Cost of college and 529

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Regattamom
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Re: Cost of college and 529

Post by Regattamom »

I was the college savings account for my children. Meaning I would go back to work if needed to pay for their college education. I stayed home while they were young and we concentrated on paying off debt, growing our savings and increasing my husbands earnings. Our first child ended up paying for college with scholarships so I didn't have to go back to work. We are now in a position with our second child that we will have the money available to pay for college when he starts.

So for families with a stay at home parent, there is untapped earning potential to pay for college.
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vineviz
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Re: Cost of college and 529

Post by vineviz »

KlangFool wrote: Sat Feb 02, 2019 4:08 pm 1) If you are employed, you could stop your 401K/IRA contribution and pay for college education.
You could, but you'd be worse off than you would have been had you used the 529 plan because of the tax deductions and tax-free growth you've already given up. The rollover and conversion process forces you to pay taxes on every single dollar of contributions AND growth.
KlangFool wrote: Sat Feb 02, 2019 4:08 pm3) Then, only withdraw the Roth contribution.
Again, you're still worse off because of the tax deductions and tax-free growth you've already given up.

The bottom line is that IF you expect to spend money on college, a 529 plan is the best place to invest that money for virtually everyone. Even if your state doesn't allow a deduction, the 529 plan is STILL superior financially.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
KlangFool
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Re: Cost of college and 529

Post by KlangFool »

vineviz wrote: Sat Feb 02, 2019 4:20 pm
KlangFool wrote: Sat Feb 02, 2019 4:08 pm 1) If you are employed, you could stop your 401K/IRA contribution and pay for college education.
You could, but you'd be worse off than you would have been had you used the 529 plan because of the tax deductions and tax-free growth you've already given up. The rollover and conversion process forces you to pay taxes on every single dollar of contributions AND growth.
KlangFool wrote: Sat Feb 02, 2019 4:08 pm3) Then, only withdraw the Roth contribution.
Again, you're still worse off because of the tax deductions and tax-free growth you've already given up.

The bottom line is that IF you expect to spend money on college, a 529 plan is the best place to invest that money for virtually everyone. Even if your state doesn't allow a deduction, the 529 plan is STILL superior financially.
vineviz,

<<because of the tax deductions and tax-free growth you've already given up. >>

You paid Federal Income Tax on your 529 contributions. You had given your money to IRS.

<<The rollover and conversion process forces you to pay taxes on every single dollar of contributions AND growth. >>

At a lower rate.

KlangFool
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vineviz
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Re: Cost of college and 529

Post by vineviz »

EnjoyIt wrote: Sat Feb 02, 2019 4:13 pm One can disagree with opinions but math is more difficult to disagree with.
Yet you insist on doing so.

For a parent who wants to save money for a child's education, the 529 plan is the "mathematically" superior way to do it. Period.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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vineviz
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Re: Cost of college and 529

Post by vineviz »

KlangFool wrote: Sat Feb 02, 2019 4:29 pm <<because of the tax deductions and tax-free growth you've already given up. >>

You paid Federal Income Tax on your 529 contributions. You had given your money to IRS.
Your plan has ALSO you paying federal and state income tax on the 401k contributions PLUS ordinary federal and state income tax on any gains PLUS giving up the value of the 529 deduction.

Worse, it has you paying this income tax later in life when the marginal tax rates are generally higher for most families.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
KlangFool
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Re: Cost of college and 529

Post by KlangFool »

vineviz wrote: Sat Feb 02, 2019 4:51 pm
KlangFool wrote: Sat Feb 02, 2019 4:29 pm <<because of the tax deductions and tax-free growth you've already given up. >>

You paid Federal Income Tax on your 529 contributions. You had given your money to IRS.
Your plan has ALSO you paying federal and state income tax on the 401k contributions PLUS ordinary federal and state income tax on any gains PLUS giving up the value of the 529 deduction.

Worse, it has you paying this income tax later in life when the marginal tax rates are generally higher for most families.
vineviz,

<<Worse, it has you paying this income tax later in life when the marginal tax rates are generally higher for most families.>>

A) Are you claiming that a person will have a higher marginal tax rate when they are unemployed versus when they are fully-employed?

B) Are you claiming that a person will have a higher marginal tax rate when they are retired versus when they are fully-employed?

Case (A) applies if the person is unemployed when the kid goes to college.

Case (B) applies if the person is employed when the kid goes to college.

It is very simple. Just show us some numbers and calculations. We can prove this to you mathematically. Please note that we are discussing folks that cannot fund both retirement and college education adequately. So, the income has to be at or below 100K for this discussion in order to be applicable to most Americans.

KlangFool
Last edited by KlangFool on Sat Feb 02, 2019 5:09 pm, edited 1 time in total.
KlangFool
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Re: Cost of college and 529

Post by KlangFool »

vineviz wrote: Sat Feb 02, 2019 4:44 pm
EnjoyIt wrote: Sat Feb 02, 2019 4:13 pm One can disagree with opinions but math is more difficult to disagree with.
Yet you insist on doing so.

For a parent who wants to save money for a child's education, the 529 plan is the "mathematically" superior way to do it. Period.
vineviz,

Show us the numbers.

KlangFool
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vineviz
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Re: Cost of college and 529

Post by vineviz »

KlangFool wrote: Sat Feb 02, 2019 5:06 pm A) Are you claiming that a person will have a higher marginal tax rate when they are unemployed versus when they are fully-employed?
This has nothing to do with anything I'm discussing.
KlangFool wrote: Sat Feb 02, 2019 5:06 pmB) Are you claiming that a person will have a higher marginal tax rate when they are retired versus when they are fully-employed?
Again, this has nothing to do with anything I'm discussing except for the edge case in which someone is retired when they children are enrolled in college. That's a scenario so far from typical it's not worth discussing, IMHO.
KlangFool wrote: Sat Feb 02, 2019 5:06 pmPlease note that we are discussing folks that cannot fund both retirement and college education adequately.
No, that's NOT what we're discussing. We're discussing folks who have decided to save money for college education, and the question is about the best way to do that.

You want to stay on a rant about why people shouldn't fund their child's college education, fell free to continue on that rant. That's an emotional argument, not a mathematical one, and I suspect you are impervious to persuasion on it even if I was inclined to try.

The topic I am addressing is this: GIVEN THAT a parent has decided to save money which they intend to spend on education, what is the BEST way for them to do that? In virtually every case the answer is "a 529 plan".

Should such a parent be sure to evaluate their particular circumstances? Obviously. Should such a parent account for the possibility of overfunding the 529 plan beyond what can reasonably be spent? Obviously.

You seem to be on a mission to persuade parents that their desire to save money for a college education is foolish unless they meet your definition of being "rich" or meet your definition of having secured a bulletproof retirement. Maybe there is value in that mission, I don't know.

But there is no value in letting such a crusade lead to financial advice that will cost that parent real money, maybe tens of thousands of dollars. If there is a scenario in which the "stick it in a 401k and pull it out to pay for college" plan is financial superior to using a 529 plan from the beginning, I've not seen it and you've not presented it.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
marcopolo
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Re: Cost of college and 529

Post by marcopolo »

KlangFool wrote: Sat Feb 02, 2019 5:07 pm
vineviz wrote: Sat Feb 02, 2019 4:44 pm
EnjoyIt wrote: Sat Feb 02, 2019 4:13 pm One can disagree with opinions but math is more difficult to disagree with.
Yet you insist on doing so.

For a parent who wants to save money for a child's education, the 529 plan is the "mathematically" superior way to do it. Period.
vineviz,

Show us the numbers.

KlangFool
KlangFool,

I showed you detailed numbers before here:
viewtopic.php?f=10&t=247631&p=3893178&h ... s#p3893178

Instead of answering why you think NOT using a 529 plan would be mathematically better, you responded with your typical fears about losing your house and feeding your family. Maybe your fears are right, but you seem to not realize that planning your life around that has real opportunity cost:

KlangFool wrote: Sun Apr 22, 2018 11:10 am
marcopolo,

Let's start with the basic first, would someone pay 90K to 160K for their kid's college education if their houses were foreclosed and they have to live on the street? Then, how about if their net worth is only 90K to 160K when their kids go to college?

Some folks will only spend X% of their net worth for their kid's college education. They cannot borrow for their retirement or feed their family. So, why would they allocate 90K to 160K to the college education?

I know that I would not pay 240K for my kid's college education until I have 1 million. I save 60K per year. So, why would I put 5K into 529?

KlangFool
Once in a while you get shown the light, in the strangest of places if you look at it right.
EnjoyIt
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Re: Cost of college and 529

Post by EnjoyIt »

vineviz wrote: Sat Feb 02, 2019 4:44 pm
EnjoyIt wrote: Sat Feb 02, 2019 4:13 pm One can disagree with opinions but math is more difficult to disagree with.
Yet you insist on doing so.

For a parent who wants to save money for a child's education, the 529 plan is the "mathematically" superior way to do it. Period.

I think you can be right in a certain scenario especially when withdrawals from a traditional IRA would occur at a higher tax bracket as compared when creating the contribution. Since we are talking about a family who has to choose between a 529 and lets say a backdoor Roth. then that person either has a 529 or the Roth. One can withdraw from a Roth IRA penalty free and tax free for qualified education. Therefor you are always better in a Roth as opposed to a 529 because you have more options while not limiting potential for financial aid by having a robust 529.

The other aspect you may be neglecting is the ability to retain your income through your entire life. History shows that anyone's job can be lost or downgraded, or one can get disable. Just about anything can happen which would force you to underfund college and retirement. By putting almost all your eggs in the college basket you increase your risk on being able to retire or maybe even put food on your table without paying penalties in withdrawing on a 529. The 529 is not a horrible choice, but it adds risk. If one does not care about the risk of unemployment or underemployment. If one does not care about their own financial future as opposed to paying for college, a 529 is an adequate option. It is not "superior" but it will do the job.

Like I said. People make emotional feel good decisions all the time that may have serious averse consequences. The idea of paying for your kids college is such a great feel good goal, parents are willing to sacrifice much for it. It is a personal choice though not a financially prudent one.

As I said before, there is nothing wrong with paying for college out of current cash flow and even allow them to take on some debt which you can help pay for. Some of that debt will be subsidized loans which will incur no interest while in school. In addition, maxing out a 401k may make your adjusted growth income even lower allowing for further deductions. For us for example making sure we max out our 401k puts us in the 15% capital gains tax as opposed to 20% in our taxable account. You may now qualify for a child tax credit. You may get better ACA subsidies. When paying down school debt, you may get a credit of $2,500 a year from your taxes if your income is low enough by maxing out your 401k. A 529 is for those who have exhausted all other tax savings and have more money to save. For them a 529 is superior to a taxable account when that money is used for education.

And just for your information, we will definitely be retired before our kids go to college. If not retired at the very least semi retired, working part time in a much lower tax bracket.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
marcopolo
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Re: Cost of college and 529

Post by marcopolo »

EnjoyIt wrote: Sat Feb 02, 2019 5:41 pm
vineviz wrote: Sat Feb 02, 2019 4:44 pm
EnjoyIt wrote: Sat Feb 02, 2019 4:13 pm One can disagree with opinions but math is more difficult to disagree with.
Yet you insist on doing so.

For a parent who wants to save money for a child's education, the 529 plan is the "mathematically" superior way to do it. Period.

I think you can be right in a certain scenario especially when withdrawals from a traditional IRA would occur at a higher tax bracket as compared when creating the contribution. Since we are talking about a family who has to choose between a 529 and lets say a backdoor Roth. then that person either has a 529 or the Roth. One can withdraw from a Roth IRA penalty free and tax free for qualified education. Therefor you are always better in a Roth as opposed to a 529 because you have more options while not limiting potential for financial aid by having a robust 529.

The other aspect you may be neglecting is the ability to retain your income through your entire life. History shows that anyone's job can be lost or downgraded, or one can get disable. Just about anything can happen which would force you to underfund college and retirement. By putting almost all your eggs in the college basket you increase your risk on being able to retire or maybe even put food on your table without paying penalties in withdrawing on a 529. The 529 is not a horrible choice, but it adds risk. If one does not care about the risk of unemployment or underemployment. If one does not care about their own financial future as opposed to paying for college, a 529 is an adequate option. It is not "superior" but it will do the job.

Like I said. People make emotional feel good decisions all the time that may have serious averse consequences. The idea of paying for your kids college is such a great feel good goal, parents are willing to sacrifice much for it. It is a personal choice though not a financially prudent one.

As I said before, there is nothing wrong with paying for college out of current cash flow and even allow them to take on some debt which you can help pay for. Some of that debt will be subsidized loans which will incur no interest while in school. In addition, maxing out a 401k may make your adjusted growth income even lower allowing for further deductions. For us for example making sure we max out our 401k puts us in the 15% capital gains tax as opposed to 20% in our taxable account. You may now qualify for a child tax credit. You may get better ACA subsidies. When paying down school debt, you may get a credit of $2,500 a year from your taxes if your income is low enough by maxing out your 401k. A 529 is for those who have exhausted all other tax savings and have more money to save. For them a 529 is superior to a taxable account when that money is used for education.

And just for your information, we will definitely be retired before our kids go to college. If not retired at the very least semi retired, working part time in a much lower tax bracket.

Risk putting food on the table? Really? Can we please stop with the fear mongering around college savings?

As for being retired when kids go to college, I am not sure about your situation, but for us, that is yet another huge advantage of the 529 plan. We can pull money out of it, and it does not affect MAGI. This allows us to much easier manage our income to stay below the aca cliff, if we choose to do that. If we had put the money to be used for college in taxable or tax deferred account, we would have lost that flexibility.
Once in a while you get shown the light, in the strangest of places if you look at it right.
KlangFool
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Re: Cost of college and 529

Post by KlangFool »

marcopolo wrote: Sat Feb 02, 2019 5:35 pm
Instead of answering why you think NOT using a 529 plan would be mathematically better, you responded with your typical fears about losing your house and feeding your family. Maybe your fears are right, but you seem to not realize that planning your life around that has real opportunity cost:
marcopolo,

<< Maybe your fears are right, but you seem to not realize that planning your life around that has real opportunity cost:>>

My son started college in August. I lost my job in November. My daughter started college in the following August. I did not find a new job until the following January. I was spending 120K ( Annual Expense of 60K + 60K college funding for 2 kids) per year with 2 kids in the college. If my unemployment lasted much longer, I would be in serious financial trouble,

KlangFool
Last edited by KlangFool on Sat Feb 02, 2019 5:59 pm, edited 1 time in total.
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vineviz
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Re: Cost of college and 529

Post by vineviz »

EnjoyIt wrote: Sat Feb 02, 2019 5:41 pm One can withdraw from a Roth IRA penalty free and tax free for qualified education.
This isn’t true. Only contributions can be withdrawn tax free.
EnjoyIt wrote: Sat Feb 02, 2019 5:41 pmThe other aspect you may be neglecting is the ability to retain your income through your entire life.
I’m not neglecting it, just acknowledging it as irrelevant to the question at hand.
Last edited by vineviz on Sat Feb 02, 2019 6:06 pm, edited 1 time in total.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
EnjoyIt
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Re: Cost of college and 529

Post by EnjoyIt »

marcopolo wrote: Sat Feb 02, 2019 5:54 pm
EnjoyIt wrote: Sat Feb 02, 2019 5:41 pm
vineviz wrote: Sat Feb 02, 2019 4:44 pm
EnjoyIt wrote: Sat Feb 02, 2019 4:13 pm One can disagree with opinions but math is more difficult to disagree with.
Yet you insist on doing so.

For a parent who wants to save money for a child's education, the 529 plan is the "mathematically" superior way to do it. Period.

I think you can be right in a certain scenario especially when withdrawals from a traditional IRA would occur at a higher tax bracket as compared when creating the contribution. Since we are talking about a family who has to choose between a 529 and lets say a backdoor Roth. then that person either has a 529 or the Roth. One can withdraw from a Roth IRA penalty free and tax free for qualified education. Therefor you are always better in a Roth as opposed to a 529 because you have more options while not limiting potential for financial aid by having a robust 529.

The other aspect you may be neglecting is the ability to retain your income through your entire life. History shows that anyone's job can be lost or downgraded, or one can get disable. Just about anything can happen which would force you to underfund college and retirement. By putting almost all your eggs in the college basket you increase your risk on being able to retire or maybe even put food on your table without paying penalties in withdrawing on a 529. The 529 is not a horrible choice, but it adds risk. If one does not care about the risk of unemployment or underemployment. If one does not care about their own financial future as opposed to paying for college, a 529 is an adequate option. It is not "superior" but it will do the job.

Like I said. People make emotional feel good decisions all the time that may have serious averse consequences. The idea of paying for your kids college is such a great feel good goal, parents are willing to sacrifice much for it. It is a personal choice though not a financially prudent one.

As I said before, there is nothing wrong with paying for college out of current cash flow and even allow them to take on some debt which you can help pay for. Some of that debt will be subsidized loans which will incur no interest while in school. In addition, maxing out a 401k may make your adjusted growth income even lower allowing for further deductions. For us for example making sure we max out our 401k puts us in the 15% capital gains tax as opposed to 20% in our taxable account. You may now qualify for a child tax credit. You may get better ACA subsidies. When paying down school debt, you may get a credit of $2,500 a year from your taxes if your income is low enough by maxing out your 401k. A 529 is for those who have exhausted all other tax savings and have more money to save. For them a 529 is superior to a taxable account when that money is used for education.

And just for your information, we will definitely be retired before our kids go to college. If not retired at the very least semi retired, working part time in a much lower tax bracket.

Risk putting food on the table? Really? Can we please stop with the fear mongering around college savings?

As for being retired when kids go to college, I am not sure about your situation, but for us, that is yet another huge advantage of the 529 plan. We can pull money out of it, and it does not affect MAGI. This allows us to much easier manage our income to stay below the aca cliff, if we choose to do that. If we had put the money to be used for college in taxable or tax deferred account, we would have lost that flexibility.
The conversation here isn’t about you or I. I too have a 529. The question is for those who are deciding between retirement savings vs paying for college. Although paying for college is a noble goal, it is not without risk for that population.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
EnjoyIt
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Re: Cost of college and 529

Post by EnjoyIt »

vineviz wrote: Sat Feb 02, 2019 5:58 pm
EnjoyIt wrote: Sat Feb 02, 2019 5:41 pm One can withdraw from a Roth IRA penalty free and tax free for qualified education.
This isn’t true.
EnjoyIt wrote: Sat Feb 02, 2019 5:41 pmThe other aspect you may be neglecting is the ability to retain your income through your entire life.
I’m not neglecting it, just acknowledging it as irrelevant to the question at hand.
I’m sorry, just the contributions are penalty free.

Like I said. You feel it is irrelevant if you have a job or get paid less in the future. For you it is more important to have your kids not have debt when they go to school. That choice although very nice for your kids that I am sure you love and want the best for adds risk. And, the risk is not significant. People make judgement choices about feelings that may not put them in the most optimal position. Again, it is your choice.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
marcopolo
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Re: Cost of college and 529

Post by marcopolo »

KlangFool wrote: Sat Feb 02, 2019 5:57 pm
marcopolo wrote: Sat Feb 02, 2019 5:35 pm
Instead of answering why you think NOT using a 529 plan would be mathematically better, you responded with your typical fears about losing your house and feeding your family. Maybe your fears are right, but you seem to not realize that planning your life around that has real opportunity cost:
marcopolo,

<< Maybe your fears are right, but you seem to not realize that planning your life around that has real opportunity cost:>>

My son started college in August. I lost my job in November. My daughter started college in the following August. I did not find a new job until the following January. I was spending 120K ( Annual Expense of 60K + 60K college funding for 2 kids) per year with 2 kids in the college. If my unemployment lasted much longer, I would be in serious financial trouble,

KlangFool
I am not sure I get your point.

Despite your job loss, you paid for your kid's education. Those dollars had to come from somewhere.
If they had come from a 529 plan you would of saved yourself a lot of money.

Instead, you cost your self real money, because you were so worried about losing your job and not being able to feed your family that you didn't save for college in a 529, but when you actually lost your job, you paid for it anyway. So, it seems your fears were unfounded.

Even in your own situation, which you put forth as a cautionary tale, you would have been better off with some of that money in a 529 plan.

You have still not shown any numbers where paying for college is better out of taxable or cash flow, as compared to using a 529 plan.
Once in a while you get shown the light, in the strangest of places if you look at it right.
marcopolo
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Joined: Sat Dec 03, 2016 10:22 am

Re: Cost of college and 529

Post by marcopolo »

EnjoyIt wrote: Sat Feb 02, 2019 6:00 pm
marcopolo wrote: Sat Feb 02, 2019 5:54 pm
EnjoyIt wrote: Sat Feb 02, 2019 5:41 pm
vineviz wrote: Sat Feb 02, 2019 4:44 pm
EnjoyIt wrote: Sat Feb 02, 2019 4:13 pm One can disagree with opinions but math is more difficult to disagree with.
Yet you insist on doing so.

For a parent who wants to save money for a child's education, the 529 plan is the "mathematically" superior way to do it. Period.

I think you can be right in a certain scenario especially when withdrawals from a traditional IRA would occur at a higher tax bracket as compared when creating the contribution. Since we are talking about a family who has to choose between a 529 and lets say a backdoor Roth. then that person either has a 529 or the Roth. One can withdraw from a Roth IRA penalty free and tax free for qualified education. Therefor you are always better in a Roth as opposed to a 529 because you have more options while not limiting potential for financial aid by having a robust 529.

The other aspect you may be neglecting is the ability to retain your income through your entire life. History shows that anyone's job can be lost or downgraded, or one can get disable. Just about anything can happen which would force you to underfund college and retirement. By putting almost all your eggs in the college basket you increase your risk on being able to retire or maybe even put food on your table without paying penalties in withdrawing on a 529. The 529 is not a horrible choice, but it adds risk. If one does not care about the risk of unemployment or underemployment. If one does not care about their own financial future as opposed to paying for college, a 529 is an adequate option. It is not "superior" but it will do the job.

Like I said. People make emotional feel good decisions all the time that may have serious averse consequences. The idea of paying for your kids college is such a great feel good goal, parents are willing to sacrifice much for it. It is a personal choice though not a financially prudent one.

As I said before, there is nothing wrong with paying for college out of current cash flow and even allow them to take on some debt which you can help pay for. Some of that debt will be subsidized loans which will incur no interest while in school. In addition, maxing out a 401k may make your adjusted growth income even lower allowing for further deductions. For us for example making sure we max out our 401k puts us in the 15% capital gains tax as opposed to 20% in our taxable account. You may now qualify for a child tax credit. You may get better ACA subsidies. When paying down school debt, you may get a credit of $2,500 a year from your taxes if your income is low enough by maxing out your 401k. A 529 is for those who have exhausted all other tax savings and have more money to save. For them a 529 is superior to a taxable account when that money is used for education.

And just for your information, we will definitely be retired before our kids go to college. If not retired at the very least semi retired, working part time in a much lower tax bracket.

Risk putting food on the table? Really? Can we please stop with the fear mongering around college savings?

As for being retired when kids go to college, I am not sure about your situation, but for us, that is yet another huge advantage of the 529 plan. We can pull money out of it, and it does not affect MAGI. This allows us to much easier manage our income to stay below the aca cliff, if we choose to do that. If we had put the money to be used for college in taxable or tax deferred account, we would have lost that flexibility.
The conversation here isn’t about you or I. I too have a 529. The question is for those who are deciding between retirement savings vs paying for college. Although paying for college is a noble goal, it is not without risk for that population.
I agree with you about deciding between retirement and college.

It is the argument about using taxable or "cash flowing" college instead of using 529 plans that seems misguided to me.
Once in a while you get shown the light, in the strangest of places if you look at it right.
EnjoyIt
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Re: Cost of college and 529

Post by EnjoyIt »

marcopolo wrote: Sat Feb 02, 2019 6:27 pm
The conversation here isn’t about you or I. I too have a 529. The question is for those who are deciding between retirement savings vs paying for college. Although paying for college is a noble goal, it is not without risk for that population.
I agree with you about deciding between retirement and college.

It is the argument about using taxable or "cash flowing" college instead of using 529 plans that seems misguided to me.
[/quote]

The comment is again for that group of people who are choosing between retirement and 529 savings. If that family is financially fortunate enough to have put themselves in a reasonable retirement position when the child goes to college there is nothing wrong with helping their kids with college. This at that point can be done by cash flowing it from their income. They can withdraw from an IRA penalty free which makes it exactly the same as putting it in a 529 if tax brackets have not changed. They can withdraw contributions from a Roth penalty and tax free leaving growth behind to continue growing. They can take out subsidized school loans and pay no interest while the child is in school and then assist in paying down the debt over the next 1-4 years. This allows for another 4 years of growth in retirement accounts.

During the accumulation phase, if the family finds a year where they are unemployed or underemployed they can do Roth conversion at lower tax brackets making the Roth prospect even more attractive when used for education.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
KlangFool
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Re: Cost of college and 529

Post by KlangFool »

marcopolo wrote: Sat Feb 02, 2019 6:23 pm
KlangFool wrote: Sat Feb 02, 2019 5:57 pm
marcopolo wrote: Sat Feb 02, 2019 5:35 pm
Instead of answering why you think NOT using a 529 plan would be mathematically better, you responded with your typical fears about losing your house and feeding your family. Maybe your fears are right, but you seem to not realize that planning your life around that has real opportunity cost:
marcopolo,

<< Maybe your fears are right, but you seem to not realize that planning your life around that has real opportunity cost:>>

My son started college in August. I lost my job in November. My daughter started college in the following August. I did not find a new job until the following January. I was spending 120K ( Annual Expense of 60K + 60K college funding for 2 kids) per year with 2 kids in the college. If my unemployment lasted much longer, I would be in serious financial trouble,

KlangFool
I am not sure I get your point.

Despite your job loss, you paid for your kid's education. Those dollars had to come from somewhere.
marcopolo,

If my unemployment lasted much longer, I would not continue to pay for the college tuition. I could not afford to. My kids would have to take a student loan. So, how does 529 helps me in that situation?

KlangFool
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goodenyou
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Re: Cost of college and 529

Post by goodenyou »

KlangFool wrote: Sat Feb 02, 2019 6:53 pm
marcopolo wrote: Sat Feb 02, 2019 6:23 pm
KlangFool wrote: Sat Feb 02, 2019 5:57 pm
marcopolo wrote: Sat Feb 02, 2019 5:35 pm
Instead of answering why you think NOT using a 529 plan would be mathematically better, you responded with your typical fears about losing your house and feeding your family. Maybe your fears are right, but you seem to not realize that planning your life around that has real opportunity cost:
marcopolo,

<< Maybe your fears are right, but you seem to not realize that planning your life around that has real opportunity cost:>>

My son started college in August. I lost my job in November. My daughter started college in the following August. I did not find a new job until the following January. I was spending 120K ( Annual Expense of 60K + 60K college funding for 2 kids) per year with 2 kids in the college. If my unemployment lasted much longer, I would be in serious financial trouble,

KlangFool
I am not sure I get your point.

Despite your job loss, you paid for your kid's education. Those dollars had to come from somewhere.
marcopolo,

If my unemployment lasted much longer, I would not continue to pay for the college tuition. I could not afford to. My kids would have to take a student loan. So, how does 529 helps me in that situation?

KlangFool
Klang:

You are a well-educated man. You live in Northern Virginia in Fairfax County among the most affluent and well educated people. People like you don't remain unemployed for long. How long were you unemployed at any given period in your life? And were you unemployed with no income in any job whatsoever?
"Ignorance more frequently begets confidence than does knowledge" | Do you know how to make a rain dance work? Dance until it rains.
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Re: Cost of college and 529

Post by KlangFool »

goodenyou wrote: Sat Feb 02, 2019 7:12 pm
Klang:

You are a well-educated man. You live in Northern Virginia in Fairfax County among the most affluent and well educated people. People like you don't remain unemployed for long. How long were you unemployed at any given period in your life? And were you unemployed with no income in any job whatsoever?
goodenyou,

<<People like you don't remain unemployed for long. >>

I disagreed. Many of my peers in the 40s and 50s are permanently unemployed or under-employed. Age discrimination is a serious issue in my industry.

<<How long were you unemployed at any given period in your life? And were you unemployed with no income in any job whatsoever?>>

I was unemployed for more than 1 years a few times over the last 10+ years. In some cases, I had some minimal income. In other cases, none. But, with an annual expense of 50K to 60K, those side incomes had minimal impact. And, I am a more frugal person versus my peers. Most of my peers had bigger 500K to 600K houses with a larger annual expense.

KlangFool
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Re: Cost of college and 529

Post by Minty »

I think there are reasonable points on both sides of the current debate in this thread, and they are pretty clear. My datapoint is that Dear Spouse and I are in the process of drawing down two six-figure 529 plans, and in retrospect, are glad we funded them. Yet, the key was to have the saved the money, not the vehicle; after 15 years of contributing, we have 119k in my high school senior's account, of which about 16K is gains. It is great not to have to pay taxes on that money, but not a game changer.

I won't hijack the thread by asking for input because my dilemma is unresolvable, but I'll note that our family's current question is: Grinnell/Haverford-level liberal arts college at full pay (70K+) vs. alleged "public ivy" honors program for 40% of that.
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Re: Cost of college and 529

Post by vineviz »

KlangFool wrote: Sat Feb 02, 2019 6:53 pm If my unemployment lasted much longer, I would not continue to pay for the college tuition. I could not afford to. My kids would have to take a student loan. So, how does 529 helps me in that situation?
However much money you spent on college tuition, you'd have been able to spend 10% to 20% more if you'd used a 529 plan. Put another way, you'd have covered the same expenses while taking 10% to 20% less out of your other savings, keeping more money in reserve to buy food and gas.

Seems like a help to me.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Cost of college and 529

Post by KlangFool »

vineviz wrote: Sat Feb 02, 2019 7:43 pm
KlangFool wrote: Sat Feb 02, 2019 6:53 pm If my unemployment lasted much longer, I would not continue to pay for the college tuition. I could not afford to. My kids would have to take a student loan. So, how does 529 helps me in that situation?
However much money you spent on college tuition, you'd have been able to spend 10% to 20% more if you'd used a 529 plan. Put another way, you'd have covered the same expenses while taking 10% to 20% less out of your other savings, keeping more money in reserve to buy food and gas.

Seems like a help to me.
vineviz,

No.

KlangFool
3504PIR
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Re: Cost of college and 529

Post by 3504PIR »

I’m sure there are many ways of looking at funding college costs, or not funding for that matter, but I don’t understand the anti 529 posts saying it is a useless program when it’s no different or better than cash flowing.

We’ve never had the opportunity to take a tax deduction for 529 contributions, but have gained significantly from the tax free growth aspect. The initial contribution we made to ours was $9000 when our child was approaching their first birthday, 19 years ago. We put that contribution into an aged based fund much like a target date fund for retirement. We used the first distribution this academic year and the value of that initial $9000 is now just over $24,000.

From my perspective, I’d much rather have $24,000 which grew tax free than the amount originally contributed even if adjusted for inflation. I don’t understand why the tax free growth isn’t considered better than just cash flowing.

We also have funds that were contributed 4 years ago that have gained 9% over that time. Even that 9% is better than 0% represented by cash flowing.
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Re: Cost of college and 529

Post by marcopolo »

KlangFool wrote: Sat Feb 02, 2019 6:53 pm
marcopolo wrote: Sat Feb 02, 2019 6:23 pm
KlangFool wrote: Sat Feb 02, 2019 5:57 pm
marcopolo wrote: Sat Feb 02, 2019 5:35 pm
Instead of answering why you think NOT using a 529 plan would be mathematically better, you responded with your typical fears about losing your house and feeding your family. Maybe your fears are right, but you seem to not realize that planning your life around that has real opportunity cost:
marcopolo,

<< Maybe your fears are right, but you seem to not realize that planning your life around that has real opportunity cost:>>

My son started college in August. I lost my job in November. My daughter started college in the following August. I did not find a new job until the following January. I was spending 120K ( Annual Expense of 60K + 60K college funding for 2 kids) per year with 2 kids in the college. If my unemployment lasted much longer, I would be in serious financial trouble,

KlangFool
I am not sure I get your point.

Despite your job loss, you paid for your kid's education. Those dollars had to come from somewhere.
marcopolo,

If my unemployment lasted much longer, I would not continue to pay for the college tuition. I could not afford to. My kids would have to take a student loan. So, how does 529 helps me in that situation?

KlangFool
Since you have no response to the numbers side of it, I am going to assume that you recognize that a 529 is financially better.
So, this an issue of perceived risk mitigation.

We are obviously not going to change each other's minds at this point. I will just leave you this as an analogy.
I had a car accident once, minor injuries. If it had been much worse, I could have died. Despite that, I did not stop driving. Living in fear all the time has opportunity costs.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Cost of college and 529

Post by vineviz »

KlangFool wrote: Sat Feb 02, 2019 7:44 pm
vineviz wrote: Sat Feb 02, 2019 7:43 pm
KlangFool wrote: Sat Feb 02, 2019 6:53 pm If my unemployment lasted much longer, I would not continue to pay for the college tuition. I could not afford to. My kids would have to take a student loan. So, how does 529 helps me in that situation?
However much money you spent on college tuition, you'd have been able to spend 10% to 20% more if you'd used a 529 plan. Put another way, you'd have covered the same expenses while taking 10% to 20% less out of your other savings, keeping more money in reserve to buy food and gas.

Seems like a help to me.
vineviz,

No.

KlangFool
What do you mean, "no"?

For every $20k you spent on tuition from a Roth or taxable account you could have spent more like $23k if you'd saved the money in a 529 plan instead. Or spent the $20k from the 529 and keep the extra $3k in the Roth or taxable account.

That's just the way the math works out.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Cost of college and 529

Post by marcopolo »

Minty wrote: Sat Feb 02, 2019 7:36 pm I think there are reasonable points on both sides of the current debate in this thread, and they are pretty clear. My datapoint is that Dear Spouse and I are in the process of drawing down two six-figure 529 plans, and in retrospect, are glad we funded them. Yet, the key was to have the saved the money, not the vehicle; after 15 years of contributing, we have 119k in my high school senior's account, of which about 16K is gains. It is great not to have to pay taxes on that money, but not a game changer.

I won't hijack the thread by asking for input because my dilemma is unresolvable, but I'll note that our family's current question is: Grinnell/Haverford-level liberal arts college at full pay (70K+) vs. alleged "public ivy" honors program for 40% of that.
You are right it is objectively unsolvable.

Just my opinion, but I would heavily lean towards the "public ivy", assuming it is one of the better flagship state schools.
If you were talking Harvard instead of Haveford, then it is a different discussion. But, between Grinnel/Haverford and a top tier Flagship state school, I would find it hard to justify the cost difference. Would rather keep the extra dollars towards grad school, if needed.

When my kids were applying, I told them if they got into a MIT/Stanford level school, I would pay for it. But, I would not pay for a pricey second tier private school in favor of a top tier public school. Just my personal take on it. I am sure others have different opinions, and I can understand their reasoning. My kids studied engineering, maybe the decision making is different for other fields of study. Like you said, it is unsolvable.

Good luck to your family with this difficult decision.
Once in a while you get shown the light, in the strangest of places if you look at it right.
catchup
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Re: Cost of college and 529

Post by catchup »

We picked an arbitrary private school and looked up yearly tuition, room, and board.

Multiplied by 4, assuming graduation in 4 years.

Assume 0 percent tuition inflation and 0 percent growth of 529.

We look up the new tuition rates each year and readjust our targets accordingly.

As kids get closer to college we adjust our cash allocation according to David Swensen’s recommendation.

Money needed in 10 yrs or more, all invested (70/30)
Stocks/ bonds.
...
Money needed in 6 years, 50/50.
...
2 years or less, all cash.

So for 13 year old child 5,6,7,and 8 years out from college years 1,2,3, and 4, will have 2/8, 3/8, 4/8, and 5/8 of 1 year tuition in cash, or 1.75 times tuition cost.

Works for us.

We max out our contributions when we can, until we have 4 years worth saved up and then stop contributing. If we have a shortfall, we’ll try to add more. If there’s excess will use for another child.

That’s just us.
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Re: Cost of college and 529

Post by Bacchus01 »

Minty wrote: Sat Feb 02, 2019 7:36 pm I think there are reasonable points on both sides of the current debate in this thread, and they are pretty clear. My datapoint is that Dear Spouse and I are in the process of drawing down two six-figure 529 plans, and in retrospect, are glad we funded them. Yet, the key was to have the saved the money, not the vehicle; after 15 years of contributing, we have 119k in my high school senior's account, of which about 16K is gains. It is great not to have to pay taxes on that money, but not a game changer.

I won't hijack the thread by asking for input because my dilemma is unresolvable, but I'll note that our family's current question is: Grinnell/Haverford-level liberal arts college at full pay (70K+) vs. alleged "public ivy" honors program for 40% of that.
I told my oldest son, now a senior in HS, that if he got into Stanford he should go. Maybe MIT or Caltech. Beyond that, the University of Wisconsin is a top 10 engineering school at a 1/3 or less of the cost.

He’s going to Madison next fall. Smart kid.

I would have had a very difficult time supporting him going to an OOS engineering school at a multiple of the cost.
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Re: Cost of college and 529

Post by UpsetRaptor »

EnjoyIt wrote: Sat Feb 02, 2019 1:38 pm If you are not maxing our your other retirement accounts you get a much better advantage putting more money in a 401k as opposed to a 529 plan.
Not true at all. This is only true for any matched 401k amount. When used for QEE, a 529 gives you the tax-free-gains a Roth IRA does, plus in 35 states and DC a state tax benefit to boot. So theoretically, from a tax efficiency standpoint for those with college expenses ahead of them, a 529 should be behind only matched 401k and then HSAs. Yes, even ahead of unmatched 401k and Roth IRA, just from a theoretical tax efficiency perspective.

If an individual with college expenses ahead of them decides to forego a 529 to fully max out retirement accounts and either cashflow college or use Roth contributions or something along those lines, there's a demonstrable cost associated with that, being the suboptimal tax efficiency. That cost may be worth it to that individual, as they eye their own security and goals towards financial independence, but it absolutely exists.
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Re: Cost of college and 529

Post by deskjockey »

vineviz wrote: Sat Feb 02, 2019 7:57 pm
KlangFool wrote: Sat Feb 02, 2019 7:44 pm
vineviz wrote: Sat Feb 02, 2019 7:43 pm
KlangFool wrote: Sat Feb 02, 2019 6:53 pm If my unemployment lasted much longer, I would not continue to pay for the college tuition. I could not afford to. My kids would have to take a student loan. So, how does 529 helps me in that situation?
However much money you spent on college tuition, you'd have been able to spend 10% to 20% more if you'd used a 529 plan. Put another way, you'd have covered the same expenses while taking 10% to 20% less out of your other savings, keeping more money in reserve to buy food and gas.

Seems like a help to me.
vineviz,

No.

KlangFool
What do you mean, "no"?

For every $20k you spent on tuition from a Roth or taxable account you could have spent more like $23k if you'd saved the money in a 529 plan instead. Or spent the $20k from the 529 and keep the extra $3k in the Roth or taxable account.

That's just the way the math works out.
Don't forget that, since he lives in Virginia, KlangFool would also have gotten a state tax break for making 529 contributions. Those would be worth 5.75% of any amount saved. Let's say he saved $30k, that's a cold, hard $1,725 extra right there to help feed the family in times of unemployment.
A440
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Re: Cost of college and 529

Post by A440 »

Normchad wrote: Fri Feb 01, 2019 7:33 pm I agree with livesoft that there is virtually no reason to ever go out of state. Ie, don’t pay more for an education that is equivalent to what you can get in-state.

We saved enough in the 529 to pay full freight at a good,instate school. During high school, we talked about college choices and finances. Our approach was: “We saved up XXX dollars for your school. That’s the budget; if you need more, you’re on your own.
+1
This is our approach as well. Our recipe for saving for retirement/college went something like this after tithing:
-Before kids: Max both Roth accounts, live on one salary and max 403b (no match) of spouse, contribute something to my 403b.
-Birth of first child: SAHM (max Roth), one earner (max Roth, contribute something to 403b, no match), contribute something to 529 plan based on Vanguard's college planner, save a little for future expenses (car, home repairs/improvements), keep out of debt (other than mortgage) and live on the rest.
-Birth of second child: same
NJ doesn't have a good 529 or tax benefits, so we found a low-cost Vanguard one from another state.
Fast-forward 16 years:
Child one has $125,000 in 529 with about $55,000 in earnings
Child two has $85,000 in 529 with about $35,000 in earnings.
FIRE in a few years.
This was done on a public school teacher's salary by LBYM (but living well) along with a couple side hustles. A touch of providence was also helpful, as was having no college or wedding debt in our 20's.
I don't know what the future holds, but I know who holds my future.
EnjoyIt
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Re: Cost of college and 529

Post by EnjoyIt »

UpsetRaptor wrote: Sun Feb 03, 2019 12:48 am
EnjoyIt wrote: Sat Feb 02, 2019 1:38 pm If you are not maxing our your other retirement accounts you get a much better advantage putting more money in a 401k as opposed to a 529 plan.
Not true at all. This is only true for any matched 401k amount. When used for QEE, a 529 gives you the tax-free-gains a Roth IRA does, plus in 35 states and DC a state tax benefit to boot. So theoretically, from a tax efficiency standpoint for those with college expenses ahead of them, a 529 should be behind only matched 401k and then HSAs. Yes, even ahead of unmatched 401k and Roth IRA, just from a theoretical tax efficiency perspective.

If an individual with college expenses ahead of them decides to forego a 529 to fully max out retirement accounts and either cashflow college or use Roth contributions or something along those lines, there's a demonstrable cost associated with that, being the suboptimal tax efficiency. That cost may be worth it to that individual, as they eye their own security and goals towards financial independence, but it absolutely exists.
A Roth IRA and a 529 are very similar except one can only pull out contributions penalty free for college but it does offer more options in the long run. If you have a choice between Roth vs 529 I would do the Roth because I get more options with that money.

Traditional IRA and 529 are exactly the same if contributions and withdrawals are in the same tax bracket. The IRA becomes superior if withdrawals are in a lower tax bracket such as when semi-retired, retired, or under employed. Statistically it is very likely most of us will have a period of unemployment or under employement in our career which would be a great time for Roth conversions at a lower tax bracket making the IRA even more beneficial.

Plus maxing out all pre-tax accounts prior to a 529 will lower income and potential place a family in a better situation for other subsidies and tax credits.

Everyone should do their own math and evaluate their own risk and not blindly throw money into a 529 because they want to do the noble deed of paying for their kids college.
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Re: Cost of college and 529

Post by vineviz »

EnjoyIt wrote: Sun Feb 03, 2019 9:04 am A Roth IRA and a 529 are very similar except one can only pull out contributions penalty free for college but it does offer more options in the long run
Not true. For any money spent on education, a 529 plan offers two advantages over the Roth IRA : no taxes on capital gains AND (for residents of 34 states) a state tax deduction on contributions.
EnjoyIt wrote: Sun Feb 03, 2019 9:04 amTraditional IRA and 529 are exactly the same if contributions and withdrawals are in the same tax bracket.
Not true. For any money spent on education, withdrawals from a traditional IRA will trigger a 10% penalty, income tax on both contributions AND gains, AND loss of any state tax deduction offered on the 529.

I think this anti-529 bias stems from trying to answer two distinct questions as if they were one question.

Question 1: should someone save money that is dedicated for education?

Question 2: if so, what is the most economical way to save for that investment goal?

The first question is essentially a question about goals, which contains elements of financial economics but ultimately boils down to values and preferences. There can be no answer to Question 1 that isn't doesn't contain an element of opinion and values. As a result, the answer must be personal and subjective. I think there can be a healthy debate about this question, and the right answer for many people might be no.

The second question, on the other hand, is basically a mathematical question. The answer is objective, and I'm confident there is NO scenario where the 529 doesn't win over other options (cash, taxable investment account, retirement account) by at least a small margin. For investors with median incomes or above, the margin will not be small.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Cost of college and 529

Post by livesoft »

vineviz wrote: Sun Feb 03, 2019 9:24 amNot true. For any money spent on education, withdrawals from a traditional IRA will trigger a 10% penalty, income tax on both contributions AND gains, AND loss of any state tax deduction offered on the 529.
Careful. Oldsters like me were already 59.5 when my children were in college, so no 10% penalty on IRA withdrawals for education for me.

And if you wanted to get complicated, money in a 529 plan affects possible financial aid while money in an IRA does not affect possible financial aid.

An interesting question to ask might be: "Did any families with at least $100,000 (or $X) in a 529 plan get any non-loan financial aid?"
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vineviz
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Re: Cost of college and 529

Post by vineviz »

livesoft wrote: Sun Feb 03, 2019 9:27 am
vineviz wrote: Sun Feb 03, 2019 9:24 amNot true. For any money spent on education, withdrawals from a traditional IRA will trigger a 10% penalty, income tax on both contributions AND gains, AND loss of any state tax deduction offered on the 529.
Careful. Oldsters like me were already 59.5 when my children were in college, so no 10% penalty on IRA withdrawals for education for me.
Good catch. This is an unusual situation, but I shouldn’t have overlooked it.

And some Bogleheads intend to pay for college for their grandchildren, which would make being over 59.5 more likely.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Cost of college and 529

Post by TomatoTomahto »

livesoft wrote: Sun Feb 03, 2019 9:27 am Careful. Oldsters like me were already 59.5 when my children were in college, so no 10% penalty on IRA withdrawals for education for me.
You're a youngster!!! Heck, I was 59.5 when one of my kids was in middle school (and one had just begun high school). :sharebeer
That's why I filed early for SS (back in the day when sscritic could provide counsel here), but that's a story for another thread.
Okay, I get it; I won't be political or controversial. The Earth is flat.
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Re: Cost of college and 529

Post by noco-hawkeye »

livesoft wrote: Sun Feb 03, 2019 9:27 am
vineviz wrote: Sun Feb 03, 2019 9:24 amNot true. For any money spent on education, withdrawals from a traditional IRA will trigger a 10% penalty, income tax on both contributions AND gains, AND loss of any state tax deduction offered on the 529.
Careful. Oldsters like me were already 59.5 when my children were in college, so no 10% penalty on IRA withdrawals for education for me.

And if you wanted to get complicated, money in a 529 plan affects possible financial aid while money in an IRA does not affect possible financial aid.
If you are looking at a 529, it is also very very likely that you did not qualify for aid. This might not be the intention, but really a 529 benefits upper middle income families and above. Kind of the same income brackets where FAFSA stops helping you is also where 529s make more and more sense.

I think vineviz has a fair point - the 529 is most likely the best vehicle assuming that retirement planning is on track, and you are maxing out tax advantaged spaces for that. At that point you are left with taxable investment spaces and some other coverdell type items to use. Among these items, the 529 looks pretty good.

I think the debate around using an IRA instead gets into another area. I'd assume the OP is likely maxing out the IRA space and will be using that for retirement already. If you have not maxed out that space and do not have that dedicated for retirement - then I think filling up your IRA is more important than the 529. This gets into the argument that you can't take a loan for retirement, but you can for college.
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Re: Cost of college and 529

Post by Bacchus01 »

noco-hawkeye wrote: Sun Feb 03, 2019 9:38 am
livesoft wrote: Sun Feb 03, 2019 9:27 am
vineviz wrote: Sun Feb 03, 2019 9:24 amNot true. For any money spent on education, withdrawals from a traditional IRA will trigger a 10% penalty, income tax on both contributions AND gains, AND loss of any state tax deduction offered on the 529.
Careful. Oldsters like me were already 59.5 when my children were in college, so no 10% penalty on IRA withdrawals for education for me.

And if you wanted to get complicated, money in a 529 plan affects possible financial aid while money in an IRA does not affect possible financial aid.
If you are looking at a 529, it is also very very likely that you did not qualify for aid. This might not be the intention, but really a 529 benefits upper middle income families and above. Kind of the same income brackets where FAFSA stops helping you is also where 529s make more and more sense.

I think vineviz has a fair point - the 529 is most likely the best vehicle assuming that retirement planning is on track, and you are maxing out tax advantaged spaces for that. At that point you are left with taxable investment spaces and some other coverdell type items to use. Among these items, the 529 looks pretty good.

I think the debate around using an IRA instead gets into another area. I'd assume the OP is likely maxing out the IRA space and will be using that for retirement already. If you have not maxed out that space and do not have that dedicated for retirement - then I think filling up your IRA is more important than the 529. This gets into the argument that you can't take a loan for retirement, but you can for college.
Fill out a FAFSA. Aid stops WELL before “upper middle class.” The amount of need-based aid is really dwindling.
stoptothink
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Re: Cost of college and 529

Post by stoptothink »

Bacchus01 wrote: Sat Feb 02, 2019 11:53 pm
Minty wrote: Sat Feb 02, 2019 7:36 pm I think there are reasonable points on both sides of the current debate in this thread, and they are pretty clear. My datapoint is that Dear Spouse and I are in the process of drawing down two six-figure 529 plans, and in retrospect, are glad we funded them. Yet, the key was to have the saved the money, not the vehicle; after 15 years of contributing, we have 119k in my high school senior's account, of which about 16K is gains. It is great not to have to pay taxes on that money, but not a game changer.

I won't hijack the thread by asking for input because my dilemma is unresolvable, but I'll note that our family's current question is: Grinnell/Haverford-level liberal arts college at full pay (70K+) vs. alleged "public ivy" honors program for 40% of that.
I told my oldest son, now a senior in HS, that if he got into Stanford he should go. Maybe MIT or Caltech. Beyond that, the University of Wisconsin is a top 10 engineering school at a 1/3 or less of the cost.

He’s going to Madison next fall. Smart kid.

I would have had a very difficult time supporting him going to an OOS engineering school at a multiple of the cost.
Ditto, in my mind I don't even know how elite liberal arts school vs. a "public ivy" at 40% the cost is even a discussion. Your child is free to do what they want, but that is a perfect opportunity to teach them how important costs are. There is zero chance I'd pay for the difference in that case, even if I could.
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TomatoTomahto
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Re: Cost of college and 529

Post by TomatoTomahto »

noco-hawkeye wrote: Sun Feb 03, 2019 9:38 am If you are looking at a 529, it is also very very likely that you did not qualify for aid
That's an over-simplification.
1. That only applies to need-based schools, not merit aid.
2. Some need-based schools provide financial aid for families making as much, or more than, $200k
Okay, I get it; I won't be political or controversial. The Earth is flat.
gmc4h232
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Re: Cost of college and 529

Post by gmc4h232 »

I had conversation with coworker about student loans the other day asking whether he thought this bubble will burst when the current generation realizes how big of an anchor around the neck student loan debt is and conveys that fact to their children and encourages them to pursue alternate paths. He said his kids were on track to have the same amount of debt that he did...so I guess nothing is changing any time soon
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vineviz
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Re: Cost of college and 529

Post by vineviz »

livesoft wrote: Sun Feb 03, 2019 9:27 am And if you wanted to get complicated, money in a 529 plan affects possible financial aid while money in an IRA does not affect possible financial aid.

An interesting question to ask might be: "Did any families with at least $100,000 (or $X) in a 529 plan get any non-loan financial aid?"
Remember that withdrawals from an IRA count as income on the next year’s aid calculation, so unless such withdrawals are restricted to the final year(s) of college it probably is a wash for most families.

Also, I think it’d be unusual for a family to accumulate enough assets to have a material reduction in financial aid unless they already had an income that fully reduced it .

I believe that a family with $80k in 2019 income would have to really have struggled to accumulate even $50k in college savings, and such a family is already going to have trouble qualifying for need-based grants at an in-state public university just on income alone. Assets barely have an impact for families with over $100k in income AFAIK.
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RJC
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Re: Cost of college and 529

Post by RJC »

I think if you follow the typical investment order, a 529 makes sense after other avenues are filled up:

0. Establish an emergency fund to your satisfaction
1. Contribute to your 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield.
3. Max Health Savings Account (HSA) if eligible.
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if
- 401k fees are lower than available in an IRA, or
- you need the 401k deduction to be eligible for (and desire) a tIRA deduction, or
- your earn too much for an IRA deduction and prefer traditional to Roth, then
swap #4 and #5)
6. Fund a mega backdoor Roth if applicable.
7. Pay off any debts with interest rates ~3% or more above the current 10-year Treasury note yield.
8. Invest in a taxable account and/or fund a 529 with any extra.
Bacchus01
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Re: Cost of college and 529

Post by Bacchus01 »

gmc4h232 wrote: Sun Feb 03, 2019 9:53 am I had conversation with coworker about student loans the other day asking whether he thought this bubble will burst when the current generation realizes how big of an anchor around the neck student loan debt is and conveys that fact to their children and encourages them to pursue alternate paths. He said his kids were on track to have the same amount of debt that he did...so I guess nothing is changing any time soon
The bubble might be a myth.

The average student loan debt is just $30K.

You don’t think 4 years of learning and a degree is worthy the loan on a small sedan?

The vast majority of those that are carrying 6-digit debt are in the medical field, where salaries will outpace the debt.

I don’t think the vast, overwhelming majority of college grads are carrying the headline making debt that makes for good political fodder but is not backed up by actual facts.
gmc4h232
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Joined: Wed Jan 27, 2016 8:11 am

Re: Cost of college and 529

Post by gmc4h232 »

Bacchus01 wrote: Sun Feb 03, 2019 10:04 am
gmc4h232 wrote: Sun Feb 03, 2019 9:53 am I had conversation with coworker about student loans the other day asking whether he thought this bubble will burst when the current generation realizes how big of an anchor around the neck student loan debt is and conveys that fact to their children and encourages them to pursue alternate paths. He said his kids were on track to have the same amount of debt that he did...so I guess nothing is changing any time soon
The bubble might be a myth.

The average student loan debt is just $30K.

You don’t think 4 years of learning and a degree is worthy the loan on a small sedan?

The vast majority of those that are carrying 6-digit debt are in the medical field, where salaries will outpace the debt.

I don’t think the vast, overwhelming majority of college grads are carrying the headline making debt that makes for good political fodder but is not backed up by actual facts.
I certainly believe there are degrees out there that aren’t worth 30k from a mathematical return on investment standpoint
Bacchus01
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Re: Cost of college and 529

Post by Bacchus01 »

gmc4h232 wrote: Sun Feb 03, 2019 10:11 am
Bacchus01 wrote: Sun Feb 03, 2019 10:04 am
gmc4h232 wrote: Sun Feb 03, 2019 9:53 am I had conversation with coworker about student loans the other day asking whether he thought this bubble will burst when the current generation realizes how big of an anchor around the neck student loan debt is and conveys that fact to their children and encourages them to pursue alternate paths. He said his kids were on track to have the same amount of debt that he did...so I guess nothing is changing any time soon
The bubble might be a myth.

The average student loan debt is just $30K.

You don’t think 4 years of learning and a degree is worthy the loan on a small sedan?

The vast majority of those that are carrying 6-digit debt are in the medical field, where salaries will outpace the debt.

I don’t think the vast, overwhelming majority of college grads are carrying the headline making debt that makes for good political fodder but is not backed up by actual facts.
I certainly believe there are degrees out there that aren’t worth 30k from a mathematical return on investment standpoint
Name them.

Median debt is just $17k.
livesoft
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Re: Cost of college and 529

Post by livesoft »

vineviz wrote: Sun Feb 03, 2019 9:53 amI believe that a family with $80k in 2019 income would have to really have struggled to accumulate even $50k in college savings, and such a family is already going to have trouble qualifying for need-based grants at an in-state public university just on income alone. Assets barely have an impact for families with over $100k in income AFAIK.
Would that same family struggle to contribute to retirement plans such as 401(k), Roth IRA, etc?
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gmc4h232
Posts: 428
Joined: Wed Jan 27, 2016 8:11 am

Re: Cost of college and 529

Post by gmc4h232 »

Bacchus01 wrote: Sun Feb 03, 2019 10:12 am
gmc4h232 wrote: Sun Feb 03, 2019 10:11 am
Bacchus01 wrote: Sun Feb 03, 2019 10:04 am
gmc4h232 wrote: Sun Feb 03, 2019 9:53 am I had conversation with coworker about student loans the other day asking whether he thought this bubble will burst when the current generation realizes how big of an anchor around the neck student loan debt is and conveys that fact to their children and encourages them to pursue alternate paths. He said his kids were on track to have the same amount of debt that he did...so I guess nothing is changing any time soon
The bubble might be a myth.

The average student loan debt is just $30K.

You don’t think 4 years of learning and a degree is worthy the loan on a small sedan?

The vast majority of those that are carrying 6-digit debt are in the medical field, where salaries will outpace the debt.

I don’t think the vast, overwhelming majority of college grads are carrying the headline making debt that makes for good political fodder but is not backed up by actual facts.
I certainly believe there are degrees out there that aren’t worth 30k from a mathematical return on investment standpoint
Name them.

Median debt is just $17k.
I would have to poll college grads working in jobs that don’t require degrees.
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