Kid already in 9th grade, too late to start 529?

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InvestVS
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Kid already in 9th grade, too late to start 529?

Post by InvestVS » Tue Oct 09, 2018 9:08 pm

My kid is in 9th grade, is it too late to start his 529? I do have 150K saved for his education but money is in CD currently paying only 2.1%. I have another kid too who is in 4th grade

I am thinking of starting 529 for him through Vanguard as 2.1% before tax is not very good return (I am in 37% tax bracket and my state tax as 11%).

Jack FFR1846
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Re: Kid already in 9th grade, too late to start 529?

Post by Jack FFR1846 » Tue Oct 09, 2018 9:13 pm

Too late? No. I started my first 529 last year as it was the first year that my state offered any tax break. My son is a college senior. I've used some of my savings bonds and taken advantage of this to eliminate tax on the gains.
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Grt2bOutdoors
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Re: Kid already in 9th grade, too late to start 529?

Post by Grt2bOutdoors » Tue Oct 09, 2018 9:15 pm

InvestVS wrote:
Tue Oct 09, 2018 9:08 pm
My kid is in 9th grade, is it too late to start his 529? I do have 150K saved for his education but money is in CD currently paying only 2.1%. I have another kid too who is in 4th grade

I am thinking of starting 529 for him through Vanguard as 2.1% before tax is not very good return (I am in 37% tax bracket and my state tax as 11%).
No, but sometimes return of capital takes precedence. Look into 529 plan with either Stable Value and/or bank CDs. The Ohio 529 plan offers CDs from Fifth Third Bank (not sure about rates). If you put money in 529 plan, then return will be tax free.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

delamer
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Re: Kid already in 9th grade, too late to start 529?

Post by delamer » Tue Oct 09, 2018 10:22 pm

The advantage of the 529 is that you won’t owe taxes on any earnings received on the money (once it is in the 529) if you use it for college expenses.

But if you want to get higher earnings on the college money, you need to take more risk. There is nothing inherent to a 529 plan that will earn you more the 2.1%. Most 529’s offer an array of investment options, from 100% stocks to a money market fund. Stocks will give you a higher return long term, but there is the risk of losing principal in the short term.

The issue for you is that you don’t want to take too much risk given that your 9th grader will be starting college before too long. Generally, you don’t want money in stocks that you’ll be spending within 5 years.

tony_roach
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Re: Kid already in 9th grade, too late to start 529?

Post by tony_roach » Tue Oct 09, 2018 10:26 pm

I would take advantage of the 529 especially if you can save on your state taxes as well. If you're worried about capital preservation see if your state plan has an age appropriate option (they will re-balance your bonds vs. stocks asset allocation automatically).

inbox788
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Re: Kid already in 9th grade, too late to start 529?

Post by inbox788 » Wed Oct 10, 2018 12:33 am

Do you have taxable investments? If you shift your taxable investments to 529, you can get tax-free gains. I believe you can TLH 529 if there are losses.

viewtopic.php?t=137238

It's a similar strategy as emergency fund placement shifting.
https://www.bogleheads.org/wiki/Placing ... ed_account

randomguy
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Re: Kid already in 9th grade, too late to start 529?

Post by randomguy » Wed Oct 10, 2018 12:43 am

delamer wrote:
Tue Oct 09, 2018 10:22 pm
The advantage of the 529 is that you won’t owe taxes on any earnings received on the money (once it is in the 529) if you use it for college expenses.

But if you want to get higher earnings on the college money, you need to take more risk. There is nothing inherent to a 529 plan that will earn you more the 2.1%. Most 529’s offer an array of investment options, from 100% stocks to a money market fund. Stocks will give you a higher return long term, but there is the risk of losing principal in the short term.

The issue for you is that you don’t want to take too much risk given that your 9th grader will be starting college before too long. Generally, you don’t want money in stocks that you’ll be spending within 5 years.
Some states also offer a tax break which is another reason to contribute even if you are spending right away.

You can take risks if you consider the 529 part of your portfolio rather than a money earmarked for college. You can shift money around to deal with the various constraints on each of the accounts.

SpideyIndexer
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Re: Kid already in 9th grade, too late to start 529?

Post by SpideyIndexer » Wed Oct 10, 2018 1:59 am

Not too late but I would be fairly conservative, and reduce risk over time. Having the assets in a 529 beats having them in taxable. You'll be saving the tax drag. If plans change, the penalty will apply to small gains which is not so terrible.

7 years before he's a senior in college.

Bubbacat
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Re: Kid already in 9th grade, too late to start 529?

Post by Bubbacat » Wed Oct 10, 2018 10:40 am

We got a late start - as other posters shared state tax benefits are a consideration. We are in a very conservative portfolio since he is a senior. Still worth doing.

Bubbacat

Bubbacat
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Re: Kid already in 9th grade, too late to start 529?

Post by Bubbacat » Wed Oct 10, 2018 10:40 am

We got a late start - as other posters shared state tax benefits are a consideration. We are in a very conservative portfolio since he is a senior. Still worth doing.

Bubbacat

WhiteMaxima
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Re: Kid already in 9th grade, too late to start 529?

Post by WhiteMaxima » Wed Oct 10, 2018 10:45 am

Think long term. The 529 also serves as your estate. It could be used as education for your children's children.

delamer
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Re: Kid already in 9th grade, too late to start 529?

Post by delamer » Wed Oct 10, 2018 11:08 am

randomguy wrote:
Wed Oct 10, 2018 12:43 am
delamer wrote:
Tue Oct 09, 2018 10:22 pm
The advantage of the 529 is that you won’t owe taxes on any earnings received on the money (once it is in the 529) if you use it for college expenses.

But if you want to get higher earnings on the college money, you need to take more risk. There is nothing inherent to a 529 plan that will earn you more the 2.1%. Most 529’s offer an array of investment options, from 100% stocks to a money market fund. Stocks will give you a higher return long term, but there is the risk of losing principal in the short term.

The issue for you is that you don’t want to take too much risk given that your 9th grader will be starting college before too long. Generally, you don’t want money in stocks that you’ll be spending within 5 years.
Some states also offer a tax break which is another reason to contribute even if you are spending right away.

You can take risks if you consider the 529 part of your portfolio rather than a money earmarked for college. You can shift money around to deal with the various constraints on each of the accounts.
Yes, of course, don’t know how I forgot the possible state tax break for deposits.

Other than the 529 accounts, the only significant funds we had outside of tax-deferred retirement accounts were in UTMA accounts for the kids.

So we didn’t have the option that others have mentioned of taking from other taxable if the value of the 529s dropped.

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UpsetRaptor
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Re: Kid already in 9th grade, too late to start 529?

Post by UpsetRaptor » Wed Oct 10, 2018 11:13 am

inbox788 wrote:
Wed Oct 10, 2018 12:33 am
Do you have taxable investments? If you shift your taxable investments to 529, you can get tax-free gains. I believe you can TLH 529 if there are losses.

viewtopic.php?t=137238

It's a similar strategy as emergency fund placement shifting.
https://www.bogleheads.org/wiki/Placing ... ed_account
It's worth noting, in light of TCJA, that you can only use that TLH trick in a 529 if you itemize (which generally requires a high AGI) AND have the total misc deductions including the loss be >2% of your (high) AGI. Tough needle to thread post TCJA.

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serbeer
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Re: Kid already in 9th grade, too late to start 529?

Post by serbeer » Wed Oct 10, 2018 11:56 am

If you have state tax deduction, it makes total sense regadless of when you started. Eg, if your state tax rate is 5% and deduction applies to first $10K of annual contribution, then even if you don't have 525 at all prior to college, it makes sense to contribute money into it every year to the max and use to pay for that year's college expenses -- since you will be saving $500 in state taxes ($10K x 0.05)

NoHeat
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Re: Kid already in 9th grade, too late to start 529?

Post by NoHeat » Wed Oct 10, 2018 7:41 pm

serbeer wrote:
Wed Oct 10, 2018 11:56 am
If you have state tax deduction, it makes total sense regadless of when you started.
Yes.

In my state, I can capture the deduction even if I withdraw the day after contributing! I read the state code for 529 deductions, and I verified this with the 529 customer service. The 529 plan doesn’t advertise this quick-turnaround opportunity because they make money on AUM (assets under management), so they prefer that you start early and leave funds there for many years rather than a few days.

So, in a state like mine, it’s possible to wait very very late — even after you receive a tuition bill — before contributing, and still get great benefit from the transaction.

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