Cost of college and 529

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onourway
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Re: Cost of college and 529

Post by onourway »

miamivice wrote: Wed Feb 06, 2019 2:31 pm
onourway wrote: Wed Feb 06, 2019 12:52 pm Saving for college and paying for college are two sides of the same coin.... Are you 'cash-strapped' today because you are saving for retirement and for college?
No, there is a big difference between saving for college versus cash-flowing. Cash-flowing assumes that one has the income stream during the child's college years to pay for it. This may or may not be a good plan for everyone. For my wife and I, we would like the flexibility of not being bound to a high income job in order to pay for college, so we chose to save for college rather than cash flowing college.

No, we are not cash strapped. Money is tighter with having 2 kids both needing childcare but that is not related to college savings. We set aside all of the money for college while my wife was pregnant with each of our kids and haven't set aside anything since then.

The bottom line is that the 529 is really the only tax advantaged vehicle to save for college if a family wants to save for college. And while "cash flowing" college sounds easy here, there are few families that truly can, hence is why so many students graduate with large amounts of debt.
If one has lost their high income job when it comes to pay for college, but all those college savings have instead gone to Roth IRA accounts, the money has still been 'saved' to pay for college, with a nominal loss of perhaps a few to ten thousand dollars in state tax breaks over many years, some of which can be captured during the college years via the pass-through method I mentioned above. Yet with the IRA's you have the flexibility of not spending that money on college if your low income years extend for longer than expected, while also not having a large 529 counting against the financial aid you should now be eligible for without much income. Saying that a 529 is the 'only' tax-advantaged way to save for college is patently untrue, and similar in thinking to those who choose not to 'save' in their tax-advantaged 401k or IRA plans because they are 'only for retirement'.

To be clear, we use a 529, but only because we have additional money to save after maxing multiple pre-tax, HSA, and Roth IRA accounts.
miamivice
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Re: Cost of college and 529

Post by miamivice »

onourway wrote: Wed Feb 06, 2019 3:13 pm
miamivice wrote: Wed Feb 06, 2019 2:31 pm
onourway wrote: Wed Feb 06, 2019 12:52 pm Saving for college and paying for college are two sides of the same coin.... Are you 'cash-strapped' today because you are saving for retirement and for college?
No, there is a big difference between saving for college versus cash-flowing. Cash-flowing assumes that one has the income stream during the child's college years to pay for it. This may or may not be a good plan for everyone. For my wife and I, we would like the flexibility of not being bound to a high income job in order to pay for college, so we chose to save for college rather than cash flowing college.

No, we are not cash strapped. Money is tighter with having 2 kids both needing childcare but that is not related to college savings. We set aside all of the money for college while my wife was pregnant with each of our kids and haven't set aside anything since then.

The bottom line is that the 529 is really the only tax advantaged vehicle to save for college if a family wants to save for college. And while "cash flowing" college sounds easy here, there are few families that truly can, hence is why so many students graduate with large amounts of debt.
If one has lost their high income job when it comes to pay for college, but all those college savings have instead gone to Roth IRA accounts, the money has still been 'saved' to pay for college, with a nominal loss of perhaps a few to ten thousand dollars in state tax breaks over many years, some of which can be captured during the college years via the pass-through method I mentioned above. Yet with the IRA's you have the flexibility of not spending that money on college if your low income years extend for longer than expected, while also not having a large 529 counting against the financial aid you should now be eligible for without much income. Saying that a 529 is the 'only' tax-advantaged way to save for college is patently untrue, and similar in thinking to those who choose not to 'save' in their tax-advantaged 401k or IRA plans because they are 'only for retirement'.

To be clear, we use a 529, but only because we have additional money to save after maxing multiple pre-tax, HSA, and Roth IRA accounts.
I hope it works out for you. I can't quite follow it though.
KlangFool
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Re: Cost of college and 529

Post by KlangFool »

marcopolo wrote: Wed Feb 06, 2019 3:13 pm
That person might not "need" to save for college, but the reason they might want to do so is because they will come out financially ahead. I have shown you the numbers repeatedly, which you seem to simply ignore, even though you asked to be shown the numbers.

There is no "need" for people to use 401k, tIRA, or Roth to save for retirement either, but it is a smart thing to do because it gives you more money for retirement. Just like a 529 does for education.

The person early retires, they are likely to have a sizable taxable account, they are unlikely to qualify for financial aid, even if they do it would be in the form of loans. We are discussing people that want to pay for college, not borrow for it. As I explained before, having 529 is better during early retirement because withdrawals do not count in MAGI. How are you getting healthcare in retirement, 529 is a huge help.
marcopolo,

<<That person might not "need" to save for college, but the reason they might want to do so is because they will come out financially ahead.>>

Or not. If they invest for retirement, they could invest that money for 20 to 30 years. If they invest for the college education, they could only invest up to 18 years.

<<The person early retires, they are likely to have a sizable taxable account,>>

A) Or not. In between 401Ks, Roth IRAs, Backdoor Roth IRAs, Mega Backdoor Roth IRAs, it took a sizable amount of income before all those spaces are filled up.

B) Then, you have folks with a significant taxable account that the dividend/distribution could be used to cash flow the college education.

<< As I explained before, having 529 is better during early retirement because withdrawals do not count in MAGI. How are you getting healthcare in retirement, 529 is a huge help.>>

C) This is highly dependent on the annual retirement expense. Roth IRA's contribution work in this case too. You do not need 529.

KlangFool
marcopolo
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Re: Cost of college and 529

Post by marcopolo »

KlangFool wrote: Wed Feb 06, 2019 3:46 pm
marcopolo wrote: Wed Feb 06, 2019 3:13 pm
That person might not "need" to save for college, but the reason they might want to do so is because they will come out financially ahead. I have shown you the numbers repeatedly, which you seem to simply ignore, even though you asked to be shown the numbers.

There is no "need" for people to use 401k, tIRA, or Roth to save for retirement either, but it is a smart thing to do because it gives you more money for retirement. Just like a 529 does for education.

The person early retires, they are likely to have a sizable taxable account, they are unlikely to qualify for financial aid, even if they do it would be in the form of loans. We are discussing people that want to pay for college, not borrow for it. As I explained before, having 529 is better during early retirement because withdrawals do not count in MAGI. How are you getting healthcare in retirement, 529 is a huge help.
marcopolo,

<<That person might not "need" to save for college, but the reason they might want to do so is because they will come out financially ahead.>>

Or not. If they invest for retirement, they could invest that money for 20 to 30 years. If they invest for the college education, they could only invest up to 18 years.

<<The person early retires, they are likely to have a sizable taxable account,>>

A) Or not. In between 401Ks, Roth IRAs, Backdoor Roth IRAs, Mega Backdoor Roth IRAs, it took a sizable amount of income before all those spaces are filled up.

B) Then, you have folks with a significant taxable account that the dividend/distribution could be used to cash flow the college education.

<< As I explained before, having 529 is better during early retirement because withdrawals do not count in MAGI. How are you getting healthcare in retirement, 529 is a huge help.>>

C) This is highly dependent on the annual retirement expense. Roth IRA's contribution work in this case too. You do not need 529.

KlangFool
You are right, you don't "need" a 529 plan. You don't "need" a 401k, either. But, both are good vehicles for tax management/reduction.
This conversation has become silly, probably quite some time ago. I am done adding to the noise.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Quirkz
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Re: Cost of college and 529

Post by Quirkz »

The way I see it, I don't expect to be able to cashflow college or anything near that. I'll be able to cover some each year. If I want to contribute more, I've got to save up in advance. I'm not going to be able to cover everything, but I want to be able to help, so I put aside a little now. Given the choice between being fully taxable or being in a 529, the 529 offers some benefits, so I use it.

I do consider this secondary to my retirement, and if things got derailed I'd stop college savings first. My retirement isn't fully maxed, but it's at a level that works for me and my plans. I do not understand any of the suggestions that I might be able to use retirement accounts to pay for college. I'd be too young, and everything I understand about it says I'd pay a huge penalty. So the money has to go somewhere else, and again 529 seems like the normal choice.

The total amount is likely to be around $100k for two kids in a bit more than a decade. That's probably not enough to cover it, but it's a lot better than nothing.
KlangFool
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Re: Cost of college and 529

Post by KlangFool »

stoptothink wrote: Wed Feb 06, 2019 3:11 pm
KlangFool wrote: Wed Feb 06, 2019 2:53 pm
bligh wrote: Wed Feb 06, 2019 2:43 pm
Put another way, if you are making enough such that you can cash flow college, you are probably making enough to save for college and therefore 529 plans make sense for you.
bligh,

That is not necessarily true. There is no need to save for college for that kind of person. So, why save for college education? The person could early retire with minimal official income. Then, the 529 could become a problem for financial aid.

529 makes sense for folks that earn at 300K and above. But, you do not need to earn at that level to cash flow college education. You only need 30K to 80K of saving per year.

KlangFool
Paying for college education for our children is literally at the bottom of our list of financial priorities, but this statement is painting with way too broad of a brush. We are far from $300k HHI, but 529s make a lot of sense for us (even though we don't even necessarily feel an obligation to help our kids with paying for college) because we are pretty easily able to max available tax-deferred retirement vehicles and we get a state deduction.
stoptothink,

There are 2 groups of people where 529 makes sense:

A) The group of people with HHI of 300K and above. For this group of people, their income is high enough that they could contribute to 529 without any impact to their saving for retirement.

B) Folks with good job security that they know their retirement will be fully funded 10 to 20 year ahead of time.

You could borrow for a college education. You could not borrow for retirement.

KlangFool
miamivice
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Re: Cost of college and 529

Post by miamivice »

Quirkz wrote: Wed Feb 06, 2019 3:56 pm The way I see it, I don't expect to be able to cashflow college or anything near that. I'll be able to cover some each year. If I want to contribute more, I've got to save up in advance. I'm not going to be able to cover everything, but I want to be able to help, so I put aside a little now. Given the choice between being fully taxable or being in a 529, the 529 offers some benefits, so I use it.

I do consider this secondary to my retirement, and if things got derailed I'd stop college savings first. My retirement isn't fully maxed, but it's at a level that works for me and my plans. I do not understand any of the suggestions that I might be able to use retirement accounts to pay for college. I'd be too young, and everything I understand about it says I'd pay a huge penalty. So the money has to go somewhere else, and again 529 seems like the normal choice.

The total amount is likely to be around $100k for two kids in a bit more than a decade. That's probably not enough to cover it, but it's a lot better than nothing.
Your logic is the same as mine.

You have to be careful with the pressure to "max the retirement" around here. There are many different dollar amounts that "maxxing" means. It is not universial. For example, a two income family can put $38k in pre-tax 401k, while a single income can put $19k. Some can put after-tax dollars in a 401k up to $54k per year. Some have pensions. Some have company matching dollars, others do not. Basically the phrase "maxing retirement" means a different dollar amount for every family.
Last edited by miamivice on Wed Feb 06, 2019 4:07 pm, edited 1 time in total.
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GoldStar
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Re: Cost of college and 529

Post by GoldStar »

KlangFool wrote: Wed Feb 06, 2019 4:00 pm
stoptothink wrote: Wed Feb 06, 2019 3:11 pm
KlangFool wrote: Wed Feb 06, 2019 2:53 pm
bligh wrote: Wed Feb 06, 2019 2:43 pm
Put another way, if you are making enough such that you can cash flow college, you are probably making enough to save for college and therefore 529 plans make sense for you.
bligh,

That is not necessarily true. There is no need to save for college for that kind of person. So, why save for college education? The person could early retire with minimal official income. Then, the 529 could become a problem for financial aid.

529 makes sense for folks that earn at 300K and above. But, you do not need to earn at that level to cash flow college education. You only need 30K to 80K of saving per year.

KlangFool
Paying for college education for our children is literally at the bottom of our list of financial priorities, but this statement is painting with way too broad of a brush. We are far from $300k HHI, but 529s make a lot of sense for us (even though we don't even necessarily feel an obligation to help our kids with paying for college) because we are pretty easily able to max available tax-deferred retirement vehicles and we get a state deduction.
stoptothink,

There are 2 groups of people where 529 makes sense:

A) The group of people with HHI of 300K and above. For this group of people, their income is high enough that they could contribute to 529 without any impact to their saving for retirement.

B) Folks with good job security that they know their retirement will be fully funded 10 to 20 year ahead of time.

You could borrow for a college education. You could not borrow for retirement.

KlangFool
C) Anyone else who is maxing out or saving enough for their retirement goals that also has the goal of funding their children's education and wants to take advantage of 20+ Years of TAX-FREE Growth.

The problem with cash-flowing or saving in taxable is for most of us (I realize you have enough write-offs from your telecom stock failure) the tax savings of using 529s is huge. And you don't need to make 300K for it to be beneficial.
KlangFool
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Re: Cost of college and 529

Post by KlangFool »

Quirkz wrote: Wed Feb 06, 2019 3:56 pm The way I see it, I don't expect to be able to cashflow college or anything near that. I'll be able to cover some each year. If I want to contribute more, I've got to save up in advance. I'm not going to be able to cover everything, but I want to be able to help, so I put aside a little now. Given the choice between being fully taxable or being in a 529, the 529 offers some benefits, so I use it.

I do consider this secondary to my retirement, and if things got derailed I'd stop college savings first. My retirement isn't fully maxed, but it's at a level that works for me and my plans. I do not understand any of the suggestions that I might be able to use retirement accounts to pay for college. I'd be too young, and everything I understand about it says I'd pay a huge penalty. So the money has to go somewhere else, and again 529 seems like the normal choice.

The total amount is likely to be around $100k for two kids in a bit more than a decade. That's probably not enough to cover it, but it's a lot better than nothing.
Quirkz,

<< I'd be too young, and everything I understand about it says I'd pay a huge penalty. >>

You could withdraw Roth IRA's contribution at any time without tax penalty.

<<The total amount is likely to be around $100k for two kids in a bit more than a decade. >>

Between you and your spouse, you could contribute up to 2 X 6K per year. This is 12K per year. After 10 years, it is 120K. It is more than 100K that you want to spend on the college education.

And, there is no restriction on Roth IRA's contribution. You could even use it to store the emergency fund. Do you max up your Roth IRAs every year?

https://www.bogleheads.org/wiki/Roth_IR ... gency_fund

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KlangFool
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Re: Cost of college and 529

Post by KlangFool »

GoldStar wrote: Wed Feb 06, 2019 4:06 pm
KlangFool wrote: Wed Feb 06, 2019 4:00 pm
stoptothink wrote: Wed Feb 06, 2019 3:11 pm
KlangFool wrote: Wed Feb 06, 2019 2:53 pm
bligh wrote: Wed Feb 06, 2019 2:43 pm
Put another way, if you are making enough such that you can cash flow college, you are probably making enough to save for college and therefore 529 plans make sense for you.
bligh,

That is not necessarily true. There is no need to save for college for that kind of person. So, why save for college education? The person could early retire with minimal official income. Then, the 529 could become a problem for financial aid.

529 makes sense for folks that earn at 300K and above. But, you do not need to earn at that level to cash flow college education. You only need 30K to 80K of saving per year.

KlangFool
Paying for college education for our children is literally at the bottom of our list of financial priorities, but this statement is painting with way too broad of a brush. We are far from $300k HHI, but 529s make a lot of sense for us (even though we don't even necessarily feel an obligation to help our kids with paying for college) because we are pretty easily able to max available tax-deferred retirement vehicles and we get a state deduction.
stoptothink,

There are 2 groups of people where 529 makes sense:

A) The group of people with HHI of 300K and above. For this group of people, their income is high enough that they could contribute to 529 without any impact to their saving for retirement.

B) Folks with good job security that they know their retirement will be fully funded 10 to 20 year ahead of time.

You could borrow for a college education. You could not borrow for retirement.

KlangFool
C) Anyone else who is maxing out or saving enough for their retirement goals that also has the goal of funding their children's education and wants to take advantage of 20+ Years of TAX-FREE Growth.

The problem with cash-flowing or saving in taxable is for most of us (I realize you have enough write-offs from your telecom stock failure) the tax savings of using 529s is huge. And you don't need to make 300K for it to be beneficial.
GoldStar,

If I do not have the losses from the Telecom stock, I would be early retired at least 5 years before my kids go to college. Then, I would not have a big taxable account.

KlangFool
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GoldStar
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Re: Cost of college and 529

Post by GoldStar »

KlangFool wrote: Wed Feb 06, 2019 4:17 pm
GoldStar wrote: Wed Feb 06, 2019 4:06 pm
KlangFool wrote: Wed Feb 06, 2019 4:00 pm
stoptothink wrote: Wed Feb 06, 2019 3:11 pm
KlangFool wrote: Wed Feb 06, 2019 2:53 pm

bligh,

That is not necessarily true. There is no need to save for college for that kind of person. So, why save for college education? The person could early retire with minimal official income. Then, the 529 could become a problem for financial aid.

529 makes sense for folks that earn at 300K and above. But, you do not need to earn at that level to cash flow college education. You only need 30K to 80K of saving per year.

KlangFool
Paying for college education for our children is literally at the bottom of our list of financial priorities, but this statement is painting with way too broad of a brush. We are far from $300k HHI, but 529s make a lot of sense for us (even though we don't even necessarily feel an obligation to help our kids with paying for college) because we are pretty easily able to max available tax-deferred retirement vehicles and we get a state deduction.
stoptothink,

There are 2 groups of people where 529 makes sense:

A) The group of people with HHI of 300K and above. For this group of people, their income is high enough that they could contribute to 529 without any impact to their saving for retirement.

B) Folks with good job security that they know their retirement will be fully funded 10 to 20 year ahead of time.

You could borrow for a college education. You could not borrow for retirement.

KlangFool
C) Anyone else who is maxing out or saving enough for their retirement goals that also has the goal of funding their children's education and wants to take advantage of 20+ Years of TAX-FREE Growth.

The problem with cash-flowing or saving in taxable is for most of us (I realize you have enough write-offs from your telecom stock failure) the tax savings of using 529s is huge. And you don't need to make 300K for it to be beneficial.
GoldStar,

If I do not have the losses from the Telecom stock, I would be early retired at least 5 years before my kids go to college. Then, I would not have a big taxable account.

KlangFool
Okay - for most of us that isn't the case. My kids are going to college and I am not yet retired nor did I have a goal of early retirement superseding a goal of putting my kids through college. I think your disconnect with everyone you are debating here is a simple philosophical one:

Yours: Don't save money for college until you are FI. The risk of losing your job and needing the money outweighs the tax savings.
Nearly Everyone Else You are Debating With: I want to fund my kids college and save for it WHILE I am also saving for retirement. I know there might be some risk in having the money locked up but the huge tax savings is worth it for me. I don't want to retire early if I can't put my kids through college.

If I followed your 529 advise on this thread (and all the others you have been in) I would have never started saving in 529 plans and I would have now been paying thousands extra in taxes.
Last edited by GoldStar on Wed Feb 06, 2019 4:30 pm, edited 1 time in total.
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ICMoney
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Re: Cost of college and 529

Post by ICMoney »

Not sure if all states with tax benefits for 529s are this way, but my state requires investment in my state's 529 plan to get the tax deduction (I.e. can't use Utah or other favored 529 state plans). My state's 529 plan has vanguard funds, but also a 0.25 percent admin fee. So, the admin fee erodes a decent portion of the state tax benefit.
onourway
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Re: Cost of college and 529

Post by onourway »

Quirkz wrote: Wed Feb 06, 2019 3:56 pm The way I see it, I don't expect to be able to cashflow college or anything near that. I'll be able to cover some each year. If I want to contribute more, I've got to save up in advance. I'm not going to be able to cover everything, but I want to be able to help, so I put aside a little now. Given the choice between being fully taxable or being in a 529, the 529 offers some benefits, so I use it.

I do consider this secondary to my retirement, and if things got derailed I'd stop college savings first. My retirement isn't fully maxed, but it's at a level that works for me and my plans. I do not understand any of the suggestions that I might be able to use retirement accounts to pay for college. I'd be too young, and everything I understand about it says I'd pay a huge penalty. So the money has to go somewhere else, and again 529 seems like the normal choice.

The total amount is likely to be around $100k for two kids in a bit more than a decade. That's probably not enough to cover it, but it's a lot better than nothing.
You don't 'use' the money in your retirement accounts per se. You direct your savings to the areas where the tax advantages are largest with the most flexibility. Saving in pre-tax accounts early will grow your net worth faster which will allow you to re-direct those yearly contributions to college expenses later on, if necessary.

Between fully taxable and a 529 of course a 529 makes sense. Between pre-tax buckets and a 529, that's a harder sell.
KlangFool
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Re: Cost of college and 529

Post by KlangFool »

GoldStar wrote: Wed Feb 06, 2019 4:29 pm
Okay - for most of us that isn't the case. My kids are going to college and I am not yet retired nor did I have a goal of early retirement superseding a goal of putting my kids through college. I think your disconnect with everyone you are debating here is a simple philosophical one:

Yours: Don't save money for college until you are FI. The risk of losing your job and needing the money outweighs the tax savings.
Nearly Everyone Else You are Debating With: I want to fund my kids college and save for it WHILE I am also saving for retirement. I know there might be some risk in having the money locked up but the huge tax savings is worth it for me. I don't want to retire early if I can't put my kids through college.

If I followed your 529 advise on this thread (and all the others you have been in) I would have never started saving in 529 plans and I would have now been paying thousands extra in taxes.
GoldStar,

<<Yours: Don't save money for college until you are FI. The risk of losing your job and needing the money outweighs the tax savings.>>

<<I know there might be some risk in having the money locked up but the huge tax savings is worth it for me. I don't want to retire early if I can't put my kids through college.>>

My point is very simple. The person needs to have enough job security to ensure that he/she will not be forced into early retirement. Or else, it is not safe to fund 529.

Not all of us have that level of job security.

KlangFool
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vineviz
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Re: Cost of college and 529

Post by vineviz »

KlangFool wrote: Wed Feb 06, 2019 4:00 pm There are 2 groups of people where 529 makes sense:

A) The group of people with HHI of 300K and above. For this group of people, their income is high enough that they could contribute to 529 without any impact to their saving for retirement.

B) Folks with good job security that they know their retirement will be fully funded 10 to 20 year ahead of time.
There's a third group: people who prefer having more money over having less money.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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GoldStar
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Re: Cost of college and 529

Post by GoldStar »

KlangFool wrote: Wed Feb 06, 2019 4:42 pm
GoldStar wrote: Wed Feb 06, 2019 4:29 pm
Okay - for most of us that isn't the case. My kids are going to college and I am not yet retired nor did I have a goal of early retirement superseding a goal of putting my kids through college. I think your disconnect with everyone you are debating here is a simple philosophical one:

Yours: Don't save money for college until you are FI. The risk of losing your job and needing the money outweighs the tax savings.
Nearly Everyone Else You are Debating With: I want to fund my kids college and save for it WHILE I am also saving for retirement. I know there might be some risk in having the money locked up but the huge tax savings is worth it for me. I don't want to retire early if I can't put my kids through college.

If I followed your 529 advise on this thread (and all the others you have been in) I would have never started saving in 529 plans and I would have now been paying thousands extra in taxes.
GoldStar,

<<Yours: Don't save money for college until you are FI. The risk of losing your job and needing the money outweighs the tax savings.>>

<<I know there might be some risk in having the money locked up but the huge tax savings is worth it for me. I don't want to retire early if I can't put my kids through college.>>

My point is very simple. The person needs to have enough job security to ensure that he/she will not be forced into early retirement. Or else, it is not safe to fund 529.

Not all of us have that level of job security.

KlangFool
Thanks for confirming - I thought I nailed it.
I have never had complete job security but was willing to accept the risk in order to reap the reward.
When you fund money in a 529 its not like the money is completely gone. If I loss my job I could have taken from the 529 and accepted the 10% penalty on earnings - not that steep in my opinion; the trade-off being if I wasn't out of work for an extended period I could save thousands in taxes - which is what turns out to be the case for most.
KlangFool
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Re: Cost of college and 529

Post by KlangFool »

GoldStar wrote: Wed Feb 06, 2019 4:52 pm
KlangFool wrote: Wed Feb 06, 2019 4:42 pm
GoldStar wrote: Wed Feb 06, 2019 4:29 pm
Okay - for most of us that isn't the case. My kids are going to college and I am not yet retired nor did I have a goal of early retirement superseding a goal of putting my kids through college. I think your disconnect with everyone you are debating here is a simple philosophical one:

Yours: Don't save money for college until you are FI. The risk of losing your job and needing the money outweighs the tax savings.
Nearly Everyone Else You are Debating With: I want to fund my kids college and save for it WHILE I am also saving for retirement. I know there might be some risk in having the money locked up but the huge tax savings is worth it for me. I don't want to retire early if I can't put my kids through college.

If I followed your 529 advise on this thread (and all the others you have been in) I would have never started saving in 529 plans and I would have now been paying thousands extra in taxes.
GoldStar,

<<Yours: Don't save money for college until you are FI. The risk of losing your job and needing the money outweighs the tax savings.>>

<<I know there might be some risk in having the money locked up but the huge tax savings is worth it for me. I don't want to retire early if I can't put my kids through college.>>

My point is very simple. The person needs to have enough job security to ensure that he/she will not be forced into early retirement. Or else, it is not safe to fund 529.

Not all of us have that level of job security.

KlangFool
Thanks for confirming - I thought I nailed it.
I have never had complete job security but was willing to accept the risk in order to reap the reward.
When you fund money in a 529 its not like the money is completely gone. If I loss my job I could have taken from the 529 and accepted the 10% penalty on earnings - not that steep in my opinion; the trade-off being if I wasn't out of work for an extended period I could save thousands in taxes - which is what turns out to be the case for most.
GoldStar,

By the way, most people do not max up all their tax-advantaged accounts. So, the tradeoff is more commonly between the 401K and the 529. Or, the Roth IRA with the 529.

KlangFool
miamivice
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Re: Cost of college and 529

Post by miamivice »

KlangFool wrote: Wed Feb 06, 2019 4:58 pm
GoldStar wrote: Wed Feb 06, 2019 4:52 pm
KlangFool wrote: Wed Feb 06, 2019 4:42 pm
GoldStar wrote: Wed Feb 06, 2019 4:29 pm
Okay - for most of us that isn't the case. My kids are going to college and I am not yet retired nor did I have a goal of early retirement superseding a goal of putting my kids through college. I think your disconnect with everyone you are debating here is a simple philosophical one:

Yours: Don't save money for college until you are FI. The risk of losing your job and needing the money outweighs the tax savings.
Nearly Everyone Else You are Debating With: I want to fund my kids college and save for it WHILE I am also saving for retirement. I know there might be some risk in having the money locked up but the huge tax savings is worth it for me. I don't want to retire early if I can't put my kids through college.

If I followed your 529 advise on this thread (and all the others you have been in) I would have never started saving in 529 plans and I would have now been paying thousands extra in taxes.
GoldStar,

<<Yours: Don't save money for college until you are FI. The risk of losing your job and needing the money outweighs the tax savings.>>

<<I know there might be some risk in having the money locked up but the huge tax savings is worth it for me. I don't want to retire early if I can't put my kids through college.>>

My point is very simple. The person needs to have enough job security to ensure that he/she will not be forced into early retirement. Or else, it is not safe to fund 529.

Not all of us have that level of job security.

KlangFool
Thanks for confirming - I thought I nailed it.
I have never had complete job security but was willing to accept the risk in order to reap the reward.
When you fund money in a 529 its not like the money is completely gone. If I loss my job I could have taken from the 529 and accepted the 10% penalty on earnings - not that steep in my opinion; the trade-off being if I wasn't out of work for an extended period I could save thousands in taxes - which is what turns out to be the case for most.
GoldStar,

By the way, most people do not max up all their tax-advantaged accounts. So, the tradeoff is more commonly between the 401K and the 529. Or, the Roth IRA with the 529.

KlangFool

KlangFool,

The 529 is unique in that one can dump (generally) as much money as desired at one time, without (reasonable) limitation. The 401k requires paycheck deductions and one cannot make lump sum contributions. The Roth IRA is limited to 12k per year per person.

I think your comparison may be true for some (I have $1000 extra each month. Do I up my 401k or up my 529 contribution). For others, it is not true. For us, we made a single $35,000 lump sum contribution into a 529 each time my wife was pregnant and we were done with contributing.

For us, it was not a trade between a 401k/Roth IRA and a 529. We saved as much as we wanted in a 401k/Roth IRA, and made a single lump sum into the 529 without changing our retirement contribution schedule.
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vineviz
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Re: Cost of college and 529

Post by vineviz »

ICMoney wrote: Wed Feb 06, 2019 4:30 pm Not sure if all states with tax benefits for 529s are this way, but my state requires investment in my state's 529 plan to get the tax deduction (I.e. can't use Utah or other favored 529 state plans). My state's 529 plan has vanguard funds, but also a 0.25 percent admin fee. So, the admin fee erodes a decent portion of the state tax benefit.
529 rules allow one rollover every 12 months.

We contribute to our state’s 529 plan to get the deduction, then rollover the balance once a year into a plan with lower costs.

Not much hassle to get a deduction AND low fees.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
SchruteB&B
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Re: Cost of college and 529

Post by SchruteB&B »

vineviz wrote: Thu Feb 07, 2019 6:37 am
ICMoney wrote: Wed Feb 06, 2019 4:30 pm Not sure if all states with tax benefits for 529s are this way, but my state requires investment in my state's 529 plan to get the tax deduction (I.e. can't use Utah or other favored 529 state plans). My state's 529 plan has vanguard funds, but also a 0.25 percent admin fee. So, the admin fee erodes a decent portion of the state tax benefit.
529 rules allow one rollover every 12 months.

We contribute to our state’s 529 plan to get the deduction, then rollover the balance once a year into a plan with lower costs.

Not much hassle to get a deduction AND low fees.
Some states have a recapture provision if you do this.
Bacchus01
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Re: Cost of college and 529

Post by Bacchus01 »

KlangFool wrote: Wed Feb 06, 2019 4:58 pm
GoldStar wrote: Wed Feb 06, 2019 4:52 pm
KlangFool wrote: Wed Feb 06, 2019 4:42 pm
GoldStar wrote: Wed Feb 06, 2019 4:29 pm
Okay - for most of us that isn't the case. My kids are going to college and I am not yet retired nor did I have a goal of early retirement superseding a goal of putting my kids through college. I think your disconnect with everyone you are debating here is a simple philosophical one:

Yours: Don't save money for college until you are FI. The risk of losing your job and needing the money outweighs the tax savings.
Nearly Everyone Else You are Debating With: I want to fund my kids college and save for it WHILE I am also saving for retirement. I know there might be some risk in having the money locked up but the huge tax savings is worth it for me. I don't want to retire early if I can't put my kids through college.

If I followed your 529 advise on this thread (and all the others you have been in) I would have never started saving in 529 plans and I would have now been paying thousands extra in taxes.
GoldStar,

<<Yours: Don't save money for college until you are FI. The risk of losing your job and needing the money outweighs the tax savings.>>

<<I know there might be some risk in having the money locked up but the huge tax savings is worth it for me. I don't want to retire early if I can't put my kids through college.>>

My point is very simple. The person needs to have enough job security to ensure that he/she will not be forced into early retirement. Or else, it is not safe to fund 529.

Not all of us have that level of job security.

KlangFool
Thanks for confirming - I thought I nailed it.
I have never had complete job security but was willing to accept the risk in order to reap the reward.
When you fund money in a 529 its not like the money is completely gone. If I loss my job I could have taken from the 529 and accepted the 10% penalty on earnings - not that steep in my opinion; the trade-off being if I wasn't out of work for an extended period I could save thousands in taxes - which is what turns out to be the case for most.
GoldStar,

By the way, most people do not max up all their tax-advantaged accounts. So, the tradeoff is more commonly between the 401K and the 529. Or, the Roth IRA with the 529.

KlangFool
A 529 IS a tax advantaged account.
Bacchus01
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Re: Cost of college and 529

Post by Bacchus01 »

KlangFool wrote: Wed Feb 06, 2019 4:00 pm
stoptothink wrote: Wed Feb 06, 2019 3:11 pm
KlangFool wrote: Wed Feb 06, 2019 2:53 pm
bligh wrote: Wed Feb 06, 2019 2:43 pm
Put another way, if you are making enough such that you can cash flow college, you are probably making enough to save for college and therefore 529 plans make sense for you.
bligh,

That is not necessarily true. There is no need to save for college for that kind of person. So, why save for college education? The person could early retire with minimal official income. Then, the 529 could become a problem for financial aid.

529 makes sense for folks that earn at 300K and above. But, you do not need to earn at that level to cash flow college education. You only need 30K to 80K of saving per year.

KlangFool
Paying for college education for our children is literally at the bottom of our list of financial priorities, but this statement is painting with way too broad of a brush. We are far from $300k HHI, but 529s make a lot of sense for us (even though we don't even necessarily feel an obligation to help our kids with paying for college) because we are pretty easily able to max available tax-deferred retirement vehicles and we get a state deduction.
stoptothink,

There are 2 groups of people where 529 makes sense:

A) The group of people with HHI of 300K and above. For this group of people, their income is high enough that they could contribute to 529 without any impact to their saving for retirement.

B) Folks with good job security that they know their retirement will be fully funded 10 to 20 year ahead of time.

You could borrow for a college education. You could not borrow for retirement.

KlangFool
Of course you can borrow for retirement. People do it all the time.
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vineviz
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Re: Cost of college and 529

Post by vineviz »

SchruteB&B wrote: Thu Feb 07, 2019 7:29 am
vineviz wrote: Thu Feb 07, 2019 6:37 am
ICMoney wrote: Wed Feb 06, 2019 4:30 pm Not sure if all states with tax benefits for 529s are this way, but my state requires investment in my state's 529 plan to get the tax deduction (I.e. can't use Utah or other favored 529 state plans). My state's 529 plan has vanguard funds, but also a 0.25 percent admin fee. So, the admin fee erodes a decent portion of the state tax benefit.
529 rules allow one rollover every 12 months.

We contribute to our state’s 529 plan to get the deduction, then rollover the balance once a year into a plan with lower costs.

Not much hassle to get a deduction AND low fees.
Some states have a recapture provision if you do this.
This is true: about 20 states have provisions to recapture at least a portion of the tax deduction if the 529 is subsequently rolled over out-of-state.

It may or may not be a coincidence but the good news is that many of those states — including the most populous ones — have very low fee plans to begin with (e.g.Illinois, New Mexico, New York, Utah, Virginia, Wisconsin).

That said, there are handful of states with recapture provisions that also have criminally high fees (Arkansas, Idaho, and Montana come to mind). Residents of those states should do the math carefully.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Michael Patrick
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Re: Cost of college and 529

Post by Michael Patrick »

I'm I state employee, and prior to my very recent move up into a management position my take home pay was quite modest (and while it has improved, it still ain't any great shakes). When my older daughter was born, I took to heart the advice that you shouldn't short your retirement savings to save for college. I didn't make any grand calculations about what college would cost 18 years hence. I opened a 529 and contributed what I could after saving for my own retirement.

As I advanced in my career and my income grew I saved more for both retirement and her 529.

As of right now, there's around $60k in her 529. I'm putting in $500/month. My brother also opened a 529 for her in his state, and there's a few thousand there. We'll fund as much as we can with a combination of 529 funds and cash flow, but depending on where she winds up going and what kind of financial aid she can finagle she may need to take out loans.

She's a junior in high school, we are doing our first college visit on the 18th of this month. Please keep me in your thoughts and prayers. :shock:
livesoft
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Re: Cost of college and 529

Post by livesoft »

Good luck! But it seems that you all are well situated for state flagship university at least in Texas. You already have $60K which covers 3 years of college today plus you likely have $500 a month for the next 5 years which is another $30K. Plus, you may be eligible for the AOTC which is another $10K. If your daughter has jobs, then she is all set. In a pinch, your family's contributions to retirement plans can be diverted to college expenses, so I don't see any loans on the horizon.
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Michael Patrick
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Re: Cost of college and 529

Post by Michael Patrick »

Thanks. That's how I'm hoping it shakes out.
harvestbook
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Re: Cost of college and 529

Post by harvestbook »

We aimed for half of expected costs in a 529 and, one year in, looks like with scholarships and aid we will come out with a little left over for grad school if desired. Even with a relatively late start, we had 50 percent in tax-free growth.

I never looked at it as another bucket competing with all the other goals. It was just as important as retirement to me. And if plans change, plans change.
I'm not smart enough to know, and I can't afford to guess.
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Quirkz
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Re: Cost of college and 529

Post by Quirkz »

KlangFool wrote: Wed Feb 06, 2019 4:13 pm
Quirkz wrote: Wed Feb 06, 2019 3:56 pm I do not understand any of the suggestions that I might be able to use retirement accounts to pay for college.
Quirkz,

You could withdraw Roth IRA's contribution at any time without tax penalty.

KlangFool
I'm still trying to wrap my head around how this is equivalent. I'm being a little hand-wavy here, but I'm assuming about 50k in contributions and 50k in growth over 20 years to make that 100k available for the kids.

If I put the money in a Roth instead of a 529 ...

1. I lose the state tax deduction. 4.6% (I'm in Colorado) of 50k is $2,300 extra cash back from the state over 20 years. Barely worth mentioning.

2. Tax-free growth over 20 years is the same, of course.

3. When it comes time to withdraw, I can take out all contributions, but I can't take out the growth without penalty. This means I've only got $50k I can apply to the kids' school, and 50k locked in my retirement account for another decade. I don't really know what we'll need, but I think it's likely to be closer to $200k - $300k than $50k. This puts me really short for school costs in the 2030's, and a smidge better off for retirement in the 2040's.

Am I misunderstanding something about how this works?
KlangFool
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Re: Cost of college and 529

Post by KlangFool »

Quirkz wrote: Thu Feb 07, 2019 12:01 pm
KlangFool wrote: Wed Feb 06, 2019 4:13 pm
Quirkz wrote: Wed Feb 06, 2019 3:56 pm I do not understand any of the suggestions that I might be able to use retirement accounts to pay for college.
Quirkz,

You could withdraw Roth IRA's contribution at any time without tax penalty.

KlangFool
I'm still trying to wrap my head around how this is equivalent. I'm being a little hand-wavy here, but I'm assuming about 50k in contributions and 50k in growth over 20 years to make that 100k available for the kids.

If I put the money in a Roth instead of a 529 ...

1. I lose the state tax deduction. 4.6% (I'm in Colorado) of 50k is $2,300 extra cash back from the state over 20 years. Barely worth mentioning.

2. Tax-free growth over 20 years is the same, of course.

3. When it comes time to withdraw, I can take out all contributions, but I can't take out the growth without penalty. This means I've only got $50k I can apply to the kids' school, and 50k locked in my retirement account for another decade. I don't really know what we'll need, but I think it's likely to be closer to $200k - $300k than $50k. This puts me really short for school costs in the 2030's, and a smidge better off for retirement in the 2040's.

Am I misunderstanding something about how this works?
Quirkz,

A) You probably do not max up your 401K. So, the tradeoff is between 401K and Roth IRA versus 529. You save 20+% taxes for your contribution to Trad. 401K.

B) What is your marginal tax rate?

C) What is your annual saving?

<< This means I've only got $50k I can apply to the kids' school, and 50k locked in my retirement account for another decade. I don't really know what we'll need, but I think it's likely to be closer to $200k - $300k than $50k. >>

D) At your income and saving rate, you may not be able to pay 200K to 300K. So, it is a non-issue. That is the reality for many of us. We can only afford to pay X.

<< This means I've only got $50k I can apply to the kids' school, and 50k locked in my retirement account for another decade.>>

E) Then, you only need to use your annual savings of 12.5K per year across 4 years to make up the difference.

F) Having 50K to grow another decade is a very good thing.

G) In summary, you have 50K to grow for 10+ years. Then, another 50K to grow for another decade. Versus 529 of 10+ years growth and you are done.

Start your own topic if you want detailed analysis.

KlangFool
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Quirkz
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Re: Cost of college and 529

Post by Quirkz »

Thanks for the input, but I think I'll let it drop. At this point I'm pretty sure I'm not misunderstanding the financial aspects, I think we're just disagreeing on what the goal should be. I kind of feel like I'm saying, "I'm saving up for a car in three years" and you're saying "If you didn't save for the car and put it in retirement instead you'd be better off in 20 years" and while that's true, that doesn't meet my goal of having a car in 3 years. I'm okay that it's not 100% optimal from the 20-year view, in an attempt to make some preparations for the 10-year issue.

The 529 isn't doing a lot for me, but it seems to fit my actual plans better than the alternatives.

As an added perk: it's existence is also a handy thing to advertise to the grandparents, who are more than willing to throw occasional money toward the kids' college fund, but would not be inclined to contribute directly to my retirement fund.
stoptothink
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Re: Cost of college and 529

Post by stoptothink »

Quirkz wrote: Thu Feb 07, 2019 12:34 pm As an added perk: it's existence is also a handy thing to advertise to the grandparents, who are more than willing to throw occasional money toward the kids' college fund, but would not be inclined to contribute directly to my retirement fund.
I threw this out there when we opened 529s for our children. My statement was that I would prefer they contributed to this in lieu of buying ME gifts for birthdays and Christmas, and it really offended my parents and in-laws (mostly the latter) to the point where my wife asked me to apologize in person. People are weird.
miamivice
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Re: Cost of college and 529

Post by miamivice »

Quirkz wrote: Thu Feb 07, 2019 12:34 pm Thanks for the input, but I think I'll let it drop. At this point I'm pretty sure I'm not misunderstanding the financial aspects, I think we're just disagreeing on what the goal should be. I kind of feel like I'm saying, "I'm saving up for a car in three years" and you're saying "If you didn't save for the car and put it in retirement instead you'd be better off in 20 years" and while that's true, that doesn't meet my goal of having a car in 3 years. I'm okay that it's not 100% optimal from the 20-year view, in an attempt to make some preparations for the 10-year issue.
You are correct. KlangFool has a deep rooted dislike for the 529s.

As I have posted, for parents who want to save for college, there is no other vehicle that works as well. We wanted to save for our children's college, not cash flow, so any discussion about overstuffing retirement accounts to cash flow college doesn't make any sense.

Keep in mind that KlangFool often misstates the tax benefits of a 401k. He says you don't pay tax. That is incorrect. You pay ordinary income tax when you withdraw from a 401k. In fact, whether you pay tax today or pay tax in the future is a moot point unless you are banking on your marginal income tax rate to be lower in the future than today, which nobody knows. So, I consider KlangFool's comments about paying tax today versus tax free 401k to be a misrepresentation of how 401ks work.
The 529 isn't doing a lot for me, but it seems to fit my actual plans better than the alternatives.
The real advantage of the 529 account is not the tax savings. The real advantage is that you actually have college savings for your child. Few people actually save in a taxable, or actually withdraw Roth IRA contributions, to pay for college. If the 529 vehicle didn't exist, then a lot less people would have savings for college.

In our case, we have about $90,000 of tax free gains. It'll probably be more like $200,000 of tax free gains when our kids go to college. I will say that amount of tax free gains is nothing to sneeze at.
Last edited by miamivice on Thu Feb 07, 2019 1:39 pm, edited 1 time in total.
miamivice
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Re: Cost of college and 529

Post by miamivice »

KlangFool wrote: Thu Feb 07, 2019 12:14 pm
Quirkz wrote: Thu Feb 07, 2019 12:01 pm
KlangFool wrote: Wed Feb 06, 2019 4:13 pm
Quirkz wrote: Wed Feb 06, 2019 3:56 pm I do not understand any of the suggestions that I might be able to use retirement accounts to pay for college.
Quirkz,

You could withdraw Roth IRA's contribution at any time without tax penalty.

KlangFool
I'm still trying to wrap my head around how this is equivalent. I'm being a little hand-wavy here, but I'm assuming about 50k in contributions and 50k in growth over 20 years to make that 100k available for the kids.

If I put the money in a Roth instead of a 529 ...

1. I lose the state tax deduction. 4.6% (I'm in Colorado) of 50k is $2,300 extra cash back from the state over 20 years. Barely worth mentioning.

2. Tax-free growth over 20 years is the same, of course.

3. When it comes time to withdraw, I can take out all contributions, but I can't take out the growth without penalty. This means I've only got $50k I can apply to the kids' school, and 50k locked in my retirement account for another decade. I don't really know what we'll need, but I think it's likely to be closer to $200k - $300k than $50k. This puts me really short for school costs in the 2030's, and a smidge better off for retirement in the 2040's.

Am I misunderstanding something about how this works?
Quirkz,

A) You probably do not max up your 401K. So, the tradeoff is between 401K and Roth IRA versus 529. You save 20+% taxes for your contribution to Trad. 401K.

B) What is your marginal tax rate?

C) What is your annual saving?

<< This means I've only got $50k I can apply to the kids' school, and 50k locked in my retirement account for another decade. I don't really know what we'll need, but I think it's likely to be closer to $200k - $300k than $50k. >>

D) At your income and saving rate, you may not be able to pay 200K to 300K. So, it is a non-issue. That is the reality for many of us. We can only afford to pay X.

<< This means I've only got $50k I can apply to the kids' school, and 50k locked in my retirement account for another decade.>>

E) Then, you only need to use your annual savings of 12.5K per year across 4 years to make up the difference.

F) Having 50K to grow another decade is a very good thing.

G) In summary, you have 50K to grow for 10+ years. Then, another 50K to grow for another decade. Versus 529 of 10+ years growth and you are done.

Start your own topic if you want detailed analysis.

KlangFool
The options (A) through (G) that KlangFool present above don't make any sense from a financial standpoint to be most tax efficient. For same, (E) says to draw from a taxable account. It makes the best financial sense to withdraw from a tax-advantage college savings account (a 529) as opposed to a taxable account.
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Michael Patrick
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Re: Cost of college and 529

Post by Michael Patrick »

In Wisconsin, the max you can deduct for contributions is $3200 married filing jointly.

However, excess contributions over the $3200 can be carried forward indefinitely. Since I'm contributing around $6000/year, those excess contributions will still be providing a tax benefit to me for years after my daughter has graduated and I've stopped making contributions.
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Re: Cost of college and 529

Post by KlangFool »

Quirkz wrote: Thu Feb 07, 2019 12:34 pm Thanks for the input, but I think I'll let it drop. At this point I'm pretty sure I'm not misunderstanding the financial aspects, I think we're just disagreeing on what the goal should be. I kind of feel like I'm saying, "I'm saving up for a car in three years" and you're saying "If you didn't save for the car and put it in retirement instead you'd be better off in 20 years" and while that's true, that doesn't meet my goal of having a car in 3 years. I'm okay that it's not 100% optimal from the 20-year view, in an attempt to make some preparations for the 10-year issue.

The 529 isn't doing a lot for me, but it seems to fit my actual plans better than the alternatives.

As an added perk: it's existence is also a handy thing to advertise to the grandparents, who are more than willing to throw occasional money toward the kids' college fund, but would not be inclined to contribute directly to my retirement fund.
Quirkz,

If you are interested, check out this thread.

viewtopic.php?t=87471
<<How to pay ZERO taxes in retirement with 6-figure expenses>>

KlangFool
miamivice
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Re: Cost of college and 529

Post by miamivice »

KlangFool wrote: Thu Feb 07, 2019 2:52 pm
Quirkz wrote: Thu Feb 07, 2019 12:34 pm Thanks for the input, but I think I'll let it drop. At this point I'm pretty sure I'm not misunderstanding the financial aspects, I think we're just disagreeing on what the goal should be. I kind of feel like I'm saying, "I'm saving up for a car in three years" and you're saying "If you didn't save for the car and put it in retirement instead you'd be better off in 20 years" and while that's true, that doesn't meet my goal of having a car in 3 years. I'm okay that it's not 100% optimal from the 20-year view, in an attempt to make some preparations for the 10-year issue.

The 529 isn't doing a lot for me, but it seems to fit my actual plans better than the alternatives.

As an added perk: it's existence is also a handy thing to advertise to the grandparents, who are more than willing to throw occasional money toward the kids' college fund, but would not be inclined to contribute directly to my retirement fund.
Quirkz,

If you are interested, check out this thread.

viewtopic.php?t=87471
<<How to pay ZERO taxes in retirement with 6-figure expenses>>

KlangFool
I knew that was coming next. KlangFool saying that a person doens't pay taxes in retirement.

First of all, that thread doesn't explain how to pay zero taxes with a 6 figure expenses. I've read through it a couple times. It's more a guessing game by Livesoft than actual information.

Second, while that might work for one poster for a couple years, on average, retirees pay income taxes. There is no avoiding it.

Third, someone who has young chldren and wants to save for their college has no idea what their marginal income tax rate might be in retirement. Tax laws change. Their income changes. Their assets change. You cannot predict marginal tax rates 20 or 30 years in the future.

In my opinion, the argument that one will pay very little income tax from a 401k in retirement is a false argument, as it is not true for the vast majority of retirees today.
Leemiller
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Re: Cost of college and 529

Post by Leemiller »

Silas wrote: Tue Feb 05, 2019 12:07 pm [...]
I told my kids that they will learn three things when they go to university: business (which would include finance), information technology, and foreign language. I'm not paying for useless majors, worthless degrees, etc. they will attend community college for two years and then go to a four-year school, and they will do work-study. I told them they can go anywhere they want for those last two years, including overseas.
[...]
If I was stuck learning those three subjects, I would not have graduated. Instead, I was a humanities major and am now a successful attorney at a large corporation.
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UpsetRaptor
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Re: Cost of college and 529

Post by UpsetRaptor »

miamivice wrote: Thu Feb 07, 2019 4:07 pm
KlangFool wrote: Thu Feb 07, 2019 2:52 pm
Quirkz wrote: Thu Feb 07, 2019 12:34 pm Thanks for the input, but I think I'll let it drop. At this point I'm pretty sure I'm not misunderstanding the financial aspects, I think we're just disagreeing on what the goal should be. I kind of feel like I'm saying, "I'm saving up for a car in three years" and you're saying "If you didn't save for the car and put it in retirement instead you'd be better off in 20 years" and while that's true, that doesn't meet my goal of having a car in 3 years. I'm okay that it's not 100% optimal from the 20-year view, in an attempt to make some preparations for the 10-year issue.

The 529 isn't doing a lot for me, but it seems to fit my actual plans better than the alternatives.

As an added perk: it's existence is also a handy thing to advertise to the grandparents, who are more than willing to throw occasional money toward the kids' college fund, but would not be inclined to contribute directly to my retirement fund.
Quirkz,

If you are interested, check out this thread.

viewtopic.php?t=87471
<<How to pay ZERO taxes in retirement with 6-figure expenses>>

KlangFool
I knew that was coming next. KlangFool saying that a person doens't pay taxes in retirement.

First of all, that thread doesn't explain how to pay zero taxes with a 6 figure expenses. I've read through it a couple times. It's more a guessing game by Livesoft than actual information.

Second, while that might work for one poster for a couple years, on average, retirees pay income taxes. There is no avoiding it.

Third, someone who has young chldren and wants to save for their college has no idea what their marginal income tax rate might be in retirement. Tax laws change. Their income changes. Their assets change. You cannot predict marginal tax rates 20 or 30 years in the future.

In my opinion, the argument that one will pay very little income tax from a 401k in retirement is a false argument, as it is not true for the vast majority of retirees today.
It's also worth noting that in that quoted thread, a 529 was actually used to pay for much of college for 2 kids, and that was an important component of the tax efficiency posted.
chipperd
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Re: Cost of college and 529

Post by chipperd »

It's interesting how some parents will only bankroll certain majors while other's take a more hands off approach. As one who is in education, the pendulum seems to swing from specific majors being thought of as the only way to obtain a high paying job, to now, the pendulum starting to swing back with employers looking for those who are more broadly educated in the liberal arts and taught how to think, rather than taught a specific skill set. Personally, the wife and I are paying for a vast majority of each of our kids' educations (we pay 90% they pay 10% of all costs) and allowing them to run their own lives and deal with the consequences, good and bad, of their own decisions with regards to picking a school and a major. Pros and cons to both I'm sure. Time will tell how that works out.
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MrxBuff
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Re: Cost of college and 529

Post by MrxBuff »

stoptothink wrote: Thu Jan 31, 2019 10:44 am The current all-in (tuition+books+fees+estimated living) cost of the two universities within biking distance of my front-door is ~$12.5kyr, with half of that being room & board. We are currently maxing the state deduction amount for both of them ($3920 per year), but we'll probably stop in a few years (they are currently 6 and 3). If my children are insistent on not taking advantage of the very economical (and pretty good) education options in their own backyard, then I wish them the best of luck in figuring out how to cover the rest.
Amen. We have two sons and each gets a 100k budget for college. Public state schools were good enough for mom and dad, they are good enough for the kids.
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TomatoTomahto
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Re: Cost of college and 529

Post by TomatoTomahto »

MrxBuff wrote: Fri Feb 08, 2019 5:51 am Public state schools were good enough for mom and dad, they are good enough for the kids.
I can understand having a budget for college. What I don’t understand is the quoted statement.

My father never went to college. I went to a moderately good college. My kid went to an Ivy. If he has kids, I hope they go to whatever the progression calls for.

I’m glad my dad never said that what was good enough for him would be good enough for me.
I get the FI part but not the RE part of FIRE.
Bacchus01
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Re: Cost of college and 529

Post by Bacchus01 »

chipperd wrote: Fri Feb 08, 2019 4:46 am It's interesting how some parents will only bankroll certain majors while other's take a more hands off approach. As one who is in education, the pendulum seems to swing from specific majors being thought of as the only way to obtain a high paying job, to now, the pendulum starting to swing back with employers looking for those who are more broadly educated in the liberal arts and taught how to think, rather than taught a specific skill set. Personally, the wife and I are paying for a vast majority of each of our kids' educations (we pay 90% they pay 10% of all costs) and allowing them to run their own lives and deal with the consequences, good and bad, of their own decisions with regards to picking a school and a major. Pros and cons to both I'm sure. Time will tell how that works out.
I don’t know which employers you are talking about. If you mean FANG, sure, they are experimenting with diversity of degrees. For the vast, vast majority of others, a history degree isn’t getting hired. Using tech as a barometer for the rest of the job market is a mistake.

At 18, with no experience and guidance to draw from, I would suspect kids might make some bad choices. I’d prefer they not take my $100K gift and make bad choices.
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Vulcan
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Re: Cost of college and 529

Post by Vulcan »

Maximizing retirement accounts and accelerating mortgage (and other debt) payments has one very important benefit over taxable and 529 savings: it shelters assets from financial aid calculations.

Stanford becomes latest institution to drop the value of family homes when calculating ability of a student to pay

And paying off the mortgage completely frees up extra cash flow that can be used towards college, thus hopefully allowing to continue maximum possible retirement contributions during kids' college years.

We have some funds in 529s, but stopped contributing a while back. Sent in the mortgage payoff payment today though:)
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Vulcan
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Re: Cost of college and 529

Post by Vulcan »

onourway wrote: Wed Feb 06, 2019 3:13 pm If one has lost their high income job when it comes to pay for college, but all those college savings have instead gone to Roth IRA accounts, the money has still been 'saved' to pay for college
Better yet, that money will be sheltered from finaid calculations, and they may qualify for more aid.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
A440
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Re: Cost of college and 529

Post by A440 »

What type of aid would having a 529 affect? Merit, loans, work-study? In other words, if my student qualifies for a loan without a 529, it will need to be paid back. If they don't need a loan because of the 529 (or other funding mentioned here) why should I worry about having a 529?
Sorry for my ignorance, I'm not at the paying for college step yet and still learning about it. From what I've heard from friends who have reached the paying for college step, if you have a job (or two), a house, are married, and have any savings, you don't get much aid anyhow.
Thanks for the advice from those who have been through this process.
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letsgobobby
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Re: Cost of college and 529

Post by letsgobobby »

Vulcan wrote: Fri Feb 08, 2019 8:08 am Maximizing retirement accounts and accelerating mortgage (and other debt) payments has one very important benefit over taxable and 529 savings: it shelters assets from financial aid calculations.

Stanford becomes latest institution to drop the value of family homes when calculating ability of a student to pay

And paying off the mortgage completely frees up extra cash flow that can be used towards college, thus hopefully allowing to continue maximum possible retirement contributions during kids' college years.

We have some funds in 529s, but stopped contributing a while back. Sent in the mortgage payoff payment today though:)
The people in this thread taking about substantial 529 investments aren't qualifying for financial aid regardless. Even from Stanford. But you're right that for others, there are some ways to game FAFSA or the profile.

Congratulations on paying off your home! That's a great accomplishment.
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Vulcan
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Re: Cost of college and 529

Post by Vulcan »

A440 wrote: Fri Feb 08, 2019 9:37 am What type of aid would having a 529 affect? Merit, loans, work-study? In other words, if my student qualifies for a loan without a 529, it will need to be paid back. If they don't need a loan because of the 529 (or other funding mentioned here) why should I worry about having a 529?
Sorry for my ignorance, I'm not at the paying for college step yet and still learning about it. From what I've heard from friends who have reached the paying for college step, if you have a job (or two), a house, are married, and have any savings, you don't get much aid anyhow.
Thanks for the advice from those who have been through this process.
I am talking about need-based aid. Merit scholarships don't depend on assets, but they range from extremely unlikely to virtually impossible to get at the schools that are an academic match for the student. Nobody gets merit aid at top schools, because everybody there is meritorious. There exists a small number of large outside scholarships that can be used at any school, but the numbers awarded are disappearingly small. For example, Cameron Impact Scholarship is awarded to 10-15 seniors a year in the entire country. Last year, two of them where from our elder's high school - but we are not counting on this to happen again:)

Need-based aid at the most generous private schools begins to peter out towards 200K in annual income. However, even at that level of income having 100K in taxable/529 vs putting it towards the mortgage can mean $5K annual difference in financial aid.

If you make enough to not qualify for aid, you should be able to cashflow most of the college costs even at expensive privates, not to mention your in-state flagship.

But what happens if your income is reduced during kids' college years? You would be basically leaving finaid money on the table at that point by not sheltering assets in retirement accounts/house.

I do not believe saving in taxable/529 is a prudent move for pre-college kids' parents until maximizing retirement/HSA accounts annually is achieved and mortgage is paid off.

In fact, in some perverted sense it may be worthwhile moving into a more expensive house rather than saving extra in taxable/529 - but we are not going this route:)
Last edited by Vulcan on Fri Feb 08, 2019 10:19 am, edited 2 times in total.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
stoptothink
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Re: Cost of college and 529

Post by stoptothink »

TomatoTomahto wrote: Fri Feb 08, 2019 5:56 am
MrxBuff wrote: Fri Feb 08, 2019 5:51 am Public state schools were good enough for mom and dad, they are good enough for the kids.
I can understand having a budget for college. What I don’t understand is the quoted statement.

My father never went to college. I went to a moderately good college. My kid went to an Ivy. If he has kids, I hope they go to whatever the progression calls for.

I’m glad my dad never said that what was good enough for him would be good enough for me.
It is somewhat of an awkward statement, but it doesn't make the fact that it is really difficult to objectively measure the benefits of a more prestigious (usually, directly correlating with expensive) university on an individual. Most of the current investigation into the ROI of paying more for university education is not on your side. You are in a very fortunate position where the cost of education for your children is a rounding error, that isn't the case for 95%+ of the households in this country.
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Vulcan
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Re: Cost of college and 529

Post by Vulcan »

letsgobobby wrote: Fri Feb 08, 2019 9:50 am
Vulcan wrote: Fri Feb 08, 2019 8:08 am Maximizing retirement accounts and accelerating mortgage (and other debt) payments has one very important benefit over taxable and 529 savings: it shelters assets from financial aid calculations.

Stanford becomes latest institution to drop the value of family homes when calculating ability of a student to pay

And paying off the mortgage completely frees up extra cash flow that can be used towards college, thus hopefully allowing to continue maximum possible retirement contributions during kids' college years.

We have some funds in 529s, but stopped contributing a while back. Sent in the mortgage payoff payment today though:)
The people in this thread taking about substantial 529 investments aren't qualifying for financial aid regardless. Even from Stanford. But you're right that for others, there are some ways to game FAFSA or the profile.
The point is that if you have to sacrifice maxing out retirement contributions or paying off mortgage, then 529 is not the appropriate bucket for the next dollar.
Congratulations on paying off your home! That's a great accomplishment.
Thanks! I can't say I feel any different than I did yesterday:) We refinanced at a great rate in 2012 (3.0% 15 yr fixed), so it was good debt, but upon careful consideration of upcoming college landscape for our high school junior I concluded that it makes sense to take that gamble in case he wins the admission lottery at one of the schools that would make a compelling case for not taking the merit money elsewhere.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
NotWhoYouThink
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Re: Cost of college and 529

Post by NotWhoYouThink »

Betting on getting need-based financial aid from colleges a decade or more before you know what kind of applicant your kid will be is foolish. Financial aid is only readily available from the very best schools, which means your student needs to be not a run-of-the mill well-rounded bright kid in the to 5 of class rank and varsity athlete, but very much better than that. Those kids are out there, you might have one, you might even have 2, but you are statistically more likely to have a drop out or drug addict. Most kids are somewhere in between.

Saving in a 529 is a great way to reduce your need for financial aid. I'm not talking about federal formulas or university formulas, but about your actual need to get aid to pay for your kid's college. If you can pay for it yourself from a 529 your need for aid is less by definition.

If you want to twist your financial planning into a pretzel to qualify for need based aid on the off-chance your kid qualifies for admission to a well endowed university, have at it. For our family having a 529 was helpful.
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