Poll: Do you contribute max to tax-advantaged before 529?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills

Do you contribute max to tax-advantaged before 529?

Do not contribute to 529 plans
47
28%
Yes, but I cannot contribute to other tax-advantaged anyways
2
1%
No, contribute to 529, but not contributing max possible to tax-advantaged
22
13%
Yes, contribute to 529 and also max allowed to tax-advantaged
88
52%
Wait a minute, a 529 plan is a tax-advantaged account!
2
1%
Something else
7
4%
 
Total votes: 168

Topic Author
livesoft
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Poll: Do you contribute max to tax-advantaged before 529?

Post by livesoft » Thu Jan 29, 2015 7:41 am

For those who contribute to 529 plans, I was wondering if they also contribute the typical maximums allowed to their non-529 tax-advantaged accounts in the same year or at the same time. Note that folks who are not eligible to contribute to tax-advantaged accounts would use a value of $0.00 for that which means grandparents or retirees can answer the poll if they wish.

If you or your child receives gifted money from others that is supposed to go into a 529 plan, then do not count that for the purposes of this poll.

Or do folks contribute to 529 plans before making the maximum legal contributions to 401(k), 403(b), IRAs, etc?

If you are done contributing to 529 plans, you can answer for the last year you contributed. If you intend to contribute to 529 plans in the future, you can answer for what you expect to do then.

Note: By typical, I mean about $18,000 to work plans and $5,500 to IRAs, but not additional to 457 or the employer contributions to 401(k) (even for self-employed). And also for both spouses if eligible.

Thanks!
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keystone
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by keystone » Thu Jan 29, 2015 8:04 am

I am honored to have cast the first vote. I am a believer in funding retirement accounts first to the max and I also follow the livesoft philosophy that it is better to underfund than overfund a 529 account.

It did occur to me though that my strategy may be partially attributable to the fact that my son was born when I was on the verge of age 40 and I know that I could tap into my IRAs (especially traditional) without any penalties at some point during my sons college years. If I were ten years younger, that wouldn't be an option.

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by rkhusky » Thu Jan 29, 2015 8:29 am

We max retirement accounts and also contribute to 529, but we do both throughout the year, as funds become available.

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by niceguy7376 » Thu Jan 29, 2015 9:05 am

We max our tax-advantaged accounts. We are contributing minimal amount to 529s due to non affordability.

flyingbison
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by flyingbison » Thu Jan 29, 2015 9:06 am

No 529 for us. Can't even come close to maxing retirement accounts, so there is no point in 529 contributions.

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by Grt2bOutdoors » Thu Jan 29, 2015 9:42 am

Am contributing the max to retirement accounts including Roth and funding a 529 plan. I fund them as I get paid.
In the days when I could not afford to contribute the max to retirement accounts, I always sought to contribute at least 15% of my wages before the employer contribution (it was tough and a sacrifice to do so but well worth it now). I've said it before, save what you can for yourself when you can - it's been my experience that employers will cut your pay/benefits before they cut theirs. They are not the benevolent caretakers of your future - you are!
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by Userdc » Thu Jan 29, 2015 9:51 am

I contribute max to all tax advantaged accounts except for 529.

For 529 I contribute up to the maximum state income tax break, and no more.

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by markcoop » Thu Jan 29, 2015 9:59 am

Depends how you define max. I have a 401K, 403B and 2 ROTH IRAs available to me. I max out the 401K and 2 ROTH IRAs. I decided not to contribute to the 403B because of fees and because I felt I saved enough with the other options. I also contribute to a 529. In my mind, I'm maxing out the plans I want to max out before contributing to a 529.
Mark

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by mhc » Thu Jan 29, 2015 10:01 am

I max all tax-advantaged retirement accounts and max HSA. I then put money into my taxable account.

I have thresholds I want to hit for the 529. If I fall behind, I add more money. If I am ahead, I don't add money. For example, I want 25% of full in-state college expenses by age 5 and 50% by age 10.

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by asset_chaos » Thu Jan 29, 2015 6:34 pm

Every year---gasp, for over a decade!---I max our retirement accounts and several Coverdells but don't normally contribute every year to 529 accounts.
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by kenyan » Thu Jan 29, 2015 6:58 pm

Something else - I'm between categories. We max our workplace retirement accounts and contribute regularly to both of our Roth IRAs as well as 529s (favoring the Roths, but still adding something to 529s). That baseline scenario actually fits into one of the poll options. However, we make efforts throughout the year to contribute extra to the Roths (as overtime, bonuses, "found money" in the budget, etc. become available), with the goal of maxing them out prior to April 15th, and we have been successful the last couple of years. Not yet there for 2014, but I think we'll make it.

That would put us in the livesoft-advised camp, albeit through a roundabout method. We just haven't completely restricted ourselves to that camp/dogma.
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by Tortoise Banker » Thu Jan 29, 2015 7:30 pm

We live in a HCOL area, and my wife just started a new business so I'm not able to max my 401k and she doesn't have one available. I've been able to make it up to around 8000/18000 per year on mine. Eventually I'll start an individual 401k for her once her income ramps up.

We do max both ROTH IRAs.

I do contribute a small amount each month to my Son's (<1) 529 account. I'm hoping his learning of this account inspires him to achieve good results in school.

Didn't realize so many people choose to fully max non-529 tax advantaged accounts prior to saving in 529. Interesting.
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by b4nash » Thu Jan 29, 2015 8:25 pm

Userdc wrote:I contribute max to all tax advantaged accounts except for 529.

For 529 I contribute up to the maximum state income tax break, and no more.
+1 (after 401k, IRA, HSA)

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by TomatoTomahto » Thu Jan 29, 2015 8:29 pm

Userdc wrote:I contribute max to all tax advantaged accounts except for 529.

For 529 I contribute up to the maximum state income tax break, and no more.
Me too, except I live in NJ, so I don't contribute to 529. I did years ago, but no longer.
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by Jack FFR1846 » Thu Jan 29, 2015 8:32 pm

I voted something else.

Max all tax advantaged.
Contribute nothing to a 529.
I do pay tuition bills, however.
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by Bracket » Thu Jan 29, 2015 8:38 pm

We max our IRAs and my 401k each year.

Throughout the year we also contribute to our taxable accounts and 529.

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Cosmo
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by Cosmo » Thu Jan 29, 2015 8:38 pm

Yes, I contribute the max to tax-advantaged plans ( my 401(k) plan and Roth and her Roth) before contributing to the 529 plan. I have around $88,000 saved up for my two sons, aged 6 and 9. Based on posts here, I am unsure whether to keep funding them or just pay the rest of the upcoming college expenses with cash flow (unless college expenses are ridiculously high, of course).

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by anjou » Thu Jan 29, 2015 8:45 pm

Until this year, we contributed to the maximum to retirement tax advantaged accounts and then to 529. But once the education goal target was reached, which we set by talking to friends about their kids' college expenses (hopefully that turns out to be right :happy), we stopped putting more into the 529.

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by jasper » Thu Jan 29, 2015 10:14 pm

We max 401K, his/her backdoor roth's, and an HSA
and we are putting money into 2 529 accounts. we pulled the number we contribute out of a hat - they are only 4 yo and this number will likely change as time goes on

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by Tortoise Banker » Fri Jan 30, 2015 9:27 pm

May I ask if it is advisable to assure we first contribute max to 401k/IRA prior to 529? Just curious if there is anything in the Wiki or boglehead gem that might answer this.
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livesoft
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by livesoft » Fri Jan 30, 2015 9:52 pm

I did not realize that 529 plans were such an emotional issue for folks. To me money is money, but to other folks it is not. Here is an article by Ron Lieber today in the NYTimes about the emotions: http://www.nytimes.com/2015/01/31/your- ... plans.html

As I read it, I was thinking of the "Leggo my Eggo" commercials.

But Tortoise Banker, here are some reasons why one should max 401(k) and retirement plans before contributing one dime to a 529 plan.

1. One cannot borrow for retirement, but can borrow for college.
2. Tax-advantaged retirement plan assets are not reportable on the FAFSA unlike 529 plan assets.
3. If one is used to maximizing retirement plan contributions every year, then when kid(s) is/are in college, one can stop contributing and use that money to pay for college in those years when kid(s) is/are in college. If you are unemployed or retired in those years, then financial aid is more likely anyways.
4. If one is middle class, then there are education credits for qualified higher education expenses. Did you know the Federal government will pay you $2500 a year to go to college? If one is high income, then these tax credits are not available, but if you are high income you can afford to max retirement plan contributions.
5. One can borrow from 401(k) plans to pay for college or even to contribute to 529 plans.
6. Roth IRA contributions can be withdrawn at any time without penalty and could be used to pay for college.
7. Retirement plan contributions usually reduce your taxes which helps you save even more money for college.
8. In years one does not contribute the max to retirement plans, the ability to "top up" the plan is lost. One cannot go back and get a "do over".

I've probably left out some other benefits to not contributing to 529 plans. However, state income tax breaks can be important. I think states should nudge their citizens to contribute to retirement plans, but states have decided to nudge citizens to contribute to college plans. Certainly, most states run public universities, so maybe that makes sense. States can get their money back by charging higher tuition and fees. 529 plans are clearly a tax break for the wealthy with children.

Full disclosure: We used 529 plans for all our children to help pay for some college costs.
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by Texas Radio » Fri Jan 30, 2015 10:37 pm

Have you ever met someone who is totally stressed out about their student loans? The government and the banks have their teeth into these people and they don't let go. They grab tax refunds, they make it impossible to get state licensing unless one is current on their payments, etc. I was once in that boat and the system was vicious. Emotions? try fear and frustration on for size...

Do I want that for my most precious? Not over my dead body.

That being said, we're fortunate enough to max out all our tax advantaged accounts and to sock money away in 529's so that my children will have it better than I had...and I guess I'm one of the few that put their interests ahead of mine. To each his own.
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by livesoft » Fri Jan 30, 2015 10:45 pm

Texas Radio wrote:...and I guess I'm one of the few that put their interests ahead of mine. To each his own.
There are many on the forum that put the interests of others ahead of their own. We are paying 100+% of the costs of undergraduate degrees for our children. I would guess that the 60+% of poll respondents who max out retirement plans before contributing to 529 plans are fully capable of doing the same.
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by Texas Radio » Fri Jan 30, 2015 10:54 pm

what I meant was that I would put my children's college ahead of my own retirement...if that's the majority sentiment I stand happily corrected
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livesoft
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by livesoft » Fri Jan 30, 2015 11:10 pm

I'll throw this out there: I think most people cannot figure out how saving the maximum for their retirement is a good way to pay for college for their kids.
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by JLJL » Fri Jan 30, 2015 11:18 pm

Sorry Livesoft I put the yucky tasting "something else" because at this moment we max 401k for one and Roths plus do the mega. Not sure our future savings rate but for now haven't started 529 but probably will next year.

I guess the best fit is "max retirement but no 529" though the mega is a better way to save that money IMO even if used for kids' school. I think we'll be able to fund 529 this year up to the state deduction limits. Trying to squirrel money away for a December lump.

We've never done HSAs. I think I can but only recently learned the benefit. Better to do so than 529?

Thanks for the poll.

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by Tortoise Banker » Mon Feb 02, 2015 1:59 pm

@ Livesoft--Thank you so much for your excellent response. I've saved this in a file and will refer back to from time to time as I'll undoubtedly forget. Much appreciated!
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by TallBoy29er » Mon Feb 02, 2015 7:53 pm

For those who contribute to 529's, which seems like the minority, I am curious what their goal is for their balance. I have a 3 yr old and a 9 month old. I am hoping to get them each to $75k by the time they are 4, which is aggressive. Perhaps it will double by the time they attend college, as asset allocation will change to more conservative over time. That said, my thought is that while I am gainfully employed, and I have the means, I want to build these accounts as quickly as possible. I am also the type of person who paid their mortgage off as soon as I could, b/c I dislike debt immensely, and to me, the thought of paying college for my kids in the future (a must for me) is a looming debt.

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livesoft
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by livesoft » Mon Feb 02, 2015 8:30 pm

We saved in 529 plans something like 5 full years at a state university. We did tax-loss harvest about 2 full years to get the tax break. That left 3 full years. The other years are paid by education tax credits and gains in the investments as well as cash-back by paying tuition, fees, room & board with a credit card. Outside of 529 plans we saved for the usual things like cars, college, retirement, vacations, other expenses.

Perhaps a better metric of the benefit of a 529 plan is to figure out the following:
How much taxes did you save over investing the same amount of money tax-efficiently in a taxable account?
For the taxable account, I think you should add in the tax credits you get if you are not high income. For instance, we got $2500 one year which is like getting a long-term capital gain of $16667 tax-free. So if we had a LTCG of 100% return that would mean cashing in $33,333 for college every year from taxable investments tax-free. So if I invested $16667 tax-efficiently in a taxable account for 10 years, it would double in value if it achieved a return of about 7% annualized (rule of 72). Then sell the $33,333, pay $2500 in LTCG taxes and get a $2500 tax credit, for no net taxes on that investment THAT WAS OUTSIDE A 529 PLAN. It is true that the net capital gain of $16667 would increase AGI unless one had some capital losses (possible carryover) to offset it.

In other words, a 529 plan is not the only game in town. Those education tax credits are quite helpful, especially since we never did double our money in 529 plan investments. So something to think about is whether your family will be able to take advantage of those tax credits.

BTW, $33,333 is about $13,333 more than the cost of attendance of a good state university in my state.
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by jackholloway » Mon Feb 02, 2015 8:43 pm

livesoft wrote:We saved in 529 plans something like 5 full years at a state university. We did tax-loss harvest about 2 full years to get the tax break. That left 3 full years. The other years are paid by education tax credits and gains in the investments as well as cash-back by paying tuition, fees, room & board with a credit card. Outside of 529 plans we saved for the usual things like cars, college, retirement, vacations, other expenses.

Perhaps a better metric of the benefit of a 529 plan is to figure out the following:
How much taxes did you save over investing the same amount of money tax-efficiently in a taxable account?
For the taxable account, I think you should add in the tax credits you get if you are not high income. For instance, we got $2500 one year which is like getting a long-term capital gain of $16667 tax-free. So if we had a LTCG of 100% return that would mean cashing in $33,333 for college every year from taxable investments tax-free. So if I invested $16667 tax-efficiently in a taxable account for 10 years, it would double in value if it achieved a return of about 7% annualized (rule of 72). Then sell the $33,333, pay $2500 in LTCG taxes and get a $2500 tax credit, for no net taxes on that investment THAT WAS OUTSIDE A 529 PLAN. It is true that the net capital gain of $16667 would increase AGI unless one had some capital losses (possible carryover) to offset it.

In other words, a 529 plan is not the only game in town. Those education tax credits are quite helpful, especially since we never did double our money in 529 plan investments. So something to think about is whether your family will be able to take advantage of those tax credits.

BTW, $33,333 is about $13,333 more than the cost of attendance of a good state university in my state.
Hmm. Berkeley, a great state university in mine, is 27k/yr, 32k/yr on campus, totaling 108k-128k depending.

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by just frank » Mon Feb 02, 2015 8:53 pm

I am currently more worried about not having enough money for college than about having enough money for retirement. So I add enough to get a 403(b) match, and then some, and the rest goes to my (underfunded) 529s.

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by Userdc » Mon Feb 02, 2015 9:23 pm

In other words, a 529 plan is not the only game in town. Those education tax credits are quite helpful, especially since we never did double our money in 529 plan investments. So something to think about is whether your family will be able to take advantage of those tax credits.
I have no idea if I'll qualify for the tax credit or whether it will still be around in 15 years, while the recent chatter in DC only further convinced me that 529s aren't going anywhere.

Hopefully I'll be able to take advantage of both.

It helps that my state has a generous tax break for 529s. I might no contribute to a 529 without it.

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by dsmil » Mon Feb 02, 2015 9:38 pm

It's amazes me that this many people max out all tax-advantaged accounts...Bogleheads are really the cream of the crop. Once student loans are gone, our plans for college are to throw an extra $1k per month into the 401k. During college we'll try to use cash flow as much as possible, along with borrowing from the 401k or Roth withdrawals.

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by goodoboy » Mon Feb 02, 2015 10:06 pm

I only max my 401K.

We can not afford to contribute to 529. Our kid will have the best education in the world: all our mistakes given to her for free and great plan to get rich and educated. That's the best I can do and all I am going to do.

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by goodoboy » Mon Feb 02, 2015 10:11 pm

Texas Radio wrote:Have you ever met someone who is totally stressed out about their student loans? The government and the banks have their teeth into these people and they don't let go. They grab tax refunds, they make it impossible to get state licensing unless one is current on their payments, etc. I was once in that boat and the system was vicious. Emotions? try fear and frustration on for size...
College is a business and business main goal is to make money. If you go to an expensive college and you can not afford, be prepared to pay the student loans back with interest.

We are telling our kids, if you don't get a scholarship to the college you want, then you have to go to community college or pay for it yourself. Also, we not paying for any degree that does not pay well after graduation.

Noone paid for me to go to college, i got student loans and paid it all back by going to work, saving, starving and paying it all back.

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by sesq » Tue Feb 03, 2015 3:14 pm

TallBoy29er wrote:For those who contribute to 529's, which seems like the minority, I am curious what their goal is for their balance.
My goal is to save enough so they have enough for 3 years private, which by its nature should be more than 4 years public. I like to think I will then let them make choices, but I may just pay the full way either way. I keep a spreadsheet where I inflate the current costs to their future college years, then I am max funding until my "expected" returns line up (PA lets you deduct $14k per kid from state income taxes). I understand that the market never behaves as expected, but if I can get into the ballpark then I should be able to cashflow or tap other sources.

I pulled my current data here:
https://www.google.com/url?q=http://tre ... TUUVxr7-iA

To answer your question, I max my 401(k) & HSA, then 2 529 plans, then I do backdoor Roth IRA's (I will sometimes stagger this and not fund it in the calendar year, then contribute prior to the filing deadline), anything extra goes to the HELOC (I have no mortgage, just the HELOC at this point). This year I will have to draw a bit from the HELOC to make sure my 2014 Roth window does not close. My incentive comp is kind of feast / famine.

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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by pennstater2005 » Tue Feb 03, 2015 3:37 pm

livesoft wrote:I did not realize that 529 plans were such an emotional issue for folks. To me money is money, but to other folks it is not. Here is an article by Ron Lieber today in the NYTimes about the emotions: http://www.nytimes.com/2015/01/31/your- ... plans.html

As I read it, I was thinking of the "Leggo my Eggo" commercials.

But Tortoise Banker, here are some reasons why one should max 401(k) and retirement plans before contributing one dime to a 529 plan.

1. One cannot borrow for retirement, but can borrow for college.
2. Tax-advantaged retirement plan assets are not reportable on the FAFSA unlike 529 plan assets.
3. If one is used to maximizing retirement plan contributions every year, then when kid(s) is/are in college, one can stop contributing and use that money to pay for college in those years when kid(s) is/are in college. If you are unemployed or retired in those years, then financial aid is more likely anyways.
4. If one is middle class, then there are education credits for qualified higher education expenses. Did you know the Federal government will pay you $2500 a year to go to college? If one is high income, then these tax credits are not available, but if you are high income you can afford to max retirement plan contributions.
5. One can borrow from 401(k) plans to pay for college or even to contribute to 529 plans.
6. Roth IRA contributions can be withdrawn at any time without penalty and could be used to pay for college.
7. Retirement plan contributions usually reduce your taxes which helps you save even more money for college.
8. In years one does not contribute the max to retirement plans, the ability to "top up" the plan is lost. One cannot go back and get a "do over".

I've probably left out some other benefits to not contributing to 529 plans. However, state income tax breaks can be important. I think states should nudge their citizens to contribute to retirement plans, but states have decided to nudge citizens to contribute to college plans. Certainly, most states run public universities, so maybe that makes sense. States can get their money back by charging higher tuition and fees. 529 plans are clearly a tax break for the wealthy with children.

Full disclosure: We used 529 plans for all our children to help pay for some college costs.
Some reasons listed above are why I no longer contribute to a 529 plan. Mostly because I'm not even maxing tax advantaged accounts yet. And with two IRA's and a Simple IRA totaling a possible $23,000 yearly max, it's gonna be awhile.
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by kenyan » Tue Feb 03, 2015 4:10 pm

Well, I just managed to top off the 2014 Roth IRAs, so we're back in the bucket of maxing out all tax-advantaged accounts, making our 529 contributions livesoft-approved :sharebeer . We'll see about 2015, but I think we'll probably make it unless some unexpected expenses crop up.
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Re: Poll: Do you contribute max to tax-advantaged before 529

Post by Clark & Addison » Tue Feb 03, 2015 4:51 pm

We max our Roth's but not our 401k and 403b (bad account anyways). We contribute to our state 529's to receive a 20% tax credit. I don't ever intend to put more into the 529's than the state credits, but that $1,000 tax credit is too hard for me to pass up.

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Re: Poll: Do you contribute max to tax-advantaged before 529?

Post by betterfinances » Sat Jan 16, 2016 12:21 am

My families max for pretax income into 401k and Roth IRAs is $45,000. I think few people who are my age (36) max out their retirement accounts.

I am surprised by the number of people here who say they max out their retirement accounts. Perhaps they are 1 income (and therefore the max is only $22,500) or older or live in a higher income area than me, but I still find that hard to believe.

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Re: Poll: Do you contribute max to tax-advantaged before 529?

Post by Bracket » Sat Jan 16, 2016 8:50 am

betterfinances wrote:My families max for pretax income into 401k and Roth IRAs is $45,000. I think few people who are my age (36) max out their retirement accounts.

I am surprised by the number of people here who say they max out their retirement accounts. Perhaps they are 1 income (and therefore the max is only $22,500) or older or live in a higher income area than me, but I still find that hard to believe.
This is a forum for people who generally believe in saving for retirement via low cost and tax efficient mechanisms, living below their means, etc. Why is it hard to believe that the kind of people interested in such a forum would max out their tax advantaged accounts?

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Re: Poll: Do you contribute max to tax-advantaged before 529?

Post by tech_arch » Sat Jan 16, 2016 9:32 am

I voted "Other." We have the state prepaid plans which we established as soon as possible for our kids. 2016 will be the first year we've had enough income to max our retirement plans (2 401k, 2 Roth IRA, plus an HSA.) The grandparents are separately contributing to a 529.

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Re: Poll: Do you contribute max to tax-advantaged before 529?

Post by JW-Retired » Sat Jan 16, 2016 9:36 am

I just voted so it appears this poll still works. But I know polls were banished because they are too much work for the moderators. Has this changed?
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Re: Poll: Do you contribute max to tax-advantaged before 529?

Post by Ruprecht » Sat Jan 16, 2016 9:53 am

I max out my 403b and 457b because that's pretax money going in.

I max out my tIRA because I only get one chance each year to do that. I guess the 529 is sort of the same as my tIRA, in that you can only put in so much each year, but for some reason it seems different to me--maybe it isn't(?)

Anyway, I'm going to pay off the mortgage before putting anything into a 529. My state has no tax deduction for money going into the 529, so the only benefit I can see to a 529 is that the money can grow tax-deferred while in the fund (which is obviously a good thing).

Overall, I think my net worth will grow more by paying off my mortgage and any other debt than by allowing my 529 fund to grow tax-deferred.

Once I've paid off all debts, I guess I'll have to educate myself a bit more about 529s -- for example, I don't know if there is any advantage to using my own state's 529 when there is no tax deduction for investing into the fund. Maybe there is some other benefit to staying within my home state(?) If not, I'll go wherever I can get the lowest expenses.

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Re: Poll: Do you contribute max to tax-advantaged before 529?

Post by betterfinances » Sat Jan 16, 2016 10:00 am

Ruprecht wrote:
My state has no tax deduction for money going into the 529, so the only benefit I can see to a 529 is that the money can grow tax-deferred while in the fund (which is obviously a good thing).

Overall, I think my net worth will grow more by paying off my mortgage and any other debt than by allowing my 529 fund to grow tax-deferred.
.
529s aren't tax deferred...earnings are free of taxes. They are like a Roth IRA except you can withdraw money at any age and are restricted to use it for college.

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Re: Poll: Do you contribute max to tax-advantaged before 529?

Post by Rodc » Sat Jan 16, 2016 10:08 am

I max out tax-advantaged accounts and put money into 529s.

But I started to put money into 529 before I could max out tax-advantaged accounts.

Wife and I will have pensions that with SS should be sufficient to fund an ok retirement, with no savings, if we work to a more or less"normal" retirement age which puts us in a different position than most.

Years ago wife and I were not entirely on the same page financially and it was clear that there were going to be challenges in keeping funds from being spent if we did not use segregated accounts. At that point I suggested we start 529 plans, in part because I knew that money in such accounts would be much easier to keep off-limits. I also put us on a path of automatic increasing contributions to retirement accounts until we hit the max - again because I knew that the money, while not really needed for retirement, would be off-limits unless some major push came to shove.

So, for at least some people the benefit is more to avoid common financial behavioral mistakes than tax planning.

Over the years wife and I converged in our financial outlook. She is more committed to saving/investing as the benefits became clear, especially in 2008-2009, and a near layoff. I have become freer about spending as we have a greater and greater cushion.

And while not needed, by maxing out retirement accounts, we have been able to save, perhaps more that we would have otherwise, and have the option of retiring several years earlier that we originally planned if we desire, or we can have that much more for travel and such in retirement, and if we get forced into retirement by our employers or burn-out of whatever, we will not lose any sleep over how to make that work. :)
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: Poll: Do you contribute max to tax-advantaged before 529?

Post by Ruprecht » Sat Jan 16, 2016 10:21 am

betterfinances wrote:
Ruprecht wrote:
My state has no tax deduction for money going into the 529, so the only benefit I can see to a 529 is that the money can grow tax-deferred while in the fund (which is obviously a good thing).

Overall, I think my net worth will grow more by paying off my mortgage and any other debt than by allowing my 529 fund to grow tax-deferred.
.
529s aren't tax deferred...earnings are free of taxes. They are like a Roth IRA except you can withdraw money at any age and are restricted to use it for college.
Hmm. Well, then I probably will start to invest in a 529 as soon as I'm out of debt. I've been wondering what to do when I finally get there. Thanks for the info.

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Re: Poll: Do you contribute max to tax-advantaged before 529?

Post by Rodc » Sun Jan 17, 2016 9:15 am

betterfinances wrote:My families max for pretax income into 401k and Roth IRAs is $45,000. I think few people who are my age (36) max out their retirement accounts.

I am surprised by the number of people here who say they max out their retirement accounts. Perhaps they are 1 income (and therefore the max is only $22,500) or older or live in a higher income area than me, but I still find that hard to believe.
I'm not sure but I think the average age here is rather above 36 for one thing

The other is incomes are on average pretty high
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: Poll: Do you contribute max to tax-advantaged before 529?

Post by Rodc » Sun Jan 17, 2016 9:18 am

Ruprecht wrote:
Overall, I think my net worth will grow more by paying off my mortgage and any other debt than by allowing my 529 fund to grow tax-deferred.
That may well be true. One issue though is liquidity.

If one can pay off the house before the kids hit college that frees up cash flow and this can be a very good plan.

But if not you may want some money saved for college (in 529 or other account) because it is not easy/cheap to pull money from the value of your house.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: Poll: Do you contribute max to tax-advantaged before 529?

Post by stoptothink » Sun Jan 17, 2016 10:06 am

With a 15yr mortgage we have agreed to make double payments on and childcare which is equal to that double mortgage payment, we will max our Roths this year but will come up a bit short on the 401ks (looking at ~$25k between both of us). Two kids, 3 and 8-months, no 529 and probably no intention of ever starting one, even in a few years when maxing tax-advantaged space should be no problem. We are likely going to let our children figure out the finances of college on their own and then provide them a lump sum upon graduation (to pay off loans, house downpayment). Neither one of us got a penny from our parents for college (and I was in school until 3yrs ago), I in fact helped out my mom financially through most of it, and we have done quite well; I don't feel too bad providing that same learning/growth opportunity to my children.

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