Are Younger people funding 529 Plans?

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ThankYouJack
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Re: Are Younger people funding 529 Plans?

Postby ThankYouJack » Tue Jan 03, 2017 8:31 pm

With no 529 state deduction, a 529 tax savings is too minimal for me. I'd rather pay off debt, become financially independent first and have more flexibility. If I'm FI before my kids begin college, I'll probably fund a 529.

Mr. Bogle doesn't use a 529 either for his grandchildren's college expenses. At a certain point, simplicity outweighs a small savings.

Big Dog
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Re: Are Younger people funding 529 Plans?

Postby Big Dog » Tue Jan 03, 2017 8:33 pm

In the end, I did it because my parents wanted me to create one that they could put money into.


fyi -- the grandparents could start a 529 for their grandkids....

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Re: Are Younger people funding 529 Plans?

Postby itstoomuch » Tue Jan 03, 2017 8:42 pm

Future education may be different than today's model of higher education.
DS went to a NewYear's party where the host with BS in Business, law degree & bar and couldn't find a adequate job. Went to coding school and now works as a coder.

Thinking about adding to DS's existing 529 as a pay it forward mechanism. Also as a state tax gambit of 9% first year, or 4.5% for two years in a cash 529 account. Here's hoping we will have grandchildren. :annoyed :( :x :annoyed
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Re: Are Younger people funding 529 Plans?

Postby Grt2bOutdoors » Tue Jan 03, 2017 8:50 pm

Constant Chaos wrote: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


GAO had better do some more fact-checking. Is that why there are billions of dollars sitting in 529 plans? The money just magically appeared, perhaps by the stroke of a pen like they do in some office settings?
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NewtonsApple
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Re: Are Younger people funding 529 Plans?

Postby NewtonsApple » Tue Jan 03, 2017 8:51 pm

I am 32 and my wife is 33. We have a newborn now, but we started saving in a 529 before we even knew we were pregnant. We max out our 401K's/Roth IRA's and determined that because we were planning on having kids that a 529 was better than taxable. This decision was made easier because the Colorado Stable Value 529 was paying 3.09% at the time, which made it about equal to equivalent yield taxable options even if we took the 10% penalty with the tax free upside potential. Our mortgage is 2.625%, so we were about equal even post tax to paying the mortgage down in the event we withdraw the money. It is paying 2.59% for 2017, which we will continue to use. We treat the 529 as part of the bond portion of our overall portfolio and don't really have a separate college bucket at this time.

We each opened an account with ourselves a beneficiaries. We set somewhat arbitrary limits of $65,000 per account at this time to make transfers ($70,000/5 years to our child) easier and provide some limit on risk concentration. We may withdraw some of this money if we move to a new house this year. This depends on what the most return/tax efficient approach is to a new mortgage though. I am hoping we can continue with the interest rate arbitrage though.

Thanks to the FinanceBuff for the original 529 tip.
Last edited by NewtonsApple on Tue Jan 03, 2017 8:58 pm, edited 1 time in total.

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Re: Are Younger people funding 529 Plans?

Postby Grt2bOutdoors » Tue Jan 03, 2017 8:52 pm

ThankYouJack wrote:With no 529 state deduction, a 529 tax savings is too minimal for me. I'd rather pay off debt, become financially independent first and have more flexibility. If I'm FI before my kids begin college, I'll probably fund a 529.

Mr. Bogle doesn't use a 529 either for his grandchildren's college expenses. At a certain point, simplicity outweighs a small savings.


When you are worth 7 or 8 figures, where you have your money invested doesn't really matter, you can just write a check. At least that is what my wealthy relatives have relayed back, why be subject to restrictions on your own money? Not saying I agree with them, just how some other folks think.
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NewtonsApple
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Re: Are Younger people funding 529 Plans?

Postby NewtonsApple » Tue Jan 03, 2017 8:57 pm

itstoomuch wrote:Future education may be different than today's model of higher education.
DS went to a NewYear's party where the host with BS in Business, law degree & bar and couldn't find a adequate job. Went to coding school and now works as a coder.

Thinking about adding to DS's existing 529 as a pay it forward mechanism. Also as a state tax gambit of 9% first year, or 4.5% for two years in a cash 529 account. Here's hoping we will have grandchildren. :annoyed :( :x :annoyed


Set up a 529 with you as the owner/beneficiary and you can later change the beneficiary. In the current scheme, your grand kids are more likely to get financial aid with a grandparent 529. Use it for low return/tax inefficient bonds as part of your total portfolio.

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Re: Are Younger people funding 529 Plans?

Postby Clever_Username » Tue Jan 03, 2017 9:12 pm

Anecdotal, but the reason I'm not going to is that no one in my generation of my family has kids, nor do any intend to go back to school, so that use is out.

I have a few friends with very young kids, but I think we live in a state that doesn't really help with 529s. I'll look into it if I find out someone I care about is preparing a 529 for their kid(s), and will consider contributing to theirs accordingly.
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Re: Are Younger people funding 529 Plans?

Postby ncg1983 » Tue Jan 03, 2017 9:30 pm

33 here and wife is 32. Two children (one born 2014 and one born 2016) and residents of VA, with a VA 529 plan that offers Vanguard index funds with a minimal administrative fee on top. We have been putting in $4,000 per calendar year per child for the state tax deduction and plan to continue this for the foreseeable future. It's unlikely this annual amount will cover 4 years of college in 16-18 years, particularly if attending a private university, but this will help offset educational costs and is small enough that it doesn't impact our daily lives. We also have UTMA's for both of them and max out 401(k) contributions. No debt other than mortgage, so we are fortunate to be able to do all that we can.

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Re: Are Younger people funding 529 Plans?

Postby ThankYouJack » Tue Jan 03, 2017 9:48 pm

Grt2bOutdoors wrote:
ThankYouJack wrote:With no 529 state deduction, a 529 tax savings is too minimal for me. I'd rather pay off debt, become financially independent first and have more flexibility. If I'm FI before my kids begin college, I'll probably fund a 529.

Mr. Bogle doesn't use a 529 either for his grandchildren's college expenses. At a certain point, simplicity outweighs a small savings.


When you are worth 7 or 8 figures, where you have your money invested doesn't really matter, you can just write a check. At least that is what my wealthy relatives have relayed back, why be subject to restrictions on your own money? Not saying I agree with them, just how some other folks think.


I think it's a matter of how far would you go for a dollar (or x dollars). Some people would walk a mile, some would cross the street, others wouldn't bother bending over to pick it up. It's all a person decision as time and effort should be factored too.

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Re: Are Younger people funding 529 Plans?

Postby Constant Chaos » Tue Jan 03, 2017 9:55 pm

Grt2bOutdoors wrote:
Constant Chaos wrote: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


GAO had better do some more fact-checking. Is that why there are billions of dollars sitting in 529 plans? The money just magically appeared, perhaps by the stroke of a pen like they do in some office settings?


Are you genuinely suggesting the GAO's figure of 3% of the population utilizing 529 accounts is incorrect? there was a thread here discussing the 3% figure and no one (including you) disputed that fact.
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Re: Are Younger people funding 529 Plans?

Postby livesoft » Tue Jan 03, 2017 9:57 pm

I wonder what the combined tuitions paid by all college students annually is. I imagine it might be in the billions of dollars.
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Re: Are Younger people funding 529 Plans?

Postby NateH » Wed Jan 04, 2017 12:52 am

529s are great for grandparents and high income / high saver parents.
They aren't great for the average joe who should probably be saving more for their own retirement.
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Re: Are Younger people funding 529 Plans?

Postby Thrasymachus » Wed Jan 04, 2017 12:59 am

27 here - I fully funded a 529 plan last year, and I plan to max it out again this year.

But I'm a very special case - I know that I'm going to grad school and I plan to drain the account entirely within a year. I'm just transferring money that would otherwise be in a taxable account (mostly for the state tax deduction, but the tax-free growth is also nice).

I will probably open another 529 plan for my (future) kids after paying off my student loans... but I'll be well into my 30s at that point.

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Re: Are Younger people funding 529 Plans?

Postby boglebrain » Wed Jan 04, 2017 2:15 am

From reading this thread I realize I'm rare but I've always liked to optimize things over the long term...I had maxed out Roth IRA accounts about 18 years ago and learned about 529 plans as they had just been created (I think the IRS created the rules for them in 1996). I researched them and on my grad-student stipend before I was married I starting putting away $50/month in my name for use by a possible future child or by me if I later went for a professional degree. (I was in a teaching/research-funded PhD program so didn't have to pay for my own tuition as it was covered). So 18 years later and after saving that and with multiple kids I will make good use of the 529 plan. At that point in time, when I was in my early 20s, it made sense to do for me given the long-term growth potential and that I was maxing out the available retirement options. I also thought it best to not overdo it as I knew saving for a home/etc was more immediate so $50/month made sense to me. I think once I started working in the real-world I increased the amount to $100 or so.

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Re: Are Younger people funding 529 Plans?

Postby runner3081 » Wed Jan 04, 2017 12:55 pm

Daughter is 4 years old now, we started about the time she was born (I was 30, wife 27).

We put a very small monthly amount into the account $50 monthly and receive a state tax break for it.

Any gifts she receives that are cash or check go in there as well.

As many others have mentioned, younger folks can't or won't save - regardless of the place, bank account, 401K, 529, etc.

It also comes down to how you plan to handle college finances. My wife and I are only going to cover tuition and books for the 4-years (community college for the first 2 years, public university the next 2).

Anything above and beyond that will need to be funded or borrowed by the child. this alleviates a large chunk of the costs of housing, private schools, etc and creates a lower amount that we will ultimately fund. We will fund any shortfalls from cashflow at that time.

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Re: Are Younger people funding 529 Plans?

Postby flybynite » Wed Jan 04, 2017 7:58 pm

ncg1983 wrote:33 here and wife is 32. Two children (one born 2014 and one born 2016) and residents of VA, with a VA 529 plan that offers Vanguard index funds with a minimal administrative fee on top. We have been putting in $4,000 per calendar year per child for the state tax deduction and plan to continue this for the foreseeable future. It's unlikely this annual amount will cover 4 years of college in 16-18 years, particularly if attending a private university, but this will help offset educational costs and is small enough that it doesn't impact our daily lives. We also have UTMA's for both of them and max out 401(k) contributions. No debt other than mortgage, so we are fortunate to be able to do all that we can.


Just thought I'd contribute being a VA529 person as well, thanks to the strong market, even starting my first sons (out of 4 kids) with far less than the 4K and when he was 3, but eventually working it up to 4K per each of us per child, my wife and I believe that the money in the accounts for all 4 kids will cover public university in state tuition for all of them, in fact we may have to stop contributing earlier for the younger ones.

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Re: Are Younger people funding 529 Plans?

Postby MKP » Wed Jan 04, 2017 9:04 pm

For child number 1, I put in 100 a month (with x*100 on birthdays, x=AGE). Assuming a 6% nominal return that would get me to about $45K. I am good with that. I will do the same for child number 2.

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Re: Are Younger people funding 529 Plans?

Postby TxAg » Wed Jan 04, 2017 9:20 pm

34/32

kids are both under 3

we have a 529 for each

we're comfortable with our retirement savings thus far and continue to save

we're far from rich and don't have large salaries

i see it as a "bucket" to save some money for the future for a specific purpose. there won't be enough there to ever be over funded.

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Re: Are Younger people funding 529 Plans?

Postby letsgobobby » Wed Jan 04, 2017 10:04 pm

ThankYouJack wrote:With no 529 state deduction, a 529 tax savings is too minimal for me. I'd rather pay off debt, become financially independent first and have more flexibility. If I'm FI before my kids begin college, I'll probably fund a 529.

Mr. Bogle doesn't use a 529 either for his grandchildren's college expenses. At a certain point, simplicity outweighs a small savings.

The savings can be quite large, if you start early enough.

Saving for college is much harder than saving for retirement. You have a much shorter time to save, and costs go up 3 times the rate of inflation.

We started at or before the birth of our children, but we could afford to do it. I agree that for the 'average' household, 529s should be lower on the priority list.

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Re: Are Younger people funding 529 Plans?

Postby TheEternalVortex » Wed Jan 04, 2017 10:20 pm

Chose not to open a 529 for my kids. The benefit is quite small and the downside is large (restrictions on withdrawal, complexity of extra account, etc.). I would do it if I got a state tax deduction though.

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Re: Are Younger people funding 529 Plans?

Postby ThankYouJack » Wed Jan 04, 2017 10:43 pm

letsgobobby wrote:
ThankYouJack wrote:With no 529 state deduction, a 529 tax savings is too minimal for me. I'd rather pay off debt, become financially independent first and have more flexibility. If I'm FI before my kids begin college, I'll probably fund a 529.

Mr. Bogle doesn't use a 529 either for his grandchildren's college expenses. At a certain point, simplicity outweighs a small savings.

The savings can be quite large, if you start early enough.

Saving for college is much harder than saving for retirement. You have a much shorter time to save, and costs go up 3 times the rate of inflation.

We started at or before the birth of our children, but we could afford to do it. I agree that for the 'average' household, 529s should be lower on the priority list.


I guess large is relative. I don't think the savings would be big enough where I should aggressively fund a 529 today compared to 3-5 years from now when I'm closer to FI, especially if I TLH and pay 0% on the LTCG.

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Re: Are Younger people funding 529 Plans?

Postby Big Dog » Wed Jan 04, 2017 10:49 pm

I have a theory based on people I talk to in their mid20s-mid30s. 529 plan investing is not a priority.


Since many/most? of them are not even funding their 401k, why should this be a surprise? At my company, we have millenials who don't even contribute enough to earn the company 401k match. (I call and scold them all the time, but to no avail.)

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Re: Are Younger people funding 529 Plans?

Postby Ron Ronnerson » Wed Jan 04, 2017 10:53 pm

TheEternalVortex wrote:Chose not to open a 529 for my kids. The benefit is quite small and the downside is large (restrictions on withdrawal, complexity of extra account, etc.). I would do it if I got a state tax deduction though.


I concur and we haven't opened up a 529 for some of the same reasons.

Also, not all of us "older" folks are funding 529 plans either. Wife and I are 42 with a two-year-old daughter. By the time she's in her second year of college, we can tap into retirement accounts so those serve a dual purpose in our case. We're unable to max out retirement accounts as we have a lot of space available. My pension should largely cover our retirement expenses so our Roth IRAs may come in handy for college when the time comes.

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Re: Are Younger people funding 529 Plans?

Postby BW1985 » Thu Jan 05, 2017 10:27 am

Thrasymachus wrote:27 here - I fully funded a 529 plan last year, and I plan to max it out again this year.

But I'm a very special case - I know that I'm going to grad school and I plan to drain the account entirely within a year. I'm just transferring money that would otherwise be in a taxable account (mostly for the state tax deduction, but the tax-free growth is also nice).

I will probably open another 529 plan for my (future) kids after paying off my student loans... but I'll be well into my 30s at that point.


What do you mean by maxing it out? $28,000 per year? The limit is 14K per parent, per beneficiary I believe.
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Re: Are Younger people funding 529 Plans?

Postby Big Dog » Thu Jan 05, 2017 10:34 am

Also, not all of us "older" folks are funding 529 plans either.


Just had two graduate college in last few years and we did not fund a 529 either. Instead, maxed out 401k, which is not subject to FinAid calculations. (Well actually, the current year contribution is an add back..)

Kid 1 attended a private college on need-based FinAid at less than the cost of attending our instate public flagship. Kid 2 also attended a private, and the first year tuition was essentially free since Kid 1 was still in college.

Moral of the story is that parent's 529's count against need-based aid. Of course, every Boglehead aspires to the 1% (in income?), but, by definition, many/most will never get there. Sure, things will change in 15+ years, but in which direction?

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Re: Are Younger people funding 529 Plans?

Postby BW1985 » Thu Jan 05, 2017 10:52 am

If we have a child I plan to ask grandparents to open 529, and if they want to give the child any financial gift they can do so with contributions there. Their state gives deduction, ours does not.
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Re: Are Younger people funding 529 Plans?

Postby blaugranamd » Thu Jan 05, 2017 4:03 pm

Ron Ronnerson wrote:
TheEternalVortex wrote:Chose not to open a 529 for my kids. The benefit is quite small and the downside is large (restrictions on withdrawal, complexity of extra account, etc.). I would do it if I got a state tax deduction though.


I concur and we haven't opened up a 529 for some of the same reasons.

Also, not all of us "older" folks are funding 529 plans either. Wife and I are 42 with a two-year-old daughter. By the time she's in her second year of college, we can tap into retirement accounts so those serve a dual purpose in our case. We're unable to max out retirement accounts as we have a lot of space available. My pension should largely cover our retirement expenses so our Roth IRAs may come in handy for college when the time comes.


The state tax deductions aren't always a big impact. For example: my state offers a tax deduction and at our income our marginal state income tax rate is 4.597%. You can deduct $2,000 per beneficiary. That only amounts to about $92 per year in tax breaks. If that's enough to make you risk paying the penalties if you don't use it for education then ok but the tax deduction alone isn't like cutting into a 25-33% federal rate.

For Ron, there's no way you should contribute to a 529 without maximizing retirement accounts first. 529s really should be limited to folks who have no other tax advantaged accounts. That said, they're basically a Roth account you can only use for education and virtually any education expenses (internet service, computers, etc). We finally managed to max our TSPs and Roth IRAs, I wouldn't go crazy with 529 contributions unless you had a ton of extra investment money, but this year so we're going to put $50/mo. of our next investible money into our state's 529. It would otherwise go in a taxable acct, which counts against our assets for financial aid purposes anyway and we'll likely have to pay something for our kid(s) education at some point in the future so it's a pretty good vehicle for that purpose. Our state has Vanguard Age-Based Index Portfolios with 0.20% ERs so even the investment products are good and cost as much as Target Retirement funds.

In general odds of a bad scenarios, for us anyway, are pretty low and you can transfer the beneficiary to nearly any relative so SOMEONE will eventually use it, or one of our kids gets some scholarships, which allows us to take penalty free withdrawals up to the scholarship amount to sneak money back out as if it was a taxable account. We won't be old enough to really tap retirement assets either. If there's major education expense reform (free college?) that cuts college costs, I have a very hard time believing there won't be some sort of grace for 529 accounts.

Bottom line is they're extra tax-advantaged space for folks who have no other tax advantaged space left, are on track to meet retirement savings goals, and anticipate paying for educational costs in the future.
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Re: Are Younger people funding 529 Plans?

Postby Chadnudj » Thu Jan 05, 2017 4:11 pm

blaugranamd wrote:The state tax deductions aren't always a big impact. For example: my state offers a tax deduction and at our income our marginal state income tax rate is 4.597%. You can deduct $2,000 per beneficiary. That only amounts to about $92 per year in tax breaks. If that's enough to make you risk paying the penalties if you don't use it for education then ok but the tax deduction alone isn't like cutting into a 25-33% federal rate.


Good point, but also don't forget the positive impact of contributions growing tax-free inside the 529 over time (a potentially very large impact if you start a 529 for a newborn and have nearly 18-22 years of growth on your initial deposits).

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Re: Are Younger people funding 529 Plans?

Postby blaugranamd » Thu Jan 05, 2017 4:19 pm

Chadnudj wrote:
blaugranamd wrote:The state tax deductions aren't always a big impact. For example: my state offers a tax deduction and at our income our marginal state income tax rate is 4.597%. You can deduct $2,000 per beneficiary. That only amounts to about $92 per year in tax breaks. If that's enough to make you risk paying the penalties if you don't use it for education then ok but the tax deduction alone isn't like cutting into a 25-33% federal rate.


Good point, but also don't forget the positive impact of contributions growing tax-free inside the 529 over time (a potentially very large impact if you start a 529 for a newborn and have nearly 18-22 years of growth on your initial deposits).


Yeah, that's my point. :wink: Compared to the Roth-esque characteristics of the account (after tax contributions, tax-free growth/qualified withdrawals) the extra $100ish in state tax deductions shouldn't be the major factor.
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Re: Are Younger people funding 529 Plans?

Postby auggiedoggies » Thu Jan 05, 2017 4:57 pm

Wife and I are both 27. We live in a state that offers no tax deduction for opening a 529, but we went ahead and opened one anyways. Main reason is so that grandparents/great grandparents have a place to put gifts. We do 50% into savings, 50% into 529. We have put in relatively little ourselves.

Why? Well, we don't yet max both our 401ks and Roth IRAs and HSAs. Once we can do that, we will begin to contribute more.

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Re: Are Younger people funding 529 Plans?

Postby ThankYouJack » Thu Jan 05, 2017 4:59 pm

blaugranamd wrote:
Bottom line is they're extra tax-advantaged space for folks who have no other tax advantaged space left, are on track to meet retirement savings goals, and anticipate paying for educational costs in the future.
:sharebeer


I think each person should run their own numbers / estimates and then decide if the anticipated tax savings is worth it. As I pointed out in my scenario above (tax loss harvest, 0% long term capital gains), the actual tax-saving could be quite small for me so isn't worth the strings at this point.

I think we can all agree that there's no right or wrong answer -- it's a personal decision and whatever makes people feel best for their own situation.

This is a bit off topic, but with more online courses (many free) maybe there will be much cheaper just as good college options within the next couple decades. I was happy with the opportunities my college experience gave me and hope my kids get a similar ROI from their colleges. I personally feel too many colleges are ripping kids off these days and leaving them with tons of debt and no jobs when they graduate. I guess some blame has to be put on the consumer too and colleges should be looked at businesses and not just educational institutions.

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Re: Are Younger people funding 529 Plans?

Postby Big Dog » Thu Jan 05, 2017 5:04 pm

Main reason is so that grandparents/great grandparents have a place to put gifts.


As I noted upthread, much better from a financial aid perspective is for the grandparents to open the account in their names for the grandkids.

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Re: Are Younger people funding 529 Plans?

Postby letsgobobby » Thu Jan 05, 2017 5:30 pm

ThankYouJack wrote:

I think each person should run their own numbers / estimates and then decide if the anticipated tax savings is worth it. As I pointed out in my scenario above (tax loss harvest, 0% long term capital gains), the actual tax-saving could be quite small for me so isn't worth the strings at this point.

I think we can all agree that there's no right or wrong answer -- it's a personal decision and whatever makes people feel best for their own situation.

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Re: Are Younger people funding 529 Plans?

Postby blaugranamd » Thu Jan 05, 2017 5:40 pm

ThankYouJack wrote:
blaugranamd wrote:
Bottom line is they're extra tax-advantaged space for folks who have no other tax advantaged space left, are on track to meet retirement savings goals, and anticipate paying for educational costs in the future.
:sharebeer


I think each person should run their own numbers / estimates and then decide if the anticipated tax savings is worth it. As I pointed out in my scenario above (tax loss harvest, 0% long term capital gains), the actual tax-saving could be quite small for me so isn't worth the strings at this point.

I think we can all agree that there's no right or wrong answer -- it's a personal decision and whatever makes people feel best for their own situation.


No doubt it's situation dependent. There's a good chance my wife and I will still be working and in the 28%+ marginal federal when my son starts college so seems like a good choice for us.
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Re: Are Younger people funding 529 Plans?

Postby majiaknight » Thu Jan 05, 2017 5:47 pm

ThankYouJack wrote:With no 529 state deduction, a 529 tax savings is too minimal for me. I'd rather pay off debt, become financially independent first and have more flexibility. If I'm FI before my kids begin college, I'll probably fund a 529.

Mr. Bogle doesn't use a 529 either for his grandchildren's college expenses. At a certain point, simplicity outweighs a small savings.


I have similar thoughts as above. In addition, my company started to offer After-tax 401K option w/ the capability of out-of-plan rollover to Roth IRA which means I could max $53K 401K in 2016 and after. So, that contribution invested in the rollover Roth IRA seems to be more flexible than 529 when we need it to pay for college expenses.

Many of my friends have a late start in their career due to high degree education and typically have their 1st kid in 30s including my family. We are now in mid-30s w/ a 2 year old living in HCOL area. I have to say there are so many financial challenges like expensive house w/ high mortgage, expensive day care and future private school cost, job security, etc. I made a joke w/ my wife that the pre-school monthly cost ~$2K/month in my area is even higher than my full scholarship when I was working hard as research assistant in the lab at graduate school.

In the worst case, my kid could still apply for a student loan for college but we can't get one for retirement or taking care of old parents in case of emergency. But still we opened one 529 w/ no state tax benefits when my kid was born but decided to only contribute $200/month and any gift money our kid receives. Fortunately we already got ~$5K seed money from grandparents when our kid turned to 2. My current priority is: Max retirement fund -> debt free -> 529.

nycguy83
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Re: Are Younger people funding 529 Plans?

Postby nycguy83 » Thu Jan 05, 2017 6:10 pm

I have been funding my 529 for the last 4 years (putting in the minimum to get the max NY state deduction). I have about $38,000 in the account. I am 32 and engaged.

I am quitting IRA's this year (healthy 401k match from employer + fiance will max their 401k account).

The problem with saving for 529's, is you should temper your risk down (increase bonds in your AA) significantly once your child hits 14 or so. You can't run the risk of a stock market crash wiping out most of your gains (no time to recover).

13-14 years is not a long runway to accumulate significant growth. I would actually encourage folks on this forum who are reasonably sure they want to have kids to start saving prior (assuming all debt is paid and you are maxing 401k contribution).

For those who are saving, what is your goal per child (when they hit 18)? Assuming 2 kids and private education costs and inflation, is $500k per account excessive? Maybe having 2 accounts at $250k and supplementing the rest with taxable is a better strategy?

After all, you can always pay the penalty (just on the gains) along with the ordinary income on gains and get most of the money back.

Soon2BXProgrammer
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Re: Are Younger people funding 529 Plans?

Postby Soon2BXProgrammer » Thu Jan 05, 2017 6:22 pm

we are 32/30 and are saving aggressively in 529's but we already max all available retirement accounts including megabackdoor roth via aftertax 401k.

at this point it is either taxable or 529's, so we are going down the 529 route. our plan is to get the balance to roughly 80% of 4 years full cost of an in state university and then transfer the 529 to the colorado plan with stable value.

the 80% number is so that we know we have space to take some of the other tax credits for paying for education our of income.

we plan to treat the 80% number sort of like pension funding levels.. check once a year and see what the new 80% level is and compare it to what our balance is. and make a contribution if needed to maintain that level of funding.

blinx77
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Re: Are Younger people funding 529 Plans?

Postby blinx77 » Thu Jan 05, 2017 8:16 pm

I am early 30s and funding 529s.

We max our one 401(k) (wife is currently SAHM) plus get another $10k in the 401(k) from employer from matching and profit-sharing. Then we max both Roth IRAs. We don't have a ton leftover after that, but we will hopefully have another 5-20k available for savings depending on our budgeting prowess and my work bonus. I don't do the mega-backdoor Roth (not sure I really have the means anyways right now).

In previous years we funded $5k per our daughter, then last year we had a second baby and funded $5k per child. This year we decided to switch to monthly contribution and make it part of our budget and are doing $200 per child per month. We may just keep it at that level or we may add a bit more at the end of the year if the numbers are looking good. I don't forsee adding more than $5k per child per year for the next few years.

I want to have a healthy amount in the 529s by the time the kids are college aged -- hopefully at least $100k -- but I don't feel the need to save for full-freight college and/or grad school in these accounts. I plan to pay for college from multiple sources (529, cash flow, taxable investments, Roth IRA, grandparent help, maybe in-state tuition, maybe scholarships, maybe loans, maybe even HELOC, etc.) so these accounts are really just one arrow in the quiver.

Personally I would place funding a 529 below funding retirement accounts, below an emergency fund of at least six months and below saving for "rainy day" expenses like a new car or new roof. But I would place funding a reasonable amount in a 529 above prepaying my mortgage (given low interest rates), regular taxable investing (beyond whatever liquid cushion helps you sleep at night), mega-backdoor type investing or "play money" (e.g., bitcoin, fancy new car, or even play stock market money).

For most young people, student debt + house downpayment + Roth IRAs would be a much more compelling use of funds than a 529 (to say nothing about daycare or diapers...).

blinx77
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Re: Are Younger people funding 529 Plans?

Postby blinx77 » Thu Jan 05, 2017 8:22 pm

One awkward part of the 529 is that I would love to have some grandparent contributions. My parents have explicitly stated they want to help with schooling for our kids, but "help" is kind of vague and useless for budgeting purposes unless there is something concrete behind it. But I don't know how to broach the subject... (Hey mom and dad, if you are really good for it, how about some cash money in the 529 for baby-blinx, sounds a little presumptuous.) So for right now I am just waiting and seeing and doing my own thing.

ThankYouJack
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Re: Are Younger people funding 529 Plans?

Postby ThankYouJack » Thu Jan 05, 2017 10:47 pm

nycguy83 wrote:
After all, you can always pay the penalty (just on the gains) along with the ordinary income on gains and get most of the money back.


True, but also consider the flip side. Long term capital gains rates are much less than the 10% penalty + ordinary income on the gains. So it's better to err on the side of underfunding than overfunding a 529 IMO.

dsmil
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Re: Are Younger people funding 529 Plans?

Postby dsmil » Thu Jan 05, 2017 10:57 pm

Almost 30 here and we do have a 529 for some gifts from grandparents, but we're saving for college within our Roths. We'll be taking the next year to finally pay off our own students loans, after which our savings will first go towards retirement, and then split between college savings and the next down payment.

Swelfie
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Re: Are Younger people funding 529 Plans?

Postby Swelfie » Fri Jan 06, 2017 4:08 am

I decided to slap together a spreadsheet to test taxable vs. 529 for my own retirement situation. I've got a moderate state income tax and 529 contributions are deductible. I tested a 4% steady return bond asset. I do not plan on retiring in this state, but to one with no income tax, so I subtracted state income tax from the taxable contributions, but not the 529 contributions as a lower availability of capital. For each year I calculated the withdrawal penalty and federal tax from the 529 and showed the liquidation value, and from taxable I subtracted the federal and state tax from the return and showed it's liquidation value. I assumed a constant federal tax of 33% before and after retirement (unlikely for me as I'll be lower in retirement, so even more advantageous.) No time horizon, the 529 handily beat taxable in year 1 and the gap widened from there. So for bond coupons and a state tax deduction available for me, and retiring to a no income state, I think it's a no brainier. YMMV.

I agree though, that I'll be maxing out all other tax deferred options first (401k, even after tax contributions, backdoor Roth, HSA, and even ee and i bonds).

The flexibility of potentially actually incurring education expenses or gifting is icing.

ThankYouJack
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Re: Are Younger people funding 529 Plans?

Postby ThankYouJack » Fri Jan 06, 2017 11:04 am

Swelfie wrote:I decided to slap together a spreadsheet to test taxable vs. 529 for my own retirement situation. I've got a moderate state income tax and 529 contributions are deductible. I tested a 4% steady return bond asset. I do not plan on retiring in this state, but to one with no income tax, so I subtracted state income tax from the taxable contributions, but not the 529 contributions as a lower availability of capital. For each year I calculated the withdrawal penalty and federal tax from the 529 and showed the liquidation value, and from taxable I subtracted the federal and state tax from the return and showed it's liquidation value. I assumed a constant federal tax of 33% before and after retirement (unlikely for me as I'll be lower in retirement, so even more advantageous.) No time horizon, the 529 handily beat taxable in year 1 and the gap widened from there. So for bond coupons and a state tax deduction available for me, and retiring to a no income state, I think it's a no brainier. YMMV.

I agree though, that I'll be maxing out all other tax deferred options first (401k, even after tax contributions, backdoor Roth, HSA, and even ee and i bonds).

The flexibility of potentially actually incurring education expenses or gifting is icing.


That makes sense. Definitely seems like a no-brainer for anyone certain the money will be used for qualified educational expenses and get the state deduction.

schwank
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Re: Are Younger people funding 529 Plans?

Postby schwank » Fri Jan 06, 2017 11:15 am

Late 30s with a toddler here. No 529 as the tax offset isn't enough to deal with the lock-in of funds. My state recently gave everyone 2 years of CC at no cost, and who knows what the education system will look like in 15+ years. I am setting aside college funds monthly, but in a post-tax brokerage account owned wholly by my wife and I. If current trends continue, we won't really be eligible for need-based financial aid anyway, so I prefer to maintain control over the funds and how they are spent.

pingizzle
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Re: Are Younger people funding 529 Plans?

Postby pingizzle » Fri Jan 06, 2017 11:26 am

35 year old with 4 children from 1 - 10 years old.

- Single income earning ~$275K gross annually
- no consumer debt
- $300K 15 year mortgage at 3.625% in year 2 - pay an additional lump sum based on annual bonus payments, usually somewhere between $50K - $70K

I opened accounts for all of my children when they were born. I do not expect to be able to fund 100% of tuition with the 529, but hopefully will have a nice chunk to supplement education. I currently contribute, $100 / month per child and an additional $500 dollars on each birthday and Christmas.

I am able to max 401K annually and receive a 4% match and I also am fortunate to max a ROTH IRA for DW and myself annually. Right or wrong I have chosen to prioritize the 529 as follows:

1- Max 401K Contribution
2- Max ROTH Contribution
3- 529 Plans as outlined above
4- Personal brokerage account with what is left over
5- pay off mortgage ASAP and cash flow the balance of education costs when needed

letsgobobby
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Re: Are Younger people funding 529 Plans?

Postby letsgobobby » Fri Jan 06, 2017 2:13 pm

schwank wrote:Late 30s with a toddler here. No 529 as the tax offset isn't enough to deal with the lock-in of funds. My state recently gave everyone 2 years of CC at no cost, and who knows what the education system will look like in 15+ years. I am setting aside college funds monthly, but in a post-tax brokerage account owned wholly by my wife and I. If current trends continue, we won't really be eligible for need-based financial aid anyway, so I prefer to maintain control over the funds and how they are spent.

Our 529s are wholly owned by my wife and me, and we maintain control over the funds and how they are spent.

Maverick3320
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Re: Are Younger people funding 529 Plans?

Postby Maverick3320 » Fri Jan 06, 2017 3:30 pm

35 years old here. Of the "professionals" in my social circle age group (docs, attorneys, engineers, MBA-types), most of them save for retirement, mainly by having some sort of financial advisor. Of the non-professionals, I would guess less than 10% save anything for retirement, let alone would even know where to start.

30 years from now, I think my generation is in for a pretty rude awakening.

runner3081
Posts: 67
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Re: Are Younger people funding 529 Plans?

Postby runner3081 » Fri Jan 06, 2017 3:58 pm

Maverick3320 wrote:30 years from now, I think my generation is in for a pretty rude awakening.

Yes, unfortunately one that you and I (I am 35) will have to fund from the money we did save instead of wasting on "things".

Texanbybirth
Posts: 371
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Re: Are Younger people funding 529 Plans?

Postby Texanbybirth » Fri Jan 06, 2017 4:16 pm

If the general consensus is to max out ROTHs and 401k before saving in a 529, then I anticipate never being able to contribute to a 529 from our income. I'm 31, wife is 30. We have a 23 month old and a 3 month old. Most people in our circle are in the same boat.

We've encouraged (great-)grandparents and siblings to contribute, but you can't force people to do it and so far no one has.


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