stoptothink wrote: ↑Sun Sep 13, 2020 9:13 am
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.
OP, what benefit do you get by contributing to a 529 account? What is the alternative? For the most part, all the other tax advantaged accounts should be maxed out before you get to the 529. If the student receives financial aid, paying off the home is usually a good strategy.
Usually, the comparison is 529 vs taxable, so your tax rate comes into play (variable). And how long you have to invest (variable) and what kind of return you expect (variable). The way I see it is if I put $100k into 529 vs taxable and it doubles to $200k when it's used for qualified expenses, NOT putting it in 529 is going to cost me $20k in taxes that I have to pay from elsewhere. A lower tax rate reduces the benefit. Any state tax benefit or other advantage is a plus.
To me the biggest variable is how much the student is going to use. Zero if not going to college. $30k/year at a public university for 4 years. Can the finish early in 3? Take an extra year? (90-150k) You can break down and try to predict the cost better using specific state school and parameters, but I don't think it's that useful or accurate. I used 10k tuition + 20k room, board, book, and other eligible expenses. Zero inflation. Big round numbers. If you plan private schools, double that to $60k/year (180-300k). And if you add graduate or professional schools, you can double again.
Make your best estimate and pick a number and hope to come close. What's the least you think you'll spend, what's the most? What's likely? A good number is between least and likely, since there's heavier immediate cost going over than under. But if you don't mind going because there are other kids following, then it's only the last one you have to worry about getting more exact. I'm prepared that if it goes over a little that it becomes the grandkids funds with many years of growth, that little should grow to a substantial amount.
I thought HSA claims many years later was a pretty crazy idea, but 529 is another dimension. Beware the specific rules about school year and calendar year of when tuition payment are made can be overly restrictive. I wouldn't try to overcomplicate an already challenging maze, and try to keep as many payments in the year in question as possible, and definitely close the chapter by graduation or soon thereafter. Any potential gains not worth the risk for me that small innocent mistakes come back to bite you or there are big program overhauls.