How much are your 529 Contributions

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livesoft
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Re: How much are your 529 Contributions

Post by livesoft »

griswoldfamilyxmas wrote: Sun Sep 13, 2020 8:50 amI'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
Yes, and we did. But while $4,000 used for the AOTC can come from the 529 plan, the money that comes from the 529 plan does not get tax benefit in that the gains must be declared and taxed as ordinary income on a child's tax return as explained in the link you provided and also in IRS Publication 970. Then if the child has low enough income, this may lead to no additional tax. We actually did exactly all this.

Thanks for the reminder!
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psy1
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Re: How much are your 529 Contributions

Post by psy1 »

The thing to do is pay $4000 of tuition with parents' cash and have the 529 distribution paid to the child's bank account which then pays the university for the rest.
keystone
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Re: How much are your 529 Contributions

Post by keystone »

My goal has been to have enough saved in the 529 plan to fund the equivalent of 2 years worth of tuition plus room and board for my state's public university. My son is currently 6 and I have enough for about 1.5 years, so I'm almost there. I'm only adding about $1-2K per year at this point.

For reasons that others have mentioned, I would rather under-fund than over-fund the 529 in order to take advantage of tax benefits such as the AOTC. Plus there is always the unknown as to whether your children will even go to college or get scholarships, so I'd rather play it safe. In addition, being an older parent like myself provides additional college funding flexibility in that I will be over 59.5 for some of my son's future college years, so tapping into retirement accounts is a viable option.
runner540
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Re: How much are your 529 Contributions

Post by runner540 »

keystone wrote: Sun Sep 13, 2020 9:24 am My goal has been to have enough saved in the 529 plan to fund the equivalent of 2 years worth of tuition plus room and board for my state's public university. My son is currently 6 and I have enough for about 1.5 years, so I'm almost there. I'm only adding about $1-2K per year at this point.

For reasons that others have mentioned, I would rather under-fund than over-fund the 529 in order to take advantage of tax benefits such as the AOTC. Plus there is always the unknown as to whether your children will even go to college or get scholarships, so I'd rather play it safe. In addition, being an older parent like myself provides additional college funding flexibility in that I will be over 59.5 for some of my son's future college years, so tapping into retirement accounts is a viable option.
Did you know that if your kid gets a scholarship, you can take the amount of the scholarship out of the 529?
You can also use a 529 for things other than 4-year college (vocational school, k-12).
infotrader
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Re: How much are your 529 Contributions

Post by infotrader »

I have never saved for kids' college.
I think 529 is for those who have income higher than 250k with no chance of getting grants or scholarships or people who live in states which match 529 contributions.
816_Feet
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Re: How much are your 529 Contributions

Post by 816_Feet »

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
KlangFool - I always appreciate your insight. Your views on 529s are logical, but I always find myself somewhere in between ranges of income that would make the choice more obvious. Our income is at a spot between high-income (just cash flow college expenses) and moderate income (not saving enough for retirement so putting money in a 529 is lower priority). Our approach thus far has been to save roughly half of projected expenses in 529s.

A) I think we can afford to save for college. We max out a 401k, 457b, and both of our rIRAs, but not a 403b that's also available to us. No, I can't think of how we would fund these accounts if one of us was under or unemploymed for a long period of time (DW has secure government job). If I'm understanding correctly, this is your main point. Saving for the unexpected in a taxable account is more prudent than taking the marginal savings from a state tax credit and tax free growth of a 529 because unemployment at the ages you mention is common and people don't prepare for it.

B) We don't necessarily need to save for college, but we get a 5% state tax deduction and it allows the money to grow tax free without touching our rIRAs later on.

i) We don't add much to savings beyond the tax deferred/advantaged accounts mentioned above. Our income/expenses do not currently support it. This may change once we're not paying for daycare.

ii) I'm comfortable with our annual savings, but it's in accounts that are mostly unavailable to us for quite some time.

C)

i) I would prefer to leave our IRAs alone if possible.

ii) Our LTCG rate is 15%.

iii) We receive a 5% state tax credit and our state (IL) has low fee index fund options through Brightstart/Vanguard. We've been saving $250/month per kid which is projected to be 50% of the cost of an instate public tuition based on age and projections of college cost growth.
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dogagility
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Re: How much are your 529 Contributions

Post by dogagility »

KlangFool wrote: Sun Sep 13, 2020 9:06 am
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.
Unless OP is unemployed/under-employed and/or early retired a few years before the kid goes to college.
Retired early, yes; one can plan for that possibility if that is the OP's goal. The OP didn't mention this as a goal.

Making a 10 - 20 year long college savings plan based upon the potential of being unemployed/under-employed at the time of FAFSA submission seems like folly to me.
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KlangFool
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Re: How much are your 529 Contributions

Post by KlangFool »

dogagility wrote: Sun Sep 13, 2020 10:22 am
KlangFool wrote: Sun Sep 13, 2020 9:06 am
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.
Unless OP is unemployed/under-employed and/or early retired a few years before the kid goes to college.
Retired early, yes; one can plan for that possibility if that is the OP's goal. The OP didn't mention this as a goal.

Making a 10 - 20 year long college savings plan based upon the potential of being unemployed/under-employed at the time of FAFSA submission seems like folly to me.

dogagility,

Depending on the job and industry, assuming that a person might be unemployed and/or under-employed in the 40s and 50s might be realistic.


KlangFool
KlangFool
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Re: How much are your 529 Contributions

Post by KlangFool »

816_Feet wrote: Sun Sep 13, 2020 9:58 am

A) I think we can afford to save for college. We max out a 401k, 457b, and both of our rIRAs, but not a 403b that's also available to us.

i) I would prefer to leave our IRAs alone if possible.

ii) Our LTCG rate is 15%.

iii) We receive a 5% state tax credit and our state (IL) has low fee index fund options through Brightstart/Vanguard. We've been saving $250/month per kid which is projected to be 50% of the cost of an instate public tuition based on age and projections of college cost growth.

816_Feet,

In your case, it is between


A) Funding the 403B and save Federal and State income taxes and use Roth IRA contribution to a college education.


B) Do not fund 403B and fund 529 and pay Federal income tax. And, do not use Roth IRA for a college education.


Is (B) really better than (A)? You pay more taxes and leave less money in your own pocket.


KlangFool
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anon_investor
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Re: How much are your 529 Contributions

Post by anon_investor »

I only ever contribute to the state income tax deduction max. I have lived in a few states so the amount it varies. Virginia is the most generous with the deduction, $4k per account not tax return. So we had 2 kids, each spouse had an account for each kid, 4 total accounts, $16k in annual contributions, all VA income tax deductible. But moved from VA a few years ago. So we contribute much less, even though 3 kids now.
BernardShakey
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Re: How much are your 529 Contributions

Post by BernardShakey »

SchruteB&B wrote: Sun Sep 13, 2020 7:49 am
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.
Exactly. It's not rocket science.
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Lee_WSP
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Re: How much are your 529 Contributions

Post by Lee_WSP »

I personally don't find the tax advantages worth it. If I had a lot of excess income, the scales might be tipped the other way.
BernardShakey
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Re: How much are your 529 Contributions

Post by BernardShakey »

stoptothink wrote: Sun Sep 13, 2020 9:13 am
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.
Wow, that's got to be frustrating. Someday your wife will hopefully recognize your foresight. "Monthly personal spending allowance" --- that's a foreign concept to me (as it seems to be for you as well) :wink:
An important key to investing is having a well-calibrated sense of your future regret.
BernardShakey
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Re: How much are your 529 Contributions

Post by BernardShakey »

Lee_WSP wrote: Sun Sep 13, 2020 11:28 am I personally don't find the tax advantages worth it. If I had a lot of excess income, the scales might be tipped the other way.
Yes, good point. 529s are definitely more beneficial for higher earners. Those who have maxed out all tax-advantaged retirement accounts already, those above Roth contribution limits (and where TIRA makes backdoor Roth a challenge due to pro-rata rules), and of course those that live in a state with a state tax deduction.
An important key to investing is having a well-calibrated sense of your future regret.
BogleDan
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Re: How much are your 529 Contributions

Post by BogleDan »

We contribute about $10k year/child. Our assumptions are 4 years of expensive private school. That's roughly $60k year currently. The expectation is that we'll need to supplement the 529 savings, but the tax free earnings over 18 years are certainly a huge boon. That seems to be the part of the equation that KlangFool is missing.

Also, I'm in California, so no other tax breaks.
toocold
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Re: How much are your 529 Contributions

Post by toocold »

We have two kids in high school and we plan to cover the cost of undergrad. We are targeting 150k each. This is the middle figure between an elite private school and a good public school here in our state. If they get into an ivy, we'll fund that extra. If they don't, we will have contributed too much.
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MrBobcat
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Re: How much are your 529 Contributions

Post by MrBobcat »

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.
We never did contribute to 529s as we wanted to take care of our own financial security first. Pay off business debt, max retirements, max HSA, pay off house... we never had enough to put into 529s and it worked out as by the time our 3 kids went to state university we were able to just cash flow it. Once they were done we put all the extra money towards paying off the mortgage and then to a taxable account. I may be wrong but they just seemed more of a PITA than the benefits were worth. We were also young when we had kids and had hardly anything while they were growing up (I'm 54 and our youngest graduated from college 5 years ago).

Now if all those other things were taken care of I might have considered putting money into a 529 vs taxable but we never got to that point so I don't know what we would have done, though probably would have just put it in a taxable account as less strings.
stoptothink
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Re: How much are your 529 Contributions

Post by stoptothink »

BernardShakey wrote: Sun Sep 13, 2020 11:32 am
stoptothink wrote: Sun Sep 13, 2020 9:13 am
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.
Wow, that's got to be frustrating. Someday your wife will hopefully recognize your foresight. "Monthly personal spending allowance" --- that's a foreign concept to me (as it seems to be for you as well) :wink:
Well, we do save ~60% of gross income so most people outside of Bogleheads would (and do - both our parents, ALL her friends) see her point. I kind of see her point too, except we're different in that my material wants are pretty much nothing, so I'd rather get a state deduction than throw it away on some consumable I don't even want. Furthermore, both of us didn't receive a penny of financial assistance from parents for school (wife is actually still in school) and we have among the cheapest in-state university options in the country, so we've struggled to decide whether funding their education is actually a good thing or not. Yes, we're definitely in the "skin in the game" camp, but that's a different topic.

Having both grown up in poverty, raising "rich kids" has been our single greatest struggle as parents.
inbox788
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Re: How much are your 529 Contributions

Post by inbox788 »

stoptothink wrote: Sun Sep 13, 2020 9:13 am529s 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.
+1

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.
SchruteB&B wrote: Sun Sep 13, 2020 7:18 amThe 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
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.
OnLevel
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Re: How much are your 529 Contributions

Post by OnLevel »

KlangFool wrote: Sat Sep 12, 2020 1:20 pm
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
Very much agree with KlangFool. We're putting all our extra money after maxing out tax-advantaged accounts toward paying off debt and taxable accounts. No 529.

If I have a job when kids are in College, I'll cash flow it. If I'm not employed, then they'll be able to get whatever financial aid is available and pay the balance on their own.
FBanks
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Re: How much are your 529 Contributions

Post by FBanks »

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
Your numbers are similar to my calculations. Scary, huh.
rvfigs
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Re: How much are your 529 Contributions

Post by rvfigs »

Here are some things to consider with a 529 account:

1. How do financial aid calculations factor in your 529 fund balance and your contributions? Yes, there is a mechanism by which the financial aid department will penalize or reduce your expected family contribution. "The 529 plans owned by college students or their parents count as assets and reduce need-based aid by a maximum of 5.64 percent of the asset's value".

2. Will something like a Roth account be better suited for college savings? Most higher education institutions, don't take into account your retirement fund balance...only the contributions you make to retirement accounts.

3. Can you finance your retirement? Can you finance college?

My take on college savings is the following: If you come to the table with a bunch of money in your 529, don't expect to get any help from higher ed.

We opted to stop funding a 529 years ago. We focused more on our retirement fund and debt reduction.

Looking back, we are very happy with our decision. We will just pay as it comes up...
Lee_WSP
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Re: How much are your 529 Contributions

Post by Lee_WSP »

BernardShakey wrote: Sun Sep 13, 2020 11:39 am
Lee_WSP wrote: Sun Sep 13, 2020 11:28 am I personally don't find the tax advantages worth it. If I had a lot of excess income, the scales might be tipped the other way.
Yes, good point. 529s are definitely more beneficial for higher earners. Those who have maxed out all tax-advantaged retirement accounts already, those above Roth contribution limits (and where TIRA makes backdoor Roth a challenge due to pro-rata rules), and of course those that live in a state with a state tax deduction.
Plus they lose their advantage the older the youngest child gets. Eventually becoming nearly pointless to tie up money that could have been more flexible if put into taxable. (Unless you get state tax deductions, but you'd have to be taxed pretty high too (honestly I haven't done the math as my state doesn't do much))
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theRoCK
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Re: How much are your 529 Contributions

Post by theRoCK »

I had been meaning to ask a similar question, so instead of creating a new thread, piggybacking on this one. I am also thinking of whether to contribute to 529 and if so, how much. This is my current situation:

Taxes:
TX resident so no state benefit for 529 contributions.
Filing status: MFJ
Marginal tax rate: 24% or 32% depending on the non-W2 income.
LTCG rate is 15%.

Savings:
Max 401k for both.
Max backdoor Roth for both.
Max family HSA contributions.
~$72k annually in taxable

3 year old daughter, so quite a while to go before college.
Would have paid off the mortgage before she goes to college and no other debt.
Expect to have enough assets to not qualify for any need based financial aid, and to pay for in-state public college without affecting retirement plans, and maybe pay for out of state or private college but cut back on non-essential retirement costs, like travel etc.

Reason to do a 529 would be for the tax free growth towards college expenses.

Reason to not do a 529 would be the limits on how it can be used. She may choose not to attend college etc.

I am thinking about hedging it by saving about half the expected amount in a 529, and the rest in a separate taxable account. Based on some college cost estimator tool, I figured saving about 600 per month should pay for in-state education at a public college in Texas. I already have about 20k in a Wisebanyan (now Axos Invest) account towards college.

Any thoughts on this plan?
Lee_WSP
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Re: How much are your 529 Contributions

Post by Lee_WSP »

theRoCK wrote: Sun Sep 13, 2020 9:42 pm Reason to do a 529 would be for the tax free growth towards college expenses.

Reason to not do a 529 would be the limits on how it can be used. She may choose not to attend college etc.

I am thinking about hedging it by saving about half the expected amount in a 529, and the rest in a separate taxable account. Based on some college cost estimator tool, I figured saving about 600 per month should pay for in-state education at a public college in Texas. I already have about 20k in a Wisebanyan (now Axos Invest) account towards college.

Any thoughts on this plan?
Stack all the "hedged" funding towards the early years. In fact, fund it all now if you can. I cannot recall if there is a yearly contribution limit.

The obvious reason being that the value of the 529 contribution declines the closer to college you get. Less chance of gains and an increased chance of actually losing money the closer to "withdrawal".

Which brings up another reason I highly disfavor them. It forces you to more or less use the money on dates certain.
runner540
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Re: How much are your 529 Contributions

Post by runner540 »

theRoCK wrote: Sun Sep 13, 2020 9:42 pm I had been meaning to ask a similar question, so instead of creating a new thread, piggybacking on this one. I am also thinking of whether to contribute to 529 and if so, how much. This is my current situation:

Taxes:
TX resident so no state benefit for 529 contributions.
Filing status: MFJ
Marginal tax rate: 24% or 32% depending on the non-W2 income.
LTCG rate is 15%.

Savings:
Max 401k for both.
Max backdoor Roth for both.
Max family HSA contributions.
~$72k annually in taxable

3 year old daughter, so quite a while to go before college.
Would have paid off the mortgage before she goes to college and no other debt.
Expect to have enough assets to not qualify for any need based financial aid, and to pay for in-state public college without affecting retirement plans, and maybe pay for out of state or private college but cut back on non-essential retirement costs, like travel etc.

Reason to do a 529 would be for the tax free growth towards college expenses.

Reason to not do a 529 would be the limits on how it can be used. She may choose not to attend college etc.

I am thinking about hedging it by saving about half the expected amount in a 529, and the rest in a separate taxable account. Based on some college cost estimator tool, I figured saving about 600 per month should pay for in-state education at a public college in Texas. I already have about 20k in a Wisebanyan (now Axos Invest) account towards college.

Any thoughts on this plan?
Also in a state with no income tax benefits and I'm using a 529. See details near the beginning of thread.

I'm amazed how many Bogleheads are rationalizing not using tax advantaged space (after saving a lot for retirement) due to one or more of these factors:
1. "my kid might not go to college" - do you really think they'll never get any post-high school education at all (vocational training)? It can also be used for K-12 now.
2. "it might reduce financial aid" - most financial "aid" is loans, you're not missing much if you have saved instead.
3. "I'm just going to cash flow it in 15 years" - I hope for the best in my career and life but I plan for contingencies, like I might not keep making current level of income.
4. "my kid might get a scholarship" - you can take out the equivalent amount from the 529 if this wonderful event happens
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theRoCK
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Re: How much are your 529 Contributions

Post by theRoCK »

Lee_WSP wrote: Sun Sep 13, 2020 10:04 pm Stack all the "hedged" funding towards the early years. In fact, fund it all now if you can. I cannot recall if there is a yearly contribution limit.

The obvious reason being that the value of the 529 contribution declines the closer to college you get. Less chance of gains and an increased chance of actually losing money the closer to "withdrawal".

Which brings up another reason I highly disfavor them. It forces you to more or less use the money on dates certain.
Ah, good point. I will look into the annual limits, but will definitely take advantage of making the contributions to 529 now so I have longer for tax-advantaged growth.
Mode32
Posts: 196
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Re: How much are your 529 Contributions

Post by Mode32 »

runner540 wrote: Sun Sep 13, 2020 10:17 pm
theRoCK wrote: Sun Sep 13, 2020 9:42 pm I had been meaning to ask a similar question, so instead of creating a new thread, piggybacking on this one. I am also thinking of whether to contribute to 529 and if so, how much. This is my current situation:

Taxes:
TX resident so no state benefit for 529 contributions.
Filing status: MFJ
Marginal tax rate: 24% or 32% depending on the non-W2 income.
LTCG rate is 15%.

Savings:
Max 401k for both.
Max backdoor Roth for both.
Max family HSA contributions.
~$72k annually in taxable

3 year old daughter, so quite a while to go before college.
Would have paid off the mortgage before she goes to college and no other debt.
Expect to have enough assets to not qualify for any need based financial aid, and to pay for in-state public college without affecting retirement plans, and maybe pay for out of state or private college but cut back on non-essential retirement costs, like travel etc.

Reason to do a 529 would be for the tax free growth towards college expenses.

Reason to not do a 529 would be the limits on how it can be used. She may choose not to attend college etc.

I am thinking about hedging it by saving about half the expected amount in a 529, and the rest in a separate taxable account. Based on some college cost estimator tool, I figured saving about 600 per month should pay for in-state education at a public college in Texas. I already have about 20k in a Wisebanyan (now Axos Invest) account towards college.

Any thoughts on this plan?
Also in a state with no income tax benefits and I'm using a 529. See details near the beginning of thread.

I'm amazed how many Bogleheads are rationalizing not using tax advantaged space (after saving a lot for retirement) due to one or more of these factors:
1. "my kid might not go to college" - do you really think they'll never get any post-high school education at all (vocational training)? It can also be used for K-12 now.
2. "it might reduce financial aid" - most financial "aid" is loans, you're not missing much if you have saved instead.
3. "I'm just going to cash flow it in 15 years" - I hope for the best in my career and life but I plan for contingencies, like I might not keep making current level of income.
4. "my kid might get a scholarship" - you can take out the equivalent amount from the 529 if this wonderful event happens
+1
BernardShakey
Posts: 162
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Location: CA

Re: How much are your 529 Contributions

Post by BernardShakey »

runner540 wrote: Sun Sep 13, 2020 10:17 pm
theRoCK wrote: Sun Sep 13, 2020 9:42 pm I had been meaning to ask a similar question, so instead of creating a new thread, piggybacking on this one. I am also thinking of whether to contribute to 529 and if so, how much. This is my current situation:

Taxes:
TX resident so no state benefit for 529 contributions.
Filing status: MFJ
Marginal tax rate: 24% or 32% depending on the non-W2 income.
LTCG rate is 15%.

Savings:
Max 401k for both.
Max backdoor Roth for both.
Max family HSA contributions.
~$72k annually in taxable

3 year old daughter, so quite a while to go before college.
Would have paid off the mortgage before she goes to college and no other debt.
Expect to have enough assets to not qualify for any need based financial aid, and to pay for in-state public college without affecting retirement plans, and maybe pay for out of state or private college but cut back on non-essential retirement costs, like travel etc.

Reason to do a 529 would be for the tax free growth towards college expenses.

Reason to not do a 529 would be the limits on how it can be used. She may choose not to attend college etc.

I am thinking about hedging it by saving about half the expected amount in a 529, and the rest in a separate taxable account. Based on some college cost estimator tool, I figured saving about 600 per month should pay for in-state education at a public college in Texas. I already have about 20k in a Wisebanyan (now Axos Invest) account towards college.

Any thoughts on this plan?
Also in a state with no income tax benefits and I'm using a 529. See details near the beginning of thread.

I'm amazed how many Bogleheads are rationalizing not using tax advantaged space (after saving a lot for retirement) due to one or more of these factors:
1. "my kid might not go to college" - do you really think they'll never get any post-high school education at all (vocational training)? It can also be used for K-12 now.
2. "it might reduce financial aid" - most financial "aid" is loans, you're not missing much if you have saved instead.
3. "I'm just going to cash flow it in 15 years" - I hope for the best in my career and life but I plan for contingencies, like I might not keep making current level of income.
4. "my kid might get a scholarship" - you can take out the equivalent amount from the 529 if this wonderful event happens
+2. Exactly. I don't understand the resistance. Once the tax advantaged retirement account space is used up, 529 makes a lot of sense.
An important key to investing is having a well-calibrated sense of your future regret.
inbox788
Posts: 7735
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Re: How much are your 529 Contributions

Post by inbox788 »

runner540 wrote: Sun Sep 13, 2020 10:17 pmI'm amazed how many Bogleheads are rationalizing not using tax advantaged space (after saving a lot for retirement) due to one or more of these factors:
1. "my kid might not go to college" - do you really think they'll never get any post-high school education at all (vocational training)? It can also be used for K-12 now.
2. "it might reduce financial aid" - most financial "aid" is loans, you're not missing much if you have saved instead.
3. "I'm just going to cash flow it in 15 years" - I hope for the best in my career and life but I plan for contingencies, like I might not keep making current level of income.
4. "my kid might get a scholarship" - you can take out the equivalent amount from the 529 if this wonderful event happens
What I don't understand is if money isn't going into a 529 fund, where does it wind up and what is the difference? If you can shelter it to get more financial aid, great, but isn't taxable account assets treated same as 529? And they probably don't consider that you'll lose 15 or 20 to taxes.
Lee_WSP
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Location: Arizona

Re: How much are your 529 Contributions

Post by Lee_WSP »

Well, a 529 has a "withdraw by" date or else there's a 10% penalty on top of ordinary income taxes. Combined with the fact that it's only tax advantaged growth, it's tax negative losses since you could have TLH'd a taxable account.

So, with less than 10 years to go, it's not really looking all that great.
manatee2005
Posts: 1080
Joined: Wed Dec 18, 2019 9:17 pm

Re: How much are your 529 Contributions

Post by manatee2005 »

Lee_WSP wrote: Mon Sep 14, 2020 12:03 am Well, a 529 has a "withdraw by" date or else there's a 10% penalty on top of ordinary income taxes. Combined with the fact that it's only tax advantaged growth, it's tax negative losses since you could have TLH'd a taxable account.

So, with less than 10 years to go, it's not really looking all that great.
I am using Roth IRA to save for college. Now that my income is too high, I am using backdoor roth and mega backdoor roth to put in about 40k into the Roth every year. Contributions can be taken out penalty free and I'll let what's left over ride for my retirement. I like it a lot better than 529.
Lee_WSP
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Location: Arizona

Re: How much are your 529 Contributions

Post by Lee_WSP »

manatee2005 wrote: Mon Sep 14, 2020 12:08 am
Lee_WSP wrote: Mon Sep 14, 2020 12:03 am Well, a 529 has a "withdraw by" date or else there's a 10% penalty on top of ordinary income taxes. Combined with the fact that it's only tax advantaged growth, it's tax negative losses since you could have TLH'd a taxable account.

So, with less than 10 years to go, it's not really looking all that great.
I am using Roth IRA to save for college. Now that my income is too high, I am using backdoor roth and mega backdoor roth to put in about 40k into the Roth every year. Contributions can be taken out penalty free and I'll let what's left over ride for my retirement. I like it a lot better than 529.
Personally, I'm of a mind to cash flow it or tell any children to pay their own way through college if I couldn't or contribute a fixed amount.

But a Roth withdrawal certainly isn't a bad way to do it if you don't have excess in taxable.
Downtown1
Posts: 5
Joined: Sat Sep 12, 2020 8:33 pm

Re: How much are your 529 Contributions

Post by Downtown1 »

BernardShakey wrote: Sun Sep 13, 2020 11:48 pm
runner540 wrote: Sun Sep 13, 2020 10:17 pm
theRoCK wrote: Sun Sep 13, 2020 9:42 pm I had been meaning to ask a similar question, so instead of creating a new thread, piggybacking on this one. I am also thinking of whether to contribute to 529 and if so, how much. This is my current situation:

Taxes:
TX resident so no state benefit for 529 contributions.
Filing status: MFJ
Marginal tax rate: 24% or 32% depending on the non-W2 income.
LTCG rate is 15%.

Savings:
Max 401k for both.
Max backdoor Roth for both.
Max family HSA contributions.
~$72k annually in taxable

3 year old daughter, so quite a while to go before college.
Would have paid off the mortgage before she goes to college and no other debt.
Expect to have enough assets to not qualify for any need based financial aid, and to pay for in-state public college without affecting retirement plans, and maybe pay for out of state or private college but cut back on non-essential retirement costs, like travel etc.

Reason to do a 529 would be for the tax free growth towards college expenses.

Reason to not do a 529 would be the limits on how it can be used. She may choose not to attend college etc.

I am thinking about hedging it by saving about half the expected amount in a 529, and the rest in a separate taxable account. Based on some college cost estimator tool, I figured saving about 600 per month should pay for in-state education at a public college in Texas. I already have about 20k in a Wisebanyan (now Axos Invest) account towards college.

Any thoughts on this plan?
Also in a state with no income tax benefits and I'm using a 529. See details near the beginning of thread.

I'm amazed how many Bogleheads are rationalizing not using tax advantaged space (after saving a lot for retirement) due to one or more of these factors:
1. "my kid might not go to college" - do you really think they'll never get any post-high school education at all (vocational training)? It can also be used for K-12 now.
2. "it might reduce financial aid" - most financial "aid" is loans, you're not missing much if you have saved instead.
3. "I'm just going to cash flow it in 15 years" - I hope for the best in my career and life but I plan for contingencies, like I might not keep making current level of income.
4. "my kid might get a scholarship" - you can take out the equivalent amount from the 529 if this wonderful event happens
+2. Exactly. I don't understand the resistance. Once the tax advantaged retirement account space is used up, 529 makes a lot of sense.
Agreed too. We’ve been putting a bit every month in 529s since birth of the kids who are now teens, also that’s also where any cash gifts they receive go. I think I can calibrate so we don’t massive “overfund” and tax-free growth over 18+ years seems a pretty decent way to fund college.
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anon_investor
Posts: 3751
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Re: How much are your 529 Contributions

Post by anon_investor »

manatee2005 wrote: Mon Sep 14, 2020 12:08 am
Lee_WSP wrote: Mon Sep 14, 2020 12:03 am Well, a 529 has a "withdraw by" date or else there's a 10% penalty on top of ordinary income taxes. Combined with the fact that it's only tax advantaged growth, it's tax negative losses since you could have TLH'd a taxable account.

So, with less than 10 years to go, it's not really looking all that great.
I am using Roth IRA to save for college. Now that my income is too high, I am using backdoor roth and mega backdoor roth to put in about 40k into the Roth every year. Contributions can be taken out penalty free and I'll let what's left over ride for my retirement. I like it a lot better than 529.
If you maxed those (and HSA) and were investing in taxable already, would you consider 529 then?
manatee2005
Posts: 1080
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Re: How much are your 529 Contributions

Post by manatee2005 »

anon_investor wrote: Mon Sep 14, 2020 12:32 am
manatee2005 wrote: Mon Sep 14, 2020 12:08 am
Lee_WSP wrote: Mon Sep 14, 2020 12:03 am Well, a 529 has a "withdraw by" date or else there's a 10% penalty on top of ordinary income taxes. Combined with the fact that it's only tax advantaged growth, it's tax negative losses since you could have TLH'd a taxable account.

So, with less than 10 years to go, it's not really looking all that great.
I am using Roth IRA to save for college. Now that my income is too high, I am using backdoor roth and mega backdoor roth to put in about 40k into the Roth every year. Contributions can be taken out penalty free and I'll let what's left over ride for my retirement. I like it a lot better than 529.
If you maxed those (and HSA) and were investing in taxable already, would you consider 529 then?
I am maxing those and dumping the rest in taxable, but my youngest kid is already in HS, so it's too late now to start 529. I was never a fan of 529, I lived in a state that didn't have tax break, and since I paid for my own college I didn't think I'd pay for my kids'. Now that my kids are in HS, I am realizing that I will have to pay for a large chunk because FAFSA doesn't work in my favor haha. EFC is pretty high.

I would recommend 529 for aunts/uncles and grandparents to contribute for their niece/nephew/grandkid. I wouldn't recommend it for parents. I just don't like having this money in a fund that's allocated for one thing that's not even for me. With Roth IRA it's basically if I don't use it for kid's college at least I know I'll use it for my retirement.

I am getting really mad about this whole cost of college thing now that's is coming close. $160k for a degree? That's nuts. We live in California and even if you go to a state UC school it's still $40k per year.
hoffse
Posts: 133
Joined: Wed Aug 03, 2016 7:47 am

Re: How much are your 529 Contributions

Post by hoffse »

We currently contribute up to our state tax deduction - $10k per year. Our state deduction gives us an immediate, guaranteed 5% return on that money, and the tax-free growth is bonus.

We max out all our other tax-advantaged space first. Our incomes are such that there will be no financial aid for us. There’s really no point in trying to artificially stay below some threshold for FAFSA.

We allocate a portion of our $10k/year to our niece, for whom we plan to provide some help when she starts college. I keep that money in a 529 purely because I don’t want my BIL having access to the account.

The remainder we dump in for our kid, which is pegged to be around the projected cost of in-state tuition, and we save extra in a taxable account earmarked for college in case our kid goes private (my husband and I both went to tier 1 private schools so this is on the table).

If we have a second kid we will probably do the same thing - fund 529 space up to the projected cost of in state tuition to take advantage of the tax-free growth, with taxable contributions earmarked for private school costs. That will push us more than $10k/year saved, but I don’t worry about getting that money out since you can take it out for scholarships.

It’s exceptionally likely that my kid will go to college. Quite literally every adult in my child’s extended family has an advanced degree of some type - and that’s on both sides of the family. None of us stopped at college. We intend to pay for college and may provide help for graduate or professional school as well. So it seems little really poor financial planning if we just decide to wing it when we get there.
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dogagility
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Re: How much are your 529 Contributions

Post by dogagility »

manatee2005 wrote: Mon Sep 14, 2020 3:29 am I am maxing those and dumping the rest in taxable, but my youngest kid is already in HS, so it's too late now to start 529. I was never a fan of 529, I lived in a state that didn't have tax break, and since I paid for my own college I didn't think I'd pay for my kids'. Now that my kids are in HS, I am realizing that I will have to pay for a large chunk because FAFSA doesn't work in my favor haha. EFC is pretty high.

I am getting really mad about this whole cost of college thing now that's is coming close. $160k for a degree? That's nuts. We live in California and even if you go to a state UC school it's still $40k per year.
This quote brings up these thoughts.

Unless a child goes part time or perhaps lives room and board free at home while attending community college, paying for a college degree themselves isn't feasible without taking on significant debt.

What many Bogleheads think of as "college" (sleep away from home for four years to get an undergraduate degree) is expensive.

Government-based aid for a typical Boglehead? Yeah, right. Here's an unsubsidized loan for you and websites for private lenders.

When push comes to shove, are you really going to saddle your child with a 27K loan in their name and a very large parent plus loan?
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife
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KingRiggs
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Re: How much are your 529 Contributions

Post by KingRiggs »

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
I suppose it depends on the state, but our in-state flagship universities run about $25k per year, all-in. Midwestern state, so maybe our schools are on the less pricey side. Just got done paying 4 years of in-state university for oldest, total sticker price $92k.
Advice = noun | Advise = verb | | Roth, not ROTH
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anon_investor
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Re: How much are your 529 Contributions

Post by anon_investor »

manatee2005 wrote: Mon Sep 14, 2020 3:29 am
anon_investor wrote: Mon Sep 14, 2020 12:32 am
manatee2005 wrote: Mon Sep 14, 2020 12:08 am
Lee_WSP wrote: Mon Sep 14, 2020 12:03 am Well, a 529 has a "withdraw by" date or else there's a 10% penalty on top of ordinary income taxes. Combined with the fact that it's only tax advantaged growth, it's tax negative losses since you could have TLH'd a taxable account.

So, with less than 10 years to go, it's not really looking all that great.
I am using Roth IRA to save for college. Now that my income is too high, I am using backdoor roth and mega backdoor roth to put in about 40k into the Roth every year. Contributions can be taken out penalty free and I'll let what's left over ride for my retirement. I like it a lot better than 529.
If you maxed those (and HSA) and were investing in taxable already, would you consider 529 then?
I am maxing those and dumping the rest in taxable, but my youngest kid is already in HS, so it's too late now to start 529. I was never a fan of 529, I lived in a state that didn't have tax break, and since I paid for my own college I didn't think I'd pay for my kids'. Now that my kids are in HS, I am realizing that I will have to pay for a large chunk because FAFSA doesn't work in my favor haha. EFC is pretty high.

I would recommend 529 for aunts/uncles and grandparents to contribute for their niece/nephew/grandkid. I wouldn't recommend it for parents. I just don't like having this money in a fund that's allocated for one thing that's not even for me. With Roth IRA it's basically if I don't use it for kid's college at least I know I'll use it for my retirement.

I am getting really mad about this whole cost of college thing now that's is coming close. $160k for a degree? That's nuts. We live in California and even if you go to a state UC school it's still $40k per year.
With no state income tax deduction on the contribution, I agree not really worth it. I have only ever contributed to the state income tax limit (whatever it was in the state I live in). I started when my kids were born, but they are all very small. But with 3 kids, whatever I have contributed even with tax free growth will not cover college for all of them. But since I max out all tax advantaged vehicles and already invest in taxable, 529 up to the state income tax limit makes sense to me.
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SmileyFace
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Re: How much are your 529 Contributions

Post by SmileyFace »

infotrader wrote: Sun Sep 13, 2020 9:57 am I have never saved for kids' college.
I think 529 is for those who have income higher than 250k with no chance of getting grants or scholarships or people who live in states which match 529 contributions.
Or for those that are maximizing their retirement savings (or meeting retirement saving goals), plan on paying for kids college, and would like to save a lot of additional money in saving for college (20+ years of taxable gains). Generally 529s have no impact on Scholarships or other merit-based aid.
toocold
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Re: How much are your 529 Contributions

Post by toocold »

runner540 wrote: Sun Sep 13, 2020 10:17 pm I'm amazed how many Bogleheads are rationalizing not using tax advantaged space (after saving a lot for retirement) due to one or more of these factors:
1. "my kid might not go to college" - do you really think they'll never get any post-high school education at all (vocational training)? It can also be used for K-12 now.
2. "it might reduce financial aid" - most financial "aid" is loans, you're not missing much if you have saved instead.
3. "I'm just going to cash flow it in 15 years" - I hope for the best in my career and life but I plan for contingencies, like I might not keep making current level of income.
4. "my kid might get a scholarship" - you can take out the equivalent amount from the 529 if this wonderful event happens
I generally agree with this statement.

With that said, I can understand the hesitancy. I think most people believe that college is too expensive -- almost as bad as healthcare in terms of inflation-- and there is now alot of questioning the value. The old age of a college graduate earning 1M more than a non-college graduate is being questioned, and even now companies like google are trying to streamline the cost.

For me personally, we contributed after fully funding retirement accounts, because I want my children to start their life without debt in a vehicle that is appropriate. And my overall portfolio and income (even in retirement) will prohibit them from getting loans and grants. We'll encourage them to apply to scholarships, and if we find that we over contribute, we'll be fine. I'm sure both with go to some graduate school.
Tattarrattat
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Re: How much are your 529 Contributions

Post by Tattarrattat »

We funded early and aggressively starting at birth in a state with a generous tax deduction. By the time college started, the amount in the account was about1/4 earnings, maybe a little more. So the tax free growth more or less paid for one out of the four years of school. We had maxed out retirement savings, were not Roth eligible. Seems like it was the right move for us. Actually overfunded a bit because of scholarships but you can take out the amount of the scholarships without penalty with no time limit. So one can wait til in a lower tax bracket to pull it out, even if many years later.
MarkBarb
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Re: How much are your 529 Contributions

Post by MarkBarb »

I looked at the cost of the more expensive in-state public universities in my state each year. Then I calculated how much it would cost for 5 years at that rate. Then I used a calculator to determine how much I needed to save each month so that my existing savings and future savings would be enough. I estimated that costs would grow roughly at the same rate as my savings. It started as $250/month for my first child and got up to $500/month/child.

I put money into 529 savings plans for about 10-12 years for each child. After that, I put the rest of the savings into taxable accounts. I don't get a state tax deduction in my state for 529 savings. My thought was that, the closer I got to using the money, the less valuable the tax free growth was. Also, the more I saved, the more likely it would be that I would over-save or have trouble spending the money on eligible expenses. For those reasons, I picked 10-12 years as the age at which a 529 no longer made sense for future savings.

Both kids are now in college and the plan worked out well for me. In fact, at one point my required savings started to drop below $500/child/month, but I kept up that rate because I thought that over-saving, especially in a taxable account, was better than under-saving. I retired earlier than expected, so it was nice to already have all the money I needed set aside.
runner540
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Re: How much are your 529 Contributions

Post by runner540 »

rvfigs wrote: Sun Sep 13, 2020 6:44 pm Here are some things to consider with a 529 account:

1. How do financial aid calculations factor in your 529 fund balance and your contributions? Yes, there is a mechanism by which the financial aid department will penalize or reduce your expected family contribution. "The 529 plans owned by college students or their parents count as assets and reduce need-based aid by a maximum of 5.64 percent of the asset's value".

2. Will something like a Roth account be better suited for college savings? Most higher education institutions, don't take into account your retirement fund balance...only the contributions you make to retirement accounts.

3. Can you finance your retirement? Can you finance college?

My take on college savings is the following: If you come to the table with a bunch of money in your 529, don't expect to get any help from higher ed.

We opted to stop funding a 529 years ago. We focused more on our retirement fund and debt reduction.

Looking back, we are very happy with our decision. We will just pay as it comes up...
There seems to be a myth that there is some financial scenario where a household with money to max retirement accounts, can get lots of grant or scholarship money from a college, as long as they don't have 529s. If there was a special income/asset formula that resulted in need-based aid, that Bogleheads could optimize, we would all know about it. It's just not there unless you retire before kid starts college and have very little income or assets outside of home/retirement.

1. "Help" from higher ed is mostly loans, except a few cases: merit scholarships (academic, athletic, etc) which are not affected by 529s, and need-based scholarships or grants which are targeted at family's making way less than a lot of the Bogleheads maxing multiple retirement accounts.
KlangFool
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Re: How much are your 529 Contributions

Post by KlangFool »

toocold wrote: Mon Sep 14, 2020 7:42 am
runner540 wrote: Sun Sep 13, 2020 10:17 pm I'm amazed how many Bogleheads are rationalizing not using tax advantaged space (after saving a lot for retirement) due to one or more of these factors:
1. "my kid might not go to college" - do you really think they'll never get any post-high school education at all (vocational training)? It can also be used for K-12 now.
2. "it might reduce financial aid" - most financial "aid" is loans, you're not missing much if you have saved instead.
3. "I'm just going to cash flow it in 15 years" - I hope for the best in my career and life but I plan for contingencies, like I might not keep making current level of income.
4. "my kid might get a scholarship" - you can take out the equivalent amount from the 529 if this wonderful event happens
I generally agree with this statement.

With that said, I can understand the hesitancy. I think most people believe that college is too expensive -- almost as bad as healthcare in terms of inflation-- and there is now alot of questioning the value. The old age of a college graduate earning 1M more than a non-college graduate is being questioned, and even now companies like google are trying to streamline the cost.

For me personally, we contributed after fully funding retirement accounts, because I want my children to start their life without debt in a vehicle that is appropriate. And my overall portfolio and income (even in retirement) will prohibit them from getting loans and grants. We'll encourage them to apply to scholarships, and if we find that we over contribute, we'll be fine. I'm sure both with go to some graduate school.

toocold,

<< I want my children to start their life without debt in a vehicle that is appropriate. >>

If you can afford it, why not aim higher instead? Fund their Roth IRAs instead. Let's start their working lives with an emergency fund and Roth IRAs.

Both my kids graduated college with no debts and 20K to 30K of investment in their taxable and Roth IRA accounts.


KlangFool
KlangFool
Posts: 18231
Joined: Sat Oct 11, 2008 12:35 pm

Re: How much are your 529 Contributions

Post by KlangFool »

runner540 wrote: Mon Sep 14, 2020 9:00 am

There seems to be a myth that there is some financial scenario where a household with money to max retirement accounts, can get lots of grant or scholarship money from a college, as long as they don't have 529s.

runner540,

<<There seems to be a myth >>


I was unemployed for more than 1 year when my kids start college. Many of my peers are permanently unemployed and/or under-employed in their 40s and 50s. There were more than 1 million folks laid off from the Telecom industry over the last 10+ years.

<<there is some financial scenario >>

And, in their 40s and 50s, that is when their kids about to start their college education.

<<can get lots of grant or scholarship money from a college, as long as they don't have 529s.>>


The worst case is not about getting grants or scholarships. The worst case is having to pay a penalty and use the 529 to feed the family.

<<which are targeted at family's making way less than a lot of the Bogleheads maxing multiple retirement accounts.>>


The myth is to assume that once a person makes good money, he/she will be making the same or more income all the way until retirement. Life happened.


KlangFool
Last edited by KlangFool on Mon Sep 14, 2020 9:15 am, edited 1 time in total.
alfaspider
Posts: 3067
Joined: Wed Sep 09, 2015 4:44 pm

Re: How much are your 529 Contributions

Post by alfaspider »

We've done the full $30k no gift tax return contribution at bonus time, until the account hits $100k, then stop contributions. Kid #1 is done, Kid #2 should be done with one more slug. The way a 529 is structured (as a quasi Roth) the benefit is pretty minimal if you can't fully fund the account at a young age unless you get a state deduction (I don't).

If you get a good state deduction, then contributing to the limit of that deduction is not a bad idea. For anyone else, a 529 only makes sense for high income folks. The 529 has been wildly missold to the public. It's not a savings plan for your kid- It's a tax planning device for high income parents who would have already saved an equivalent sum.
Last edited by alfaspider on Mon Sep 14, 2020 9:17 am, edited 1 time in total.
runner540
Posts: 1326
Joined: Sun Feb 26, 2017 5:43 pm

Re: How much are your 529 Contributions

Post by runner540 »

KlangFool wrote: Mon Sep 14, 2020 9:08 am
runner540 wrote: Mon Sep 14, 2020 9:00 am

There seems to be a myth that there is some financial scenario where a household with money to max retirement accounts, can get lots of grant or scholarship money from a college, as long as they don't have 529s.

runner540,

<<There seems to be a myth >>


I was unemployed for more than 1 year when my kids start college. Many of my peers are permanently unemployed and/or under-employed in their 40s and 50s. There were more than 1 million folks laid off from the Telecom industry over the last 10+ years.

<<there is some financial scenario >>

And, in their 40s and 50s, that is when their kids about to start their college education.

<<can get lots of grant or scholarship money from a college, as long as they don't have 529s.>>


The worst case is not about getting grants or scholarships. The worst case is having to pay a penalty and use the 529 to feed the family.


KlangFool
KlangFool, I appreciate your perspective and am familiar with your guidelines for home purchases and worst case scenario planning. I'm closer to your conservative planning style than a lot of posters. But I was responding to the posters who are avoiding 529s because of a misplaced fear of losing out on need-based grants.
toocold
Posts: 165
Joined: Sun Jul 23, 2017 9:17 am

Re: How much are your 529 Contributions

Post by toocold »

KlangFool wrote: Mon Sep 14, 2020 9:03 am
toocold,

<< I want my children to start their life without debt in a vehicle that is appropriate. >>

If you can afford it, why not aim higher instead? Fund their Roth IRAs instead. Let's start their working lives with an emergency fund and Roth IRAs.

Both my kids graduated college with no debts and 20K to 30K of investment in their taxable and Roth IRA accounts.


KlangFool
I have inner struggles of balancing supporting my kids too much or too little. I give partial credit on my success because I came from a lower middle / lower(?) situation. I had little and it fueled my personal ambitions. That's why I don't give my kids the latest toys. I tell them to make money if they want to compare themselves to others.

With this framework, I'm ok supporting school. I'm not ok funding their retirement. I understand the concept though.

What I do plan to do is, once they are working, I'll tell them to over contribute their retirement account and they can cover their normal expenses with some investments they already have from birthday gifts. It's similar but it's their own money that I've managed. It's not my money that I'm gifting them.
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