too much college savings

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
epilnk
Posts: 2653
Joined: Wed Apr 18, 2007 7:05 pm

too much college savings

Post by epilnk » Sun Jan 13, 2019 8:57 pm

Our original plan was to save enough in 529s to provide a free ride to a state university (with some left over for postgrad) or most of a private university. Everything inherited when my second parent died went in there, so most of the principal has been growing since infancy, plus added bonuses. We topped it up more than we'd planned to. It performed much better than my (admittedly pessimistic) projections. And it turns out that the grandparents who also prioritize education were a lot more generous with their own 529 plans in the kids' names than we'd realized.

So now my kids are educationally loaded; they have more than enough for a free ride to a private university. Great! Except that Kid1's dream school is a state college that is the second lowest cost on his list. His second choice, which he's already been accepted into, is even lower cost. Even if he goes for an eventual MBA (his current goal) he probably still has significantly more than he needs.

There are going to be a lot of additional costs associated with those two schools though. Transportation will be costly. And he's got some tricky medical needs that we are nervous about him managing on his own. I may need to fly out to help at times, and we will pay for things that make his life easier. These aren't costs we can pay out of the 529, unfortunately. And if dorm life turns out to not be practical and he moves off campus, there is a limit on how much housing cost he can claim.

So I'm looking for the wisest way to use up the 529 and hoping someone here has advice on getting any other expenses covered. Loopholes, conditions, etc. If necessary we will withdraw the money, pay the taxes due and penalty, and use that for plane fare and expenses. Its still a good problem to have. But I'm hoping someone has suggestions on legally getting as much as possible covered without incurring penalties.

I am aware that we can transfer to another beneficiary. The problem is that we already planned for that; we have yet another 529 that we funded in order to assist the children of my hard working low income brother. Other young relatives are already provided for.

HereToLearn
Posts: 588
Joined: Sat Mar 17, 2018 5:53 pm

Re: too much college savings

Post by HereToLearn » Sun Jan 13, 2019 9:51 pm

I have not figured out a way, but want to follow along as I have a 529 with a small amount of excess funds. Nothing on the order of your accounts.

Great situation to have, and congrats to your son on his first acceptance.

renue74
Posts: 1799
Joined: Tue Apr 07, 2015 7:24 pm

Re: too much college savings

Post by renue74 » Sun Jan 13, 2019 10:00 pm

Spouse or you can benefit from future education expenses.

You can also save account for grandchildren.

User avatar
arcticpineapplecorp.
Posts: 4604
Joined: Tue Mar 06, 2012 9:22 pm

Re: too much college savings

Post by arcticpineapplecorp. » Sun Jan 13, 2019 10:01 pm

epilnk wrote:
Sun Jan 13, 2019 8:57 pm
And he's got some tricky medical needs that we are nervous about him managing on his own.
if he has medical needs does he meet the definition for an ABLE account? If so, you might be able to transfer funds from 529 to ABLE. This article says how:
https://www.able-now.com/resources/news ... to-ablenow

read up on ABLE accounts. They're more flexible in that the funds can be spent for the child's education or medical or housing expenses. And some amounts in ABLE are not subject to medicaid limits should that become a need later on. Every state has it's own ABLE account, so research the particulars in your state.

read up on the requirements to qualify for an ABLE account:
http://www.ablenrc.org/about/what-are-able-accounts

Does that help at all?
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 9:35 pm

Re: too much college savings

Post by Bacchus01 » Sun Jan 13, 2019 10:03 pm

Grandkids

Don’t forget he needs a new laptop every single year so he can give you the old one :)

MarkBarb
Posts: 279
Joined: Mon Aug 03, 2009 11:59 am

Re: too much college savings

Post by MarkBarb » Sun Jan 13, 2019 10:07 pm

Can you pay out-of-pocket and keep the 529? It could be transferred to an ABLE account that might help with the medical issues. It can be kept for grandchildren. It can be used for some interesting post-retirement education.

Incidentally, your predicament is why we decided to fund part of our children's education with a 529 and part with taxable money. My logic was that a dollar saved in a 529 when my son was an infant had 20 years to grow tax free and would almost certainly be spent. As I kept adding to the 529, the years of tax advantages shrank and the probability of use declined. About the time each child turned 12, I stopped saving in a 529 and just used a taxable brokerage account.

momvesting
Posts: 104
Joined: Tue Apr 12, 2016 9:18 pm

Re: too much college savings

Post by momvesting » Sun Jan 13, 2019 10:59 pm

Does he or any other relatives have K-12 private school tuition that you could withdraw the funds for even if that isn't really what they are going to? I am afraid I may end up in your boat so we have been withdrawing an amount equal to what we are paying for our daughter's high school tuition, then investing it in CDs for now just to avoid having to repay the state income tax credit and pay taxes on unqualified withdrawals when we have 2.5 years of qualified K-12 withdrawals since the K-12 rule went into effect.

User avatar
LiveSimple
Posts: 1451
Joined: Thu Jan 03, 2013 7:55 am

Re: too much college savings

Post by LiveSimple » Sun Jan 13, 2019 11:16 pm

Good problem to have.
Why not withdrawal unused and pay tax ?
Why not you use, go to any European university and learn simething that interests you or your spouse ?

AnStrANG
Posts: 14
Joined: Sat Apr 29, 2017 10:36 am

Re: too much college savings

Post by AnStrANG » Sun Jan 13, 2019 11:24 pm

I'm following this thread because I am wondering if I might save too much. My kids are 7, 1, and 3 months. I've saved about $70K, $27K, and $5k right now. Would the OP say I'm saving too much? I live in Pennsylvania so the tax break can become irresistible at the end of the year. I'm stating my numbers in case OP doesn't want to state his.

User avatar
Taz
Posts: 406
Joined: Tue Jan 13, 2009 9:10 am
Location: Florida

Re: too much college savings

Post by Taz » Mon Jan 14, 2019 7:11 am

If your child receives a scholarship, then you can withdraw that amount from the 529 and avoid the penalty - but not the tax. While it has been debated on other threads, you should withdraw the 529 funds in the same tax year that he receives the scholarship. Remember, you are paying taxes on the gains portion of the distribution not the the entire amount.
The destination matters.

SchruteB&B
Posts: 213
Joined: Mon Jul 02, 2018 7:48 am

Re: too much college savings

Post by SchruteB&B » Mon Jan 14, 2019 8:11 am

I have read that you can have the unqualified withdrawal paid out to the beneficiary. The penalty would still be owed, but presumambly a full time college student would be at a low or no federal tax bracket. Not many details out there on this.

You or your beneficiary—you get to choose who receives the money—will have to report taxable income and pay a 10% federal penalty tax on the earnings portion of the non-qualified distribution.
https://www.savingforcollege.com/articl ... awal-traps

livesoft
Posts: 69566
Joined: Thu Mar 01, 2007 8:00 pm

Re: too much college savings

Post by livesoft » Mon Jan 14, 2019 8:20 am

AnStrANG wrote:
Sun Jan 13, 2019 11:24 pm
I'm following this thread because I am wondering if I might save too much. My kids are 7, 1, and 3 months. I've saved about $70K, $27K, and $5k right now. Would the OP say I'm saving too much? I live in Pennsylvania so the tax break can become irresistible at the end of the year. I'm stating my numbers in case OP doesn't want to state his.
I think you might be saving too much. We had about $80K saved when my youngest started college. He has gone on to get a masters degree, so 5 years. The money during this college time was not in 100% cash. We saved too much partly because we were able to get 4 years of the American Opportunity Tax Credit and some LifeTime Learning Credit.

For you though, any unspent 529 for the oldest can go to the next child and you may not be eligible for tax credits unless you retire early like I did.
Wiki This signature message sponsored by sscritic: Learn to fish.

mstrcvdstr
Posts: 3
Joined: Sat May 31, 2014 9:20 am

Re: too much college savings

Post by mstrcvdstr » Mon Jan 14, 2019 8:36 am

If you change beneficiaries to someone in ill health then when they pass on you will get the amount back without paying penalties of 10% (Death of a Beneficiary clause in 529s)

MikeG62
Posts: 2297
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: too much college savings

Post by MikeG62 » Mon Jan 14, 2019 9:06 am

Bacchus01 wrote:
Sun Jan 13, 2019 10:03 pm
Grandkids
Precisely what we plan to do with the high 5-figure balance left if our daughter's 529 accounts.
Real Knowledge Comes Only From Experience

renue74
Posts: 1799
Joined: Tue Apr 07, 2015 7:24 pm

Re: too much college savings

Post by renue74 » Mon Jan 14, 2019 9:10 am

LiveSimple wrote:
Sun Jan 13, 2019 11:16 pm
Good problem to have.
Why not withdrawal unused and pay tax ?
Why not you use, go to any European university and learn simething that interests you or your spouse ?
There are tons of language schools throughout Europe. They do immersive language training. I would love to visit Italy for 2 months of language learning (plus the great wine, food, and views!) :D

I wonder if they would fall under the 529 system. If you are not ready to do that now, it could possibly be a retirement thing.

Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 9:35 pm

Re: too much college savings

Post by Bacchus01 » Mon Jan 14, 2019 9:30 am

AnStrANG wrote:
Sun Jan 13, 2019 11:24 pm
I'm following this thread because I am wondering if I might save too much. My kids are 7, 1, and 3 months. I've saved about $70K, $27K, and $5k right now. Would the OP say I'm saving too much? I live in Pennsylvania so the tax break can become irresistible at the end of the year. I'm stating my numbers in case OP doesn't want to state his.
It’s unclear because you don’t state how much per year you are contributing.

We have about $180k total saved. We put $15k each year into 5 accounts, one for each of our three kids and one for each of ourselves. There is a tax deduction in our state and we out in the max to get the deduction. Our oldest starts college next fall and we will likely be on the hook for the entire ~$28k annual expense. Considering we will keep putting in $15k a year as long as we have a tax deduction, we should easily fund our three kids who are 17, 13 and 10. But then our plan is to fund our grandkids as well, so we will keep contributing.

As others have said, it’s u clear who can withdraw. If the beneficiary can withdraw, they only pay the 10% withdraw and it’s only on the earnings, so the net tax is minimal. They could then gift it back to you presumably.

letsgobobby
Posts: 12074
Joined: Fri Sep 18, 2009 1:10 am

Re: too much college savings

Post by letsgobobby » Mon Jan 14, 2019 9:55 am

deleted
Last edited by letsgobobby on Thu Apr 18, 2019 4:44 pm, edited 1 time in total.

fourwheelcycle
Posts: 761
Joined: Sun May 25, 2014 5:55 pm

Re: too much college savings

Post by fourwheelcycle » Mon Jan 14, 2019 9:57 am

We are funding 529s for each grandchild, recognizing the funds can be withdrawn w/o penalty if any grandchild receives a full or partial scholarship or uses the funds for other post-secondary education. If funds are leftover after educational costs we intend to make each grandchild the owner of their own account, so they can use the funds as a nest-egg to start their adult life. They would have to pay the 10% penalty on earnings, but they will probably have low tax rates at that age.

letsgobobby
Posts: 12074
Joined: Fri Sep 18, 2009 1:10 am

Re: too much college savings

Post by letsgobobby » Mon Jan 14, 2019 9:59 am

deleted
Last edited by letsgobobby on Thu Apr 18, 2019 4:44 pm, edited 1 time in total.

User avatar
willthrill81
Posts: 15054
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: too much college savings

Post by willthrill81 » Mon Jan 14, 2019 11:27 am

This is one of the reasons why I chose not to contribute to a 529 account. The possibility of your children not attending college or else getting a free ride is too high in my estimation, especially if you have other tax-advantaged space.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

letsgobobby
Posts: 12074
Joined: Fri Sep 18, 2009 1:10 am

Re: too much college savings

Post by letsgobobby » Mon Jan 14, 2019 11:44 am

deleted
Last edited by letsgobobby on Thu Apr 18, 2019 4:44 pm, edited 1 time in total.

User avatar
willthrill81
Posts: 15054
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: too much college savings

Post by willthrill81 » Mon Jan 14, 2019 11:58 am

letsgobobby wrote:
Mon Jan 14, 2019 11:44 am
willthrill81 wrote:
Mon Jan 14, 2019 11:27 am
This is one of the reasons why I chose not to contribute to a 529 account. The possibility of your children not attending college or else getting a free ride is too high in my estimation, especially if you have other tax-advantaged space.
You went from talking about “I” to talking about “you”. Who is the “Your children” whose possibility of not attending college or else getting a free ride is so high? Certainly not mine!

This is a very personal decision.
It is indeed a very personal decision. But I've personally witnessed a significant number of children who were 'groomed' to go to college but either didn't at all or only attended briefly before taking another career path. And it can be difficult to know whether your child has a good shot at a free ride until they're at least junior-high age.

I have an uncle who participated in a pre-paid college program for both of his sons. At least one of them will not be attending college, and the jury's out on the other. TMK, he'll only get the nominal dollars back he paid into the program.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

OnTrack2020
Posts: 469
Joined: Mon Mar 20, 2017 10:24 am

Re: too much college savings

Post by OnTrack2020 » Mon Jan 14, 2019 12:10 pm

epilnk wrote:
Sun Jan 13, 2019 8:57 pm


There are going to be a lot of additional costs associated with those two schools though. Transportation will be costly. And he's got some tricky medical needs that we are nervous about him managing on his own. I may need to fly out to help at times, and we will pay for things that make his life easier. These aren't costs we can pay out of the 529, unfortunately. And if dorm life turns out to not be practical and he moves off campus, there is a limit on how much housing cost he can claim.

So I'm looking for the wisest way to use up the 529 and hoping someone here has advice on getting any other expenses covered. Loopholes, conditions, etc. If necessary we will withdraw the money, pay the taxes due and penalty, and use that for plane fare and expenses. Its still a good problem to have. But I'm hoping someone has suggestions on legally getting as much as possible covered without incurring penalties.

I am aware that we can transfer to another beneficiary. The problem is that we already planned for that; we have yet another 529 that we funded in order to assist the children of my hard working low income brother. Other young relatives are already provided for.
First, you may want to consider stopping your 529 contributions. I'm assuming you are doing that.

Second, take a look at this. I'm assuming that your child has a verified disability? Do you live in a state that offers ABLE accounts? I did not realize that the IRS allows for some monies (not all) from a 529 to be rolled over into an ABLE account which can then be used by the beneficiary. This may be of benefit to you.

https://www.irs.gov/newsroom/tax-reform ... -rollovers

stoptothink
Posts: 6791
Joined: Fri Dec 31, 2010 9:53 am

Re: too much college savings

Post by stoptothink » Mon Jan 14, 2019 12:10 pm

willthrill81 wrote:
Mon Jan 14, 2019 11:58 am
letsgobobby wrote:
Mon Jan 14, 2019 11:44 am
willthrill81 wrote:
Mon Jan 14, 2019 11:27 am
This is one of the reasons why I chose not to contribute to a 529 account. The possibility of your children not attending college or else getting a free ride is too high in my estimation, especially if you have other tax-advantaged space.
You went from talking about “I” to talking about “you”. Who is the “Your children” whose possibility of not attending college or else getting a free ride is so high? Certainly not mine!

This is a very personal decision.
It is indeed a very personal decision. But I've personally witnessed a significant number of children who were 'groomed' to go to college but either didn't at all or only attended briefly before taking another career path. And it can be difficult to know whether your child has a good shot at a free ride until they're at least junior-high age.

I have an uncle who participated in a pre-paid college program for both of his sons. At least one of them will not be attending college, and the jury's out on the other. TMK, he'll only get the nominal dollars back he paid into the program.
Similarly, my uncle had 529s for all 3 of my cousins; to date only the youngest (currently 25 and married) has attended college at all and I doubt she ever completes a bachelor's. We are also in the group who feels no obligation to pay for the university education of our children, if they choose to attend, but we get a decent state tax credit and are our income is now to the point where maxing out all other tax-advantaged investment vehicles isn't difficult so we started funding 529s last year for both our children. If they don't use it, could be a great gift to the (hopefully) grandkids.

User avatar
willthrill81
Posts: 15054
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: too much college savings

Post by willthrill81 » Mon Jan 14, 2019 12:13 pm

stoptothink wrote:
Mon Jan 14, 2019 12:10 pm
willthrill81 wrote:
Mon Jan 14, 2019 11:58 am
letsgobobby wrote:
Mon Jan 14, 2019 11:44 am
willthrill81 wrote:
Mon Jan 14, 2019 11:27 am
This is one of the reasons why I chose not to contribute to a 529 account. The possibility of your children not attending college or else getting a free ride is too high in my estimation, especially if you have other tax-advantaged space.
You went from talking about “I” to talking about “you”. Who is the “Your children” whose possibility of not attending college or else getting a free ride is so high? Certainly not mine!

This is a very personal decision.
It is indeed a very personal decision. But I've personally witnessed a significant number of children who were 'groomed' to go to college but either didn't at all or only attended briefly before taking another career path. And it can be difficult to know whether your child has a good shot at a free ride until they're at least junior-high age.

I have an uncle who participated in a pre-paid college program for both of his sons. At least one of them will not be attending college, and the jury's out on the other. TMK, he'll only get the nominal dollars back he paid into the program.
Similarly, my uncle had 529s for all 3 of my cousins; to date only the youngest (currently 25 and married) has attended college at all and I doubt she ever completes a bachelor's. We are also in the group who feels no obligation to pay for the university education of our children, if they choose to attend, but we get a decent state tax credit and are our income is now to the point where maxing out all other tax-advantaged investment vehicles isn't difficult so we started funding 529s last year for both our children. If they don't use it, could be a great gift to the (hopefully) grandkids.
We don't feel obligated to pay for our daughter's college expenses if she attends, but we probably will fund at least a significant portion if she does. But we will simply cash flow it, temporarily reducing our contributions to tax-advantaged accounts if needed.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

letsgobobby
Posts: 12074
Joined: Fri Sep 18, 2009 1:10 am

Re: too much college savings

Post by letsgobobby » Mon Jan 14, 2019 12:24 pm

deleted
Last edited by letsgobobby on Thu Apr 18, 2019 4:44 pm, edited 1 time in total.

Grt2bOutdoors
Posts: 21725
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: too much college savings

Post by Grt2bOutdoors » Mon Jan 14, 2019 12:25 pm

willthrill81 wrote:
Mon Jan 14, 2019 12:13 pm
stoptothink wrote:
Mon Jan 14, 2019 12:10 pm
willthrill81 wrote:
Mon Jan 14, 2019 11:58 am
letsgobobby wrote:
Mon Jan 14, 2019 11:44 am
willthrill81 wrote:
Mon Jan 14, 2019 11:27 am
This is one of the reasons why I chose not to contribute to a 529 account. The possibility of your children not attending college or else getting a free ride is too high in my estimation, especially if you have other tax-advantaged space.
You went from talking about “I” to talking about “you”. Who is the “Your children” whose possibility of not attending college or else getting a free ride is so high? Certainly not mine!

This is a very personal decision.
It is indeed a very personal decision. But I've personally witnessed a significant number of children who were 'groomed' to go to college but either didn't at all or only attended briefly before taking another career path. And it can be difficult to know whether your child has a good shot at a free ride until they're at least junior-high age.

I have an uncle who participated in a pre-paid college program for both of his sons. At least one of them will not be attending college, and the jury's out on the other. TMK, he'll only get the nominal dollars back he paid into the program.
Similarly, my uncle had 529s for all 3 of my cousins; to date only the youngest (currently 25 and married) has attended college at all and I doubt she ever completes a bachelor's. We are also in the group who feels no obligation to pay for the university education of our children, if they choose to attend, but we get a decent state tax credit and are our income is now to the point where maxing out all other tax-advantaged investment vehicles isn't difficult so we started funding 529s last year for both our children. If they don't use it, could be a great gift to the (hopefully) grandkids.
We don't feel obligated to pay for our daughter's college expenses if she attends, but we probably will fund at least a significant portion if she does. But we will simply cash flow it, temporarily reducing our contributions to tax-advantaged accounts if needed.
Does not academia get either reduced or free college tuition at the institution they teach at as a benefit?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

letsgobobby
Posts: 12074
Joined: Fri Sep 18, 2009 1:10 am

Re: too much college savings

Post by letsgobobby » Mon Jan 14, 2019 12:35 pm

deleted
Last edited by letsgobobby on Thu Apr 18, 2019 4:43 pm, edited 1 time in total.

Topic Author
epilnk
Posts: 2653
Joined: Wed Apr 18, 2007 7:05 pm

Re: too much college savings

Post by epilnk » Mon Jan 14, 2019 1:54 pm

arcticpineapplecorp. wrote:
Sun Jan 13, 2019 10:01 pm
epilnk wrote:
Sun Jan 13, 2019 8:57 pm
And he's got some tricky medical needs that we are nervous about him managing on his own.
if he has medical needs does he meet the definition for an ABLE account? If so, you might be able to transfer funds from 529 to ABLE. This article says how:
https://www.able-now.com/resources/news ... to-ablenow

read up on ABLE accounts. They're more flexible in that the funds can be spent for the child's education or medical or housing expenses. And some amounts in ABLE are not subject to medicaid limits should that become a need later on. Every state has it's own ABLE account, so research the particulars in your state.

read up on the requirements to qualify for an ABLE account:
http://www.ablenrc.org/about/what-are-able-accounts

Does that help at all?
This is exactly the sort of insight I was hoping to receive! I am not familiar with these accounts so I will read up. Unfortunately from a cursory reading I can't tell whether or not he will qualify. It is a rare progressive genetic disorder and disability is quite likely in his future. But the medical management is focused on slowing or mitigating the disabling symptoms, and we have been pretty successful. Age of onset would be birth, but while he has more than his share of hardships I wouldn't call him disabled yet, not by a long shot.

Thanks for the lead - I will definitely follow up on this.

willyd123
Posts: 146
Joined: Mon Feb 19, 2018 7:23 am

Re: too much college savings

Post by willyd123 » Mon Jan 14, 2019 1:54 pm

I overfunded a 529 so I transferred ownership of the 529 to my child in the year they graduated and then had them liquidate the plan (i.e., disqualifying disposition). I did it this way because I knew their tax rate would be extremely low due to the fact that they just graduated and would only be working about half the year and since their income was low. Still had to pay the excise tax, of course.

Topic Author
epilnk
Posts: 2653
Joined: Wed Apr 18, 2007 7:05 pm

Re: too much college savings

Post by epilnk » Mon Jan 14, 2019 1:59 pm

renue74 wrote:
Sun Jan 13, 2019 10:00 pm
Spouse or you can benefit from future education expenses.

You can also save account for grandchildren.
Spouse and I already have PhDs. And sadly, my odds of grandchildren are not high. One son's disability is genetic dominant and he is determined to not pass it on, the other suspects he will remain child free.

Topic Author
epilnk
Posts: 2653
Joined: Wed Apr 18, 2007 7:05 pm

Re: too much college savings

Post by epilnk » Mon Jan 14, 2019 2:12 pm

Bacchus01 wrote:
Sun Jan 13, 2019 10:03 pm

Don’t forget he needs a new laptop every single year so he can give you the old one :)
What is the earliest I can buy him a new laptop using 529 funds? He's a high school senior with an aging laptop and he'd love a new one, but during high school the only expense that qualifies is tuition (I think).

If he chooses a public college instead of a higher cost option I will encourage him to buy whatever computer setup he wants, because he deserves it. All of his friends are focused on attending the biggest name school they can get into; while he's also applying to a couple of status schools, he figured out on his own that the state colleges are a better fit for him and have what he is looking for. I'm quite proud of my sensible, pragmatic young man.

Topic Author
epilnk
Posts: 2653
Joined: Wed Apr 18, 2007 7:05 pm

Re: too much college savings

Post by epilnk » Mon Jan 14, 2019 2:21 pm

MarkBarb wrote:
Sun Jan 13, 2019 10:07 pm
Incidentally, your predicament is why we decided to fund part of our children's education with a 529 and part with taxable money. My logic was that a dollar saved in a 529 when my son was an infant had 20 years to grow tax free and would almost certainly be spent. As I kept adding to the 529, the years of tax advantages shrank and the probability of use declined. About the time each child turned 12, I stopped saving in a 529 and just used a taxable brokerage account.
That was our original intent. We front loaded the accounts early, and made another big contribution after a windfall in 2009 (market timing FTW) but haven't contributed since. Even without the larger than expected grandparental accounts they would have had more than we'd planned. (The grandparents are still contributing but we would not dream of asking them to stop - it's important to them and they are financially set.)

User avatar
celia
Posts: 9957
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: too much college savings

Post by celia » Mon Jan 14, 2019 2:37 pm

I wouldn't worry about this until all your kids are done with school. What if younger siblings want to go to medical school? Or their college takes more than 4 years? Then I doubt there will ever be enough in the 529. (I believe you can also use the money now for K-12 education.)

The way your post reads, it sounds like your son wants to go to a public school in another state (ie, far away). If so, the tuition for out-of-state students is usually more than for in-state students, since the in-states have been paying taxes to that state all along, whereas you haven't.

As far as terminology, I don't call this a "free ride". It is your or your parents' money that is "pre-paid". Would you be calling it a "free ride" if the money had been saved in taxable instead?

libralibra
Posts: 345
Joined: Sat Jul 30, 2011 2:01 pm

Re: too much college savings

Post by libralibra » Mon Jan 14, 2019 2:41 pm

post removed
Last edited by libralibra on Wed May 29, 2019 11:04 pm, edited 1 time in total.

Topic Author
epilnk
Posts: 2653
Joined: Wed Apr 18, 2007 7:05 pm

Re: too much college savings

Post by epilnk » Mon Jan 14, 2019 2:47 pm

celia wrote:
Mon Jan 14, 2019 2:37 pm
I wouldn't worry about this until all your kids are done with school. What if younger siblings want to go to medical school? Or their college takes more than 4 years? Then I doubt there will ever be enough in the 529. (I believe you can also use the money now for K-12 education.)

The way your post reads, it sounds like your son wants to go to a public school in another state (ie, far away). If so, the tuition for out-of-state students is usually more than for in-state students, since the in-states have been paying taxes to that state all along, whereas you haven't.

As far as terminology, I don't call this a "free ride". It is your or your parents' money that is "pre-paid". Would you be calling it a "free ride" if the money had been saved in taxable instead?
Tuition will be in state, but it's a big state and his top choices are far away. His brother is 16; old enough to safely say he's not going to med school. And I do consider this a free ride - a free ride that we provide. It is obviously not free to us but yes, it would be the same in taxable.

Topic Author
epilnk
Posts: 2653
Joined: Wed Apr 18, 2007 7:05 pm

Re: too much college savings

Post by epilnk » Mon Jan 14, 2019 2:55 pm

libralibra wrote:
Mon Jan 14, 2019 2:41 pm
I'm counting 2 (or 3?) 529s per student. If you are sure you will have leftover, then when you start paying the college costs, you should withdraw from whichever account has the higher % of earnings first. E.g. if one balance is 50% profit and the other is 30% profit, then withdraw from the first one first. Also, if still adding funds, then add to the 2nd one (or even open a brand new empty one). This way you will minimize the amount of earnings leftover that you may end up paying taxes and penalties on.
3 per student, but one (for each kid) is owned by the grandparents. How do you coordinate withdrawals with two owners? The grandparents are in their 80s and have already strongly hinted that they would like fewer things to worry about, so we would most likely prefer to drain their accounts first regardless of tax benefit to us. Or can they transfer the accounts to our custodianship so we can manage them?

User avatar
willthrill81
Posts: 15054
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: too much college savings

Post by willthrill81 » Mon Jan 14, 2019 3:12 pm

Grt2bOutdoors wrote:
Mon Jan 14, 2019 12:25 pm
willthrill81 wrote:
Mon Jan 14, 2019 12:13 pm
stoptothink wrote:
Mon Jan 14, 2019 12:10 pm
willthrill81 wrote:
Mon Jan 14, 2019 11:58 am
letsgobobby wrote:
Mon Jan 14, 2019 11:44 am


You went from talking about “I” to talking about “you”. Who is the “Your children” whose possibility of not attending college or else getting a free ride is so high? Certainly not mine!

This is a very personal decision.
It is indeed a very personal decision. But I've personally witnessed a significant number of children who were 'groomed' to go to college but either didn't at all or only attended briefly before taking another career path. And it can be difficult to know whether your child has a good shot at a free ride until they're at least junior-high age.

I have an uncle who participated in a pre-paid college program for both of his sons. At least one of them will not be attending college, and the jury's out on the other. TMK, he'll only get the nominal dollars back he paid into the program.
Similarly, my uncle had 529s for all 3 of my cousins; to date only the youngest (currently 25 and married) has attended college at all and I doubt she ever completes a bachelor's. We are also in the group who feels no obligation to pay for the university education of our children, if they choose to attend, but we get a decent state tax credit and are our income is now to the point where maxing out all other tax-advantaged investment vehicles isn't difficult so we started funding 529s last year for both our children. If they don't use it, could be a great gift to the (hopefully) grandkids.
We don't feel obligated to pay for our daughter's college expenses if she attends, but we probably will fund at least a significant portion if she does. But we will simply cash flow it, temporarily reducing our contributions to tax-advantaged accounts if needed.
Does not academia get either reduced or free college tuition at the institution they teach at as a benefit?
It depends greatly on the institution. At my prior university, one immediate family member could take up to two courses per semester free of tuition, and it would take a long time to get a B.S. at that rate. At my current university, there are no breaks of any kind.

There are several misconceptions about benefits for academicians. Our children don't usually get to attend for free, and we rarely get pensions.
Last edited by willthrill81 on Mon Jan 14, 2019 3:27 pm, edited 1 time in total.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

jminv
Posts: 1014
Joined: Tue Jan 02, 2018 10:58 pm

Re: too much college savings

Post by jminv » Mon Jan 14, 2019 3:24 pm

renue74 wrote:
Mon Jan 14, 2019 9:10 am
LiveSimple wrote:
Sun Jan 13, 2019 11:16 pm
Good problem to have.
Why not withdrawal unused and pay tax ?
Why not you use, go to any European university and learn simething that interests you or your spouse ?
There are tons of language schools throughout Europe. They do immersive language training. I would love to visit Italy for 2 months of language learning (plus the great wine, food, and views!) :D

I wonder if they would fall under the 529 system. If you are not ready to do that now, it could possibly be a retirement thing.
You can use 529s at a number of international universities. They mirror the international universities where you can use American financial aid at (something most people aren’t even aware is possible I wasn’t until more recently) Strategy would be to go to one of them for study abroad or one of their summer language courses that some of them have.

Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 9:35 pm

Re: too much college savings

Post by Bacchus01 » Mon Jan 14, 2019 11:22 pm

epilnk wrote:
Mon Jan 14, 2019 2:12 pm
Bacchus01 wrote:
Sun Jan 13, 2019 10:03 pm

Don’t forget he needs a new laptop every single year so he can give you the old one :)
What is the earliest I can buy him a new laptop using 529 funds? He's a high school senior with an aging laptop and he'd love a new one, but during high school the only expense that qualifies is tuition (I think).

If he chooses a public college instead of a higher cost option I will encourage him to buy whatever computer setup he wants, because he deserves it. All of his friends are focused on attending the biggest name school they can get into; while he's also applying to a couple of status schools, he figured out on his own that the state colleges are a better fit for him and have what he is looking for. I'm quite proud of my sensible, pragmatic young man.
I think you are right on high school, only tuition.

My son is also attending a flagship state university next fall. Super excited for him (it's my alma mater too :)

Post Reply