet. Made a few phone calls. It turns out colleges will accept money that doesn’t come out of a 529. A Roth IRA. Taxable investments. Savings accounts. They’ll take it. Doesn’t matter.

Overfunding a 529 is an expensive error. It’s not hard to find prior examples of people who have done just that posting here with the replies consistently “roll it over to your grandchildren” or “take a 90,000 pottery class”. I’d prefer to not be in that situation.
Yes indeed! Colleges will accept money from any source!! :D :greedy

It is a balancing act to fund the 529. Overfunding can be an issue (although as with all financial things I suspect we see this on Bogleheads far more than in “regular” society!) Every dollar that I underfund my 529 will have to be paid for by current cash flow (which is income that was just taxed at 40%) or by selling from a taxable brokerage (gains taxed at 29%) vs. the gains in my 529 coming out tax free.
FBanks
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Re: How much are your 529 Contributions

Post by FBanks »

First, we have a 6m emergency fund;
Second, we max out: 401k/hsa/fsa/backdoor roths;
Then we put $10k per child/ per year in 529s. We’ve done this since birth.

Why?

We want to retire by 50, the same time our kids will be ready for college. We want to pay for college without having to realize taxable income to pay for it. That’s the biggest advantage I see to early-ish retirees that intend to cover 100% of college, that and of course the tax free growth.

Note that we’re high income earners and will want to do roth conversions in retirement, so it’s critical that our expenses trigger the least amount of tax possible to give us the most headroom for those conversions. If we intended to work through college, we may have made different decisions. However, I think it’s a good exercise for everyone to assume that they’ll be unemployed in their 50s (very common due to layoffs) and save/invest accordingly.
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socialforums2019
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Re: How much are your 529 Contributions

Post by socialforums2019 »

Someone want to check my estimates calculations below? Please note that my numbers are "all-in" and includes tuition, on-campus housing, books and materials and misc fees.

- Total current cost
In state public: $40K/year
Private: $73K/year

- Anticipated cost in 16 years
In state public: $59K/year
Private: $123K/year

If the above is true, it brings total 4 year costs to
In state public: $234K
Private: $493K
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dogagility
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Re: How much are your 529 Contributions

Post by dogagility »

mjb wrote: Sun Sep 13, 2020 7:15 am Something to consider is 529 assets in most circumstances still count as assets for FAFSA. Retirement savings do not. Annual contributions into retirement account so count as income for the FAFSA even if tax deductible.
Most Bogleheads (including the OP) are unlikely to receive any FAFSA-based aid except for loans.
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife
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dogagility
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Re: How much are your 529 Contributions

Post by dogagility »

socialforums2019 wrote: Sun Sep 13, 2020 8:26 am Someone want to check my estimates calculations below? Please note that my numbers are "all-in" and includes tuition, on-campus housing, books and materials and misc fees.

- Total current cost
In state public: $40K/year
Private: $73K/year

- Anticipated cost in 16 years
In state public: $59K/year
Private: $123K/year

If the above is true, it brings total 4 year costs to
In state public: $234K
Private: $493K
If these are sticker prices, then the cost for the public is likely accurate.

For most privates (excluding the need-blind privates), people rarely pay the sticker price. These colleges use "merit" aid as a marketing tool to attract students. For such colleges, I suggest running their individual Net Price Calculator. Pick a few and see what numbers are returned.
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife
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teen persuasion
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Re: How much are your 529 Contributions

Post by teen persuasion »

We've done zero to 529 accounts.

When I first learned about them, I looked into the rules, and rapidly realized they would be counterproductive for our family, despite the state tax break. The 529 balances would get included in Available Assets on the FAFSA, increasing our EFC (decreasing aid). That money would be better contributed to retirement accounts (which are not included in Available Assets), reducing both federal and state taxes and further increasing our refundable tax credits (both state and federal). Those refunds were further used to pay down our high rate mortgage (home equity not included in Available Assets) and later increase retirement accounts (Roth IRAs).

Over the years, as we've gotten closer to maxing all retirement accounts available to us, the limits keep increasing so that we rarely can fill all and have excess to save elsewhere. First it was the inflation increases, then added an HSA, then reached 50 and added catchup contributions, then finally last year I got access to an employer plan (previously only spouse had access)... If we ever get to the point we have excess $ to save and have exhausted all tax deferred contribution limits, the choice will be between taxable and 529. At our income, taxable would be zero LTCG, same as 529. Both would be included in Available Assets at the same rate. 529 would have a state tax break, taxable would not. But 529 has more restrictions. In theory, we could run cash payments for college expenses thru a 529 to capture the state tax break. In practice, we generally have to claim a portion of scholarship money as taxable income to have enough tuition expenses to claim the AOTC, for the 40% refundable portion of the credit (we have more nonrefundable credits than tax owed, so some go to waste, sadly).

We are likely to RE before DS5 enters college; next year will be the first tax year that will affect his FAFSA, so we are again crunching the numbers to decide if OMY or FIRE makes more sense - for financial aid, FIRE looks better.
Last edited by teen persuasion on Sun Sep 13, 2020 8:51 am, edited 1 time in total.
griswoldfamilyxmas
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Re: How much are your 529 Contributions

Post by griswoldfamilyxmas »

livesoft wrote: Sat Sep 12, 2020 8:55 am If your family is eligible for the American Opportunity Tax Credit, then that is a better deal than 529 plan: Pay $4,000 a year and get $2,500 a year back. You cannot use 529 funds to do that, but need to use taxable income for the $4,000. That's like a 2500 / 4000 = 62.5% return on your money in about a day.

To answer your question: We did not contribute to 529 plans on a schedule, but every so often added some money. For our youngest, college was about $20,000 to $22,000 total annual expenses which is list price and no financial aid.
I'm not an expert, but I believe you can use 529 funds and still receive the AOTC. See http://www.umsl.edu/~geislerg/articles/ ... 0Nov15.pdf
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mmmodem
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Re: How much are your 529 Contributions

Post by mmmodem »

$0 for us. A 529 doesn't make financial sense for us, either.

As others have already reasoned, number one priority is to max out tax advantaged accounts.

After that we have chosen to pay off our primary home before contributing to a 401k. This is because equity in a Primary home does not count towards Expect Family Contribution on FAFSA. At our income level, we don't expect to receive anything outside of loans. I don't even expect to bother to fill one out. If we are employed, we will cash flow college. Howevery, I cannot predict the future. If we were underemployed, then paying off the home first will maximize financial aid that my children receives.

We also have the option of using retirement accounts like our 401k and Roth IRA to pay for college penalty free. Effectively, we will achieve the same or better tax treatment than a 529 if we choose to.
https://www.madfientist.com/how-to-acce ... nds-early/

My children do have 529 accounts set up by their loving aunt. All gift money goes in there. We have no access to this money. The funds will likely be used on their final year of college because of FAFSA rules.
donaldfair71
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Re: How much are your 529 Contributions

Post by donaldfair71 »

Jack FFR1846 wrote: Sat Sep 12, 2020 3:39 pm I would put the $2k in and then pull it right back out.
We plan on cash flowing some of our children’s college, and will do the same. Put into the stable value, turn around and take right back out.
KlangFool
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Re: How much are your 529 Contributions

Post by KlangFool »

dogagility wrote: Sun Sep 13, 2020 8:28 am
mjb wrote: Sun Sep 13, 2020 7:15 am Something to consider is 529 assets in most circumstances still count as assets for FAFSA. Retirement savings do not. Annual contributions into retirement account so count as income for the FAFSA even if tax deductible.
Most Bogleheads (including the OP) are unlikely to receive any FAFSA-based aid except for loans.

dogagility,

Unless OP is unemployed/under-employed and/or early retired a few years before the kid goes to college.


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kelway
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Re: How much are your 529 Contributions

Post by kelway »

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Last edited by kelway on Sun Sep 13, 2020 9:13 am, edited 1 time in total.
donaldfair71
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Re: How much are your 529 Contributions

Post by donaldfair71 »

griswoldfamilyxmas wrote: Sun Sep 13, 2020 8:50 am
livesoft wrote: Sat Sep 12, 2020 8:55 am If your family is eligible for the American Opportunity Tax Credit, then that is a better deal than 529 plan: Pay $4,000 a year and get $2,500 a year back. You cannot use 529 funds to do that, but need to use taxable income for the $4,000. That's like a 2500 / 4000 = 62.5% return on your money in about a day.

To answer your question: We did not contribute to 529 plans on a schedule, but every so often added some money. For our youngest, college was about $20,000 to $22,000 total annual expenses which is list price and no financial aid.
I'm not an expert, but I believe you can use 529 funds and still receive the AOTC. See http://www.umsl.edu/~geislerg/articles/ ... 0Nov15.pdf
That is correct. But you can’t double dip. So if you pull out 20k from 529 and only have 20k expenses, for 4k you can only claim the AOTC or the 529 benefits, not both.
stoptothink
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Re: How much are your 529 Contributions

Post by stoptothink »

mmmodem wrote: Sun Sep 13, 2020 8:57 am $0 for us. A 529 doesn't make financial sense for us, either.

As others have already reasoned, number one priority is to max out tax advantaged accounts.

After that we have chosen to pay off our primary home before contributing to a 401k. This is because equity in a Primary home does not count towards Expect Family Contribution on FAFSA. At our income level, we don't expect to receive anything outside of loans. I don't even expect to bother to fill one out. If we are employed, we will cash flow college. Howevery, I cannot predict the future. If we were underemployed, then paying off the home first will maximize financial aid that my children receives.

We also have the option of using retirement accounts like our 401k and Roth IRA to pay for college penalty free. Effectively, we will achieve the same or better tax treatment than a 529 if we choose to.
https://www.madfientist.com/how-to-acce ... nds-early/

My children do have 529 accounts set up by their loving aunt. All gift money goes in there. We have no access to this money. The funds will likely be used on their final year of college because of FAFSA rules.
529s were not even a consideration for us until we were able to max out all tax-advantaged space and were getting a head start on paying off our home (totally paid for as of May). As it is, my wife is still not totally comfortable with it and has stated many times that she'd prefer I spent (at least some of) the money on myself. In our budget we have monthly personal spending allowances; my wife's goes to clothes, going out and gifting to friends, etc. and my allowance just goes directly to the 529s. If we were ever needing to cut back, it would be the first thing in our budget that's gone. To me, it's the most straightforward way to create a legacy fund; I'd prefer to help my future grandkids than get another gadget.
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