Are Younger people funding 529 Plans?

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wannabogle
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Are Younger people funding 529 Plans?

Postby wannabogle » Mon Jan 02, 2017 10:36 pm

I have a theory based on people I talk to in their mid20s-mid30s. 529 plan investing is not a priority.
Anyone aware of recent data highlighting inflows to 529 Plans by age range?

I'm having a hard time recommending they do it based on reasoning they're providing:
-College is so expensive, my kid may not even want to go and it may not be a smart investment to attend.
-College is just too expensive, I'll never save enough anyway so why bother.
-If my kid ends up going, I can just pay a portion that I can afford at the time from taxable investments. And if they don't go, I have the money available for anything I want without penalty.

kosomoto
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Re: Are Younger people funding 529 Plans?

Postby kosomoto » Mon Jan 02, 2017 10:55 pm

Anecdotal, but I'm in my 20s and nobody I know has a 529 plan.

Then again, I had to literally set up 401ks for my friends otherwise they would not have them.

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StormShadow
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Re: Are Younger people funding 529 Plans?

Postby StormShadow » Mon Jan 02, 2017 11:01 pm

wannabogle wrote:I have a theory based on people I talk to in their mid20s-mid30s. 529 plan investing is not a priority.
Anyone aware of recent data highlighting inflows to 529 Plans by age range?

I'm having a hard time recommending they do it based on reasoning they're providing:
-College is so expensive, my kid may not even want to go and it may not be a smart investment to attend.
-College is just too expensive, I'll never save enough anyway so why bother.
-If my kid ends up going, I can just pay a portion that I can afford at the time from taxable investments. And if they don't go, I have the money available for anything I want without penalty.

For a mid 20's - 30's, I don't think it should be a priority.

Paying off debts, contributing to 401k/IRA, saving for a house... those may and should be higher on the list.

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Re: Are Younger people funding 529 Plans?

Postby triceratop » Mon Jan 02, 2017 11:05 pm

wannabogle wrote:I have a theory based on people I talk to in their mid20s-mid30s. 529 plan investing is not a priority.
Anyone aware of recent data highlighting inflows to 529 Plans by age range?

I'm having a hard time recommending they do it based on reasoning they're providing:
-College is so expensive, my kid may not even want to go and it may not be a smart investment to attend.
-College is just too expensive, I'll never save enough anyway so why bother.
-If my kid ends up going, I can just pay a portion that I can afford at the time from taxable investments. And if they don't go, I have the money available for anything I want without penalty.


Anecdotal but I haven't been able to convince a sibling of mine to even contribute to their 401(k) up to the 6% match, or at all even. There are bigger fish to fry than 529s, for some.

None of us paid to go to university though so I suspect the recent history of skyrocketing college tuition is lost on us.

Generally I would be interested in reading the stats on this but I would not read much into it. Many in their mid 20s is so financially unaware that saving and 401(k)s is a stretch. Just look at the recent WSJ article on the prevalence of the 401(k) and who is using it. The 529 situation is certainly far worse.

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Re: Are Younger people funding 529 Plans?

Postby Chadnudj » Mon Jan 02, 2017 11:07 pm

I hardly think this is surprising at all, for a variety of reasons:

1. People are getting married later, and thus having children later. No reason to do a 529 until you have a kid (or at least prioritize doing one until you have a kid), so if you're not having kids until you're 34 (which is when my wife and I had our first) you might not start a 529 until then.

2. People in their 20s/30s have a lot more student loan debt than past generations. No reason to start saving for junior's 529 when you're still paying off your own student loans.

3. People in their 20s/30s are probably (correctly) focusing on getting their retirement savings in line, paying down their own debt, and/or (maybe less correctly) saving for a down payment. Not a lot of spare money to throw at a 529.

4. Given all of the above, and just general patterns, I bet a lot more people hit their 40s, have kids that are tweens/teens that they know whether they seem like college bound kids, both parents have gone back to work, there's more income (as your income tends to peak in 40s/50s), you have less debt (your student loans are finally gone), maybe you've refinanced the home successfully/paid down the mortgage so you have more cash flow, and you've maxed out your 401ks/IRAs....and NOW you are able to save in a 529.

Now, that being said -- I opened a 529 within a month of our first kid being born (and will open another for baby 2 when it arrives next month). I haven't contributed as much as I'd like (other priorities, like debt payoffs/emergency funds/retirement savings have been the focus), but we're getting started. And certainly by the time I'm in my early 40s (and our kids are 7 or so), I expect to kick up the 529 contributions quite a bit, just by virtue of our income (hopefully) growing, losing the insane costs of daycare, paying off our own student loans/debts, etc.

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bligh
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Re: Are Younger people funding 529 Plans?

Postby bligh » Mon Jan 02, 2017 11:21 pm

All of the points Chadnudj made plus a couple more

5. Young parents are straddled with Day care costs or temporary switch to single incomes. When day care for a couple of kids is costing you 10-30K a year it is hard put aside the money for college on top as well. Once they enter the public school system (not applicable if they go private.. but if they are going private, you are probably expecting to make enough to cashflow college anyway).. that money becomes available and can go to 529s.

6. People tend to have a harder time planing for things that are a long time away. Saving for retirement is an example of this. Where many enter their 40s and 50s and 'wake up' to their retirement and start saving then. When you have a baby, college seems a long long way away. You start to worry about it when they enter middle and high school.

Both factors lead to 529 plan owners skewing older.

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Re: Are Younger people funding 529 Plans?

Postby marklar13 » Mon Jan 02, 2017 11:52 pm

Wife and I are both early 30s. We contributed as much as we could last year when our son was born and plan on continuing with smaller increments annually moving forward. That being said, we've been fortunate enough to max out 401ks and Roth accounts and have some left over. If income drops or spending goes up, then the 529 contributions would get cut before the retirement savings.

Another thing to consider is that it's a nice way for family to give gifts.

I don't really talk finances too much with my friends that have kids, so I'm not sure what they do.

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Re: Are Younger people funding 529 Plans?

Postby Dollarsign16 » Tue Jan 03, 2017 1:25 am

DW and I mid 30s and with a child <1. We opened a 529 and are contributing monthly. We max our 401K/403b's and our Roth IRAs and a small left over amount is dedicated to the 529. I concur with a previous poster that its also a good way to get the family contributing. There are some generous grandparents and its an easy way for them to contribute for the child's benefit.

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Re: Are Younger people funding 529 Plans?

Postby Geist » Tue Jan 03, 2017 1:29 am

Agreed with all the points by Chadnudj & bligh. Quite simply, there are numerous financial priorities for young parents more important than funding a 529.

WIth that said, DW & I are 31/30, and we did start a 529 when our son (1.5 y/o) was born, but only adding $200/mo to it, and likely will stick to that contribution amount for the foreseeable future. DW is pregnant with our second child, and I plan to open a new 529 for the 2nd child as well, likely at the same contribution amount. But as stated by Chadnudj, we're hedging against a number of possibilities, so I'm spreading my money for our kids between 529, I-Bonds, taxable investments, and simple savings accounts. But, we're already maxing IRA & TSP retirement accounts, own a couple homes, have no non-mortgage debt, and earn more than enough for our needs. So we're not a typical couple in our age group by any stretch of the imagination.

david
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Re: Are Younger people funding 529 Plans?

Postby david » Tue Jan 03, 2017 2:02 am

I agree with what many of the above posters have said.

To give some personal reasons: My wife and I are in our early thirties. We recently had our first child and we value paying for his education in the future.

However, we do not fund a 529 account right now because (1) we are prioritizing tax sheltered retirement accounts/HSA, under the theory that you can borrow for school but not for retirement, and (2) we are paying back student debt currently so until that is complete we are not diverting savings for our child's college.

The reasoning the OP gave is not, in my experience, reasoning that I've heard from people. I graduated during the most recent recession. Many people I graduated with have a large amount of debt and some do not have jobs (or do not have jobs in their chosen field). It takes quite a large salary to max out all retirement account opportunities and pay for living expenses, including a mortgage in some instances, as well as pay down the debt we accumulated to get educated.

I don't really think the reasons you list are applicable to the vast majority of those in their 20s and 30s. That said, if those you encounter are maxing retirement accounts, have paid off their own (sometimes very high interest) college debt, and can use other places to stash cash I would suggest to them that (1) college is likely to grow in importance in the future rather than wane as jobs become more technical and there are more people that are competing for jobs and (2) that they don't need to, and probably shouldn't, attempt to fund all college expenses for all of their children in a 529 plan. The likelihood that one of their children will want to go to college is high. That said, people who are sure they can pay for it out of a portion of their taxable investments are going to be just fine regardless.

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Re: Are Younger people funding 529 Plans?

Postby Afty » Tue Jan 03, 2017 2:03 am

Few people in general fund 529s. 3% of all investors, and only 7% of those who expect major educational expenses in the next 5-10 years. I think most people are either not saving at all, or (correctly) prioritizing their retirement funds.

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Re: Are Younger people funding 529 Plans?

Postby dziuniek » Tue Jan 03, 2017 2:06 am

wannabogle wrote:I have a theory based on people I talk to in their mid20s-mid30s. 529 plan investing is not a priority.
Anyone aware of recent data highlighting inflows to 529 Plans by age range?

I'm having a hard time recommending they do it based on reasoning they're providing:
-College is so expensive, my kid may not even want to go and it may not be a smart investment to attend.
-College is just too expensive, I'll never save enough anyway so why bother.
-If my kid ends up going, I can just pay a portion that I can afford at the time from taxable investments. And if they don't go, I have the money available for anything I want without penalty.


Don't forget.... people have children later, atleast my young and semi-young professional friends do.

neuro84
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Re: Are Younger people funding 529 Plans?

Postby neuro84 » Tue Jan 03, 2017 2:11 am

I am 32 and we have a very small (< $1000) 529 set up for our 2yo daughter. It is basically a placeholder account for when we start earning more after I finish residency. We put about a hundred dollars a year into it, and relatives give token amounts at birthdays and Christmas.

Right now, the IRAs take priority, and I have trouble enough funding them. I don't contribute to a 401(k) yet as my work provides no matching and I struggle to fill the IRAs. So 529 will have to wait until after these other two buckets are filled, after I'm making attending salary.

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Re: Are Younger people funding 529 Plans?

Postby Sportswhiz00 » Tue Jan 03, 2017 8:07 am

Early thirties here. For my toddler, at birth we started contributing small "extra" amounts that we hadn't factored into our budget, such as tax refunds and family gifts. Then last year I realized how much money we have been spending on consumer goods that I started feeling guilty that we would buy that stuff but not contribute more to 529, so we threw in a lump sum that was for us relatively large and which otherwise would have gone into our own savings or mortgage pay down. Hoping to do the same thing this year and then probably stop this child's 529 indefinitely, as my goal is not to fully fund this early in life but instead have two or so years covered (assuming reasonable returns going forward) with a wait and see approach for the rest. Rinse and repeat for any future children.

As far as people we know, I think there is a correlation between contributions to/understanding of 529s and salary, but there are outliers in both directions.

livesoft
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Re: Are Younger people funding 529 Plans?

Postby livesoft » Tue Jan 03, 2017 8:23 am

529 plans are a tax break for the wealthy with children. I will guess that many people do not consider themelves wealthy.

Remember this thread started by Taylor Larimore: Why 97% of People Don't Use 529 College Savings Plans with a link to a bloomberg article trying to explain the reasonings?
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hrc84
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Re: Are Younger people funding 529 Plans?

Postby hrc84 » Tue Jan 03, 2017 8:55 am

I am 32 and my DW is 30.

Our almost 2 year old has a couple Virginia 529 accounts, and our 4 week old got a couple VA 529 accounts funded before the end of the year. We seeded each child with a few thousand and make monthly contributions to each of $175.

Grandparents and great-grandparents also have provided money to the children to be used for college that we invested in the accounts. I would estimate that parental money constitutes 25-33% of invested amount and family gift money 67-75% makes up the remainder of funds invested.

In VA if using the VA 529 accounts, you can deduct $4000 per account on state taxes.

MindTheGAAP
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Re: Are Younger people funding 529 Plans?

Postby MindTheGAAP » Tue Jan 03, 2017 10:48 am

28 here and have 3 daughters... youngest being 3mos (today), eldest being almost 4.5. We have talked about 529 plans but haven't prioritised them for reasons discussed at length above. I, personally, think that the situation is going to change in terms of University in the US between now and when my kids attend - but that hasn't been the driving factor. We are trying to sock away more for retirement and emergency fund now I'm an independent consultant with higher volatility in my job (no billable work = no pay) - and I'm the sole income provider in the house. While we want to help as much as possible with our girls' higher education costs, we have to put retirement first AND we have to get to retirement first.

Plus, living in Texas doesn't give us a break on state taxes so we'd simply be saving the capital gains on the earnings - for that I see just as much merit saving it as taxable and using it as needed for a multitude of things.
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Re: Are Younger people funding 529 Plans?

Postby amythius » Tue Jan 03, 2017 11:04 am

I am 30, SO is 31. We have a 2.5 year old and another due in 6 months.

I started setting 529 contributions 1 year before each was born. I invest roughly 3k annually each for a planned 18 years. I am aware of the 'staggering cost' of college when they become of age. This is merely middle-ground for us, and workable. I have always lived well below my means, and spend much less than my circle who often make less than my household in terms of income.

Financials:
We have a mortgage on a primary residence - paying off to the tune of 18 out of 30 year term. (15 or 16 years left...)
We nearly max 401ks.
We max Roth IRAs yearly.
We have taxable savings.
~ Roughly 2x income in retirement dollars at of end of 2016.

Perspective:
Of my immediate circle -- not many are aware of saving in 529s. But then again, most rarely invest much towards retirement -- contrary to my wife and I.

True Dilemma: do I do one; or two 529s for the two children? I have done research, but at the moment I cannot recall my last determination. I know there are good resources, so I will have to revisit the topic as I am now looking to fund 529 #2 starting this year with another child due in 2017.

AlwaysAStudent
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Re: Are Younger people funding 529 Plans?

Postby AlwaysAStudent » Tue Jan 03, 2017 11:07 am

Geist wrote:Agreed with all the points by Chadnudj & bligh. Quite simply, there are numerous financial priorities for young parents more important than funding a 529.


Although I agree with what most poster wrote we started a 529 the year our daughter was born. There is less than $1k in there for now, as we are finishing off my student loans and focusing on increasing retirement the 529 just gets loose change and gift money deposited into it. We have also provided information for grandparents to contribute directly to it but grandparents are busy buying the gift that will get them the most hugs and smiles currently so that isn't really working either.

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Re: Are Younger people funding 529 Plans?

Postby Clark & Addison » Tue Jan 03, 2017 11:24 am

We are both 33. We started funding a 529 when our first child was born 8 years ago to take advantage of the state tax credit. A 20% tax credit seemed too good to pass up.

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Re: Are Younger people funding 529 Plans?

Postby livesoft » Tue Jan 03, 2017 11:27 am

Clark & Addison wrote:A 20% tax credit seemed too good to pass up.

So is that social engineering where a state government will try to have more customers to its public universities in the future that pay their own tuitions and expenses while costing said customer reduced retirement assets?
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MindTheGAAP
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Re: Are Younger people funding 529 Plans?

Postby MindTheGAAP » Tue Jan 03, 2017 11:40 am

livesoft wrote:
Clark & Addison wrote:A 20% tax credit seemed too good to pass up.

So is that social engineering where a state government will try to have more customers to its public universities in the future that pay their own tuitions and expenses while costing said customer reduced retirement assets?


Love this.
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LarryAllen
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Re: Are Younger people funding 529 Plans?

Postby LarryAllen » Tue Jan 03, 2017 11:42 am

Yes I believe they do based on the many that I have talked to.

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Re: Are Younger people funding 529 Plans?

Postby Bogel0048 » Tue Jan 03, 2017 11:58 am

livesoft wrote:529 plans are a tax break for the wealthy with children. I will guess that many people do not consider themelves wealthy.

Remember this thread started by Taylor Larimore: Why 97% of People Don't Use 529 College Savings Plans with a link to a bloomberg article trying to explain the reasonings?


I read the linked article. Based on my reading of the article, and also based on my own (amateur) spreadsheet calculations, not being wealthy is not a reason to pass up the tax savings of a 529 plan. My spreadsheet indicates that saving in a 529 plan over an 18 year period would provide a net benefit to anyone who is in a marginal tax bracket above 10%, even if they ultimately cash-out and do not use their savings for college expenses.

I am happy to see that many younger posters on this thread are indeed investing in 529 plans. The often offered reasons that young people have other savings priorities or think 529 plans only benefit people who are wealthy are simply incorrect - being young is not an excuse to be unaware of personal finance realities and opportunities. I agree young people should max their ROTHs and employer-based retirement savings first, but if they have children saving in a 529 plan (or via UGMA, though not quite as beneficial) should be their next priority, even if they can only afford to save a small amount each year.
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Re: Are Younger people funding 529 Plans?

Postby SouthernCPA » Tue Jan 03, 2017 12:05 pm

I rarely see young people (20s-30s) setting up 529 Plans. I don't think it should be a priority over maxed out retirement accounts. As much as it sounds selfish, you can borrow for college, but you can't borrow for retirement - that should get priority. Many aren't even contributing to retirement at our age.

One thing I have suggested and seen some younger clients do is to setup a 529 Plan and then for birthdays and Christmas when the kids are young enough to not remember, request friends and family just give you money for a 529 contribution in lieu of gifts that the kid wont remember and doesn't need (lets face it, it ends up as extra clutter around the house anyway). This gets something going in the first few years.

We do not have kids yet, but when our first child is born, I'm setting up a 529 Plan for the above reason and to try and contribute something to it each year if possible.

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Re: Are Younger people funding 529 Plans?

Postby blueman457 » Tue Jan 03, 2017 12:20 pm

I am funding a 529 up to the full state deduction despite the fact that I have a couple of student loans. My rationale: expected returns + state income tax deduction is better than paying off a 2.4% student loan.

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Re: Are Younger people funding 529 Plans?

Postby Pajamas » Tue Jan 03, 2017 12:24 pm

It's a great opportunity for grandparents to get things started by opening an account and making a nice gift towards the grandchild's education.

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Re: Are Younger people funding 529 Plans?

Postby arthur_vandelay » Tue Jan 03, 2017 12:27 pm

fwiw, I'm 42 and started a 529 for my son 6 years ago (so in my mid 30s). About $32K put aside so far.

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Re: Are Younger people funding 529 Plans?

Postby Big Dutch » Tue Jan 03, 2017 12:40 pm

My wife and I were both 35 when we had our first child; he's now just over 1 year old. We started a 529 (MESP) the month he was born and contribute lump sums during the year in addition to family contributions. We live in MI and receive a state tax deduction up to $10,000/year (joint filers). State income tax is 4.25%, so it's a noticeable savings. We already max 401k/Roth/HSA for both of us so we try to take full advantage of this deduction each year. If we have another child we plan on shifting some of that yearly contribution to a second 529 for him/her.

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Re: Are Younger people funding 529 Plans?

Postby bigred77 » Tue Jan 03, 2017 12:42 pm

They are definitely not prevalent among people in their 20s/30s. Even among people in this age range who are making saving/investing a priority (that's not a large percentage) there are simply too many competing priorities for their dollars. I have a number of highly educated friends who are starting to have kids and the percentage of them who could even tell you what a 529 plan is might hover around 25%.

My wife and I will open 529s when we finally have children (hoping for 2 over the next 4 years or so, before age 35/36). It will be a priority for us to build a significant balance early and then let it ride until I can make a better estimate about how much I will actually need (funds will be after maxing all retirement accounts. Hoping for maybe 50k per kid before they hit Kindergarten. That will be quite a stretch for us to accomplish).

We delayed kids for a while for financial reasons. Our only debt will be a primary mortgage and a HELOC at 3% and 3.75%. We have a great start on retirement and significant equity in the house. If we had not gotten off to such a good start I would probably not be considering 529s.

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Re: Are Younger people funding 529 Plans?

Postby MindTheGAAP » Tue Jan 03, 2017 12:45 pm

Pajamas wrote:It's a great opportunity for grandparents to get things started by opening an account and making a nice gift towards the grandchild's education.


Both my parents and in-laws substantially helped with University for DW and I so both have laughed at some of their peers who have talked about helping grandchildren with university costs. We both left higher education debt-free so they are busy saving for retirement now (my dad will get a pension in the UK that's very comparable to his current salary so limited retirement savings going there outside of ISAs, I think).
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Re: Are Younger people funding 529 Plans?

Postby livesoft » Tue Jan 03, 2017 12:48 pm

Bogel0048 wrote:I read the linked article. Based on my reading of the article, and also based on my own (amateur) spreadsheet calculations, not being wealthy is not a reason to pass up the tax savings of a 529 plan. My spreadsheet indicates that saving in a 529 plan over an 18 year period would provide a net benefit to anyone who is in a marginal tax bracket above 10%, even if they ultimately cash-out and do not use their savings for college expenses.

I am happy to see that many younger posters on this thread are indeed investing in 529 plans. The often offered reasons that young people have other savings priorities or think 529 plans only benefit people who are wealthy are simply incorrect - being young is not an excuse to be unaware of personal finance realities and opportunities. I agree young people should max their ROTHs and employer-based retirement savings first, but if they have children saving in a 529 plan (or via UGMA, though not quite as beneficial) should be their next priority, even if they can only afford to save a small amount each year.

If young people can max their ROTHs and employer-based retirement savings first, then I would consider them quite well-off and on the road to being wealthy if they are not already wealthy.

Did your spreadsheet take into account education credits such as the American Opportunity Tax Credit? That's where taxpayers like me pay $4,000 towards college tuition and get $2500 back from the Federal government. What is that rate of return?

Full disclosure: We did use 529 plans for some of our college expenses, but not all of them.
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Re: Are Younger people funding 529 Plans?

Postby Bradiator » Tue Jan 03, 2017 12:49 pm

I agree with many of the points made above but wanted to challenge a few of the assumptions implied in the original post. I am not an expert on education economics but there are a couple nuances that really need to be drawn out here.

First, one thing that is rarely noted in all the hand wringing about rapidly increasing college tuition costs is that fact that fewer and fewer people are actually paying "sticker price" for college. In other words, colleges are doing more "price discrimination" and charging more affluent students and families more. The St. Louis Fed has a very accessible note on this topic here: https://research.stlouisfed.org/publications/page1-econ/2014/01/01/the-rising-cost-of-college-tuition-financial-aid-and-price-discrimination/. People will surely have different views about whether price discrimination in higher education is the right thing to be doing, but that is not my point.

Second, it is also worth noting that although college tuition prices have gone up rapidly in recent years, extrapolating that same high growth rate out indefinitely into the future is usually poor forecasting technique. (No one in this thread did so, but it's easy to imagine some exasperated parents thinking this way.)

If you ignore both these nuances it is relatively easy to believe that paying for college will be completely impossible by time today's young parents in their 20s and 30s are sending their kids off to college. Obviously, this belief becomes a self-fulfilling prophecy when they choose not to save.

I have a very strong personal conviction that an excellent education is one of the best investments anyone can make in themselves or their family. It certainly has been for me. And so I'd personally give very, very different counsel than the OP when talking to young parents about putting a plan together for their child's education.

Perhaps unsurprisingly given the comments above, I am in my early 30s and one of the seemingly very few people who has started saving in a 529 plan before my wife and I have had a child. Everyone's practical advice and analysis (funding retirement first, child care costs, etc.) is exactly right.

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Re: Are Younger people funding 529 Plans?

Postby White Coat Investor » Tue Jan 03, 2017 12:50 pm

My first 529 contribution was in late 2007. The child was 3. I was 32. By comparison, my first retirement account investment was early 2004, when I was 28. And I consider myself an early starter. I'm not surprised at all to see people in their 20s not investing in 401(k)s (my first 401(k) investment was at 31) or 529s.
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Re: Are Younger people funding 529 Plans?

Postby feh » Tue Jan 03, 2017 12:53 pm

wannabogle wrote:I have a theory based on people I talk to in their mid20s-mid30s. 529 plan investing is not a priority.
Anyone aware of recent data highlighting inflows to 529 Plans by age range?

I'm having a hard time recommending they do it based on reasoning they're providing:
-College is so expensive, my kid may not even want to go and it may not be a smart investment to attend.
-College is just too expensive, I'll never save enough anyway so why bother.
-If my kid ends up going, I can just pay a portion that I can afford at the time from taxable investments. And if they don't go, I have the money available for anything I want without penalty.


Another variable to add to the above list:

- post-secondary education may look very different 20 years from now and may be much less expensive

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Clark & Addison
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Re: Are Younger people funding 529 Plans?

Postby Clark & Addison » Tue Jan 03, 2017 1:06 pm

livesoft wrote:
Clark & Addison wrote:A 20% tax credit seemed too good to pass up.

So is that social engineering where a state government will try to have more customers to its public universities in the future that pay their own tuitions and expenses while costing said customer reduced retirement assets?


Possibly, but the 529 can be used for private and out of state universities as well. While our income is not ridiculously high, I'm fairly sure we'd end up paying our own tuitions anyways. Our retirement funding is not maxed out, but between it and our paid for rental properties I feel somewhat confident (as much as I can for something 30 years away) that our retirement planning is being well handled (many thanks to the good people here).

Gropes & Ray
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Re: Are Younger people funding 529 Plans?

Postby Gropes & Ray » Tue Jan 03, 2017 1:11 pm

I just made my first 529 contribution at 30. But I waffled a lot on whether I should. I'm not remotely close to maxing my 401k (although my 401k sucks, so the 529 is probably better). In the end, I did it because my parents wanted me to create one that they could put money into. I'm not foolish enough to pass up on free money, so I started one.

COBRA86
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Re: Are Younger people funding 529 Plans?

Postby COBRA86 » Tue Jan 03, 2017 1:20 pm

30 here and just started one as well for my 5 month old. My wife and I's parents gave our son money for Christmas and felt this was the best place to put it along with the positive reaction from both parents when we told them what we would do with the money. I was happy to see that you can just send a link for friends and family to contribute. One less money transfer to make for me. We plan on doing $100 a month for now, yes we could fund our retirements better but we can also cut out a lot of fat in our spending too. We have increased our 401k contributions and decreased our debt tremendously in the past couple years.

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Re: Are Younger people funding 529 Plans?

Postby alfaspider » Tue Jan 03, 2017 1:21 pm

529s are really only relevant to fairly high income people. They are additional tax-advantaged space if you are already maxing out your tax-advantaged retirement space, as there's little benefit to opening a 529 if you haven't maxed out retirement accounts as the retirement accounts aren't included in financial aid calculations but the 529 is.

That said, if you can max out your tax-advantaged retirement space when your children are young, a 529 is a fantastic tool. Because the benefit is from zero tax rate on gains, the benefits are greatest if your savings have a lot of time to grow. Unless you live in a state where there's a state tax deduction, a 529 started a few years before college isn't that helpful.

The whole 529 scheme is basically a tax break targeted at high income professionals with young children. I'm not quite sure if that was really the government's intent when they created them, but that's certainly the effect. What's a shame is that this tax break ends up needlessly costing middle-income folks who don't realize this and contribute to a 529 before their retirement space is maxed out, then end up getting hit in financial aid calculations.

livesoft
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Re: Are Younger people funding 529 Plans?

Postby livesoft » Tue Jan 03, 2017 1:23 pm

Gropes & Ray wrote:I just made my first 529 contribution at 30. But I waffled a lot on whether I should. I'm not remotely close to maxing my 401k (although my 401k sucks, so the 529 is probably better). In the end, I did it because my parents wanted me to create one that they could put money into. I'm not foolish enough to pass up on free money, so I started one.

My spouse had a bona fide craptacular 401(k), but still maxed out annual contributions. Then she borrowed the max possible from the 401(k) to fund 529 plans. Have your cake and eat it, too!

And then her plan got better, so she had all the extra value in the 401(k) plan when she moved to a better fund.

But wait! There's more! Since we saved in a taxable account for our children's college expenses and we knew we would be retired when our kids went to college, we withdraw from taxable accounts and pay no taxes on the gains (just like a 529 plan), but get the AOTC for that money, too! Two tax breaks in one! Woo-hoo!
Last edited by livesoft on Tue Jan 03, 2017 1:27 pm, edited 1 time in total.
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Gropes & Ray
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Re: Are Younger people funding 529 Plans?

Postby Gropes & Ray » Tue Jan 03, 2017 1:25 pm

livesoft wrote:
Gropes & Ray wrote:I just made my first 529 contribution at 30. But I waffled a lot on whether I should. I'm not remotely close to maxing my 401k (although my 401k sucks, so the 529 is probably better). In the end, I did it because my parents wanted me to create one that they could put money into. I'm not foolish enough to pass up on free money, so I started one.

My spouse had a bona fide craptacular 401(k), but still maxed out annual contributions. Then she borrowed the max possible from the 401(k) to fund 529 plans. Have your cake and eat it, too!


Interesting trick, but if she left her job, where would the money to repay the loan come from? I don't have a stable employment history and I'm not sold that my current job is long-term either.

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Re: Are Younger people funding 529 Plans?

Postby livesoft » Tue Jan 03, 2017 1:29 pm

Gropes & Ray wrote:Interesting trick, but if she left her job, where would the money to repay the loan come from? I don't have a stable employment history and I'm not sold that my current job is long-term either.

Actually, her company was sold and the loan came due. The money to pay it off came from our taxable account. But no taxes on cashing in the taxable account because of previous tax-loss harvesting. All these Bogleheads tips come together sometimes.
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mw1739
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Re: Are Younger people funding 529 Plans?

Postby mw1739 » Tue Jan 03, 2017 1:31 pm

I'm in my early 30's and my kids each have about $20k in their 529 plans. School (private) is starting soon, so I'm unsure of future contributions, but they have a decent base to start from.

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GreatOdinsRaven
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Re: Are Younger people funding 529 Plans?

Postby GreatOdinsRaven » Tue Jan 03, 2017 1:31 pm

If you're already a high earner or will be soon (as at least one post implies) a 529 is a viable option once you have max'd out 401(k)/403(b) and IRA contributions and addressed short term savings needs/debt. The children of high earners are not going to qualify for significant need-based aid. So for that small subset on this forum, maximizing 529 contributions is a no-brainer and one should start early to maximize time in the market.

For the vast majority of people, however, the benefits are less clear cut. Ideally, for those who might benefit from need-based aid, it would be optimal to have grandparents create the 529s for their grandchildren and then plan on using the proceeds during the final two years of school when it won't penalize the recipient.

I feel strongly that everyone must first take care of his own needs (401k/IRA/taxable savings/emergency fund/debt reduction/debt payoff). If you're one of the lucky few who has funds left over after attending to those priorities then by all means contribute to that 529 (because, again, you're not going to qualify for need-based aid). Sure, you could plan on using cash flow to pay these expenses one day, but you just never know what the future holds... Man makes plans and...
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GreenGrowTheDollars
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Re: Are Younger people funding 529 Plans?

Postby GreenGrowTheDollars » Tue Jan 03, 2017 4:55 pm

livesoft wrote:
Clark & Addison wrote:A 20% tax credit seemed too good to pass up.

So is that social engineering where a state government will try to have more customers to its public universities in the future that pay their own tuitions and expenses while costing said customer reduced retirement assets?


Not sure if you meant it that way, but in case anyone else might be confused: No matter which state's 529 plan you use, the funds and earnings can be fully used at any college in the US and many colleges outside the US. It doesn't matter if they are public, private or (ick) for profit colleges.

I'm a big fan of opening a 529 plan when a child is born. No matter who opens the plan, anyone can contribute. Colorado's plan has a minimum starting investment of $25.

My twenty-something daughter has had a relatively low level of success getting members of her team to contribute to the 401k, even though they live in the city with (I think) the highest tax rate in the country. No brainer for her to fully fund hers.

Constant Chaos
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Re: Are Younger people funding 529 Plans?

Postby Constant Chaos » Tue Jan 03, 2017 5:13 pm

The GAO found in 2012 that hardly anyone of any age uses 529 plans-- the figure is less than 3%.

http://www.gao.gov/assets/660/650759.pdf

livesoft
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Re: Are Younger people funding 529 Plans?

Postby livesoft » Tue Jan 03, 2017 5:17 pm

GreenGrowTheDollars wrote:
livesoft wrote:
Clark & Addison wrote:A 20% tax credit seemed too good to pass up.

So is that social engineering where a state government will try to have more customers to its public universities in the future that pay their own tuitions and expenses while costing said customer reduced retirement assets?


Not sure if you meant it that way, but in case anyone else might be confused: No matter which state's 529 plan you use, the funds and earnings can be fully used at any college in the US and many colleges outside the US. It doesn't matter if they are public, private or (ick) for profit colleges..


It really doesn't matter which state it is because all states have publicly supported universities and if a student in one state goes to another state's university, it is not unlikely that a student from that state goes out of state. So it all comes out in the wash. I am not sure, but I would no be surprised if private universities enrolled less than half of college students.

Universities and colleges are not in business to lose money. If free money shows up that they can get their hands on, then they will simply raise prices. Do you think the American Opportunity Tax Credit of $2500 contributed to "inflation" in college expenses? That was like a free ticket to increase prices by $2500 since families didn't have to pay that $2500 anymore.
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Re: Are Younger people funding 529 Plans?

Postby KlangFool » Tue Jan 03, 2017 5:24 pm

wannabogle wrote:I have a theory based on people I talk to in their mid20s-mid30s. 529 plan investing is not a priority.
Anyone aware of recent data highlighting inflows to 529 Plans by age range?

I'm having a hard time recommending they do it based on reasoning they're providing:
-College is so expensive, my kid may not even want to go and it may not be a smart investment to attend.
-College is just too expensive, I'll never save enough anyway so why bother.
-If my kid ends up going, I can just pay a portion that I can afford at the time from taxable investments. And if they don't go, I have the money available for anything I want without penalty.


wannabogle,

There is a basic fallacy here. Aka, you could only save for college education with 529. That is definitely not true. And, for many people, unless and until they max up all their tax-advantaged accounts, it does not make sense to contribute to 529 at all.

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Gropes & Ray
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Re: Are Younger people funding 529 Plans?

Postby Gropes & Ray » Tue Jan 03, 2017 5:26 pm

livesoft wrote:Universities and colleges are not in business to lose money. If free money shows up that they can get their hands on, then they will simply raise prices. Do you think the American Opportunity Tax Credit of $2500 contributed to "inflation" in college expenses? That was like a free ticket to increase prices by $2500 since families didn't have to pay that $2500 anymore.


It's the same as any subsidy. The price goes up, but so does supply. Public subsidies helped increase the number of college graduates, but now we all have debt. College graduates are to subsidize loans/tax credits/grants what government cheese is to dairy price fixing.

alfaspider
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Re: Are Younger people funding 529 Plans?

Postby alfaspider » Tue Jan 03, 2017 8:15 pm

GreenGrowTheDollars wrote:
livesoft wrote:
Clark & Addison wrote:A 20% tax credit seemed too good to pass up.

So is that social engineering where a state government will try to have more customers to its public universities in the future that pay their own tuitions and expenses while costing said customer reduced retirement assets?


Not sure if you meant it that way, but in case anyone else might be confused: No matter which state's 529 plan you use, the funds and earnings can be fully used at any college in the US and many colleges outside the US. It doesn't matter if they are public, private or (ick) for profit colleges.

I'm a big fan of opening a 529 plan when a child is born. No matter who opens the plan, anyone can contribute. Colorado's plan has a minimum starting investment of $25.

My twenty-something daughter has had a relatively low level of success getting members of her team to contribute to the 401k, even though they live in the city with (I think) the highest tax rate in the country. No brainer for her to fully fund hers.


Unless we are talking relatives other than parents, opening a 529 probably makes no sense unless you are planning on opening it with quite a bit more than $25.


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