Do you think we can stop funding our 529 plan?

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biscuit
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Do you think we can stop funding our 529 plan?

Post by biscuit » Wed May 22, 2019 10:17 am

I have a 5 yo and 2 yo and investing on Utah 529 plan as my state doesn't offer any tax benefits. 5yo 529 account has $25K while the 2 yo 529 account has $17K.

Considering that they still have more than a decade to go to college, do you think we can stop funding the 529 plan and would still have enough returns for their college expenses by the time they're ready? I understand no one knows how the market would perform in the next decade. What would you do if you were in my situation? We don't want to overfund it as we don't have any immediate family in the country to pass along.

Currently, we are funding $500/month for each account.

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fortfun
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Re: Do you think we can stop funding our 529 plan?

Post by fortfun » Wed May 22, 2019 10:21 am

biscuit wrote:
Wed May 22, 2019 10:17 am
I have a 5 yo and 2 yo and investing on Utah 529 plan as my state doesn't offer any tax benefits. 5yo 529 account has $25K while the 2 yo 529 account has $17K.

Considering that they still have more than a decade to go to college, do you think we can stop funding the 529 plan and would still have enough returns for their college expenses by the time they're ready? I understand no one knows how the market would perform in the next decade. What would you do if you were in my situation? We don't want to overfund it as we don't have any immediate family in the country to pass along.

Currently, we are funding $500/month for each account.
How does your retirement look? If it is not fully funded, I would postpone new 529 contributions.

cshell2
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Re: Do you think we can stop funding our 529 plan?

Post by cshell2 » Wed May 22, 2019 10:23 am

That depends how much you're planning on funding college. I don't see 25K growing enough to cover 4 years tuition and R&B in 13 years unless it's in something really aggressive and risky.

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biscuit
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Re: Do you think we can stop funding our 529 plan?

Post by biscuit » Wed May 22, 2019 10:28 am

fortfun wrote:
Wed May 22, 2019 10:21 am
biscuit wrote:
Wed May 22, 2019 10:17 am
I have a 5 yo and 2 yo and investing on Utah 529 plan as my state doesn't offer any tax benefits. 5yo 529 account has $25K while the 2 yo 529 account has $17K.

Considering that they still have more than a decade to go to college, do you think we can stop funding the 529 plan and would still have enough returns for their college expenses by the time they're ready? I understand no one knows how the market would perform in the next decade. What would you do if you were in my situation? We don't want to overfund it as we don't have any immediate family in the country to pass along.

Currently, we are funding $500/month for each account.
How does your retirement look? If it is not fully funded, I would postpone new 529 contributions.
We are saving over 50% of the income and I guess we will be fine? We'd like to fund 100% of our kids' undergrad.

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biscuit
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Re: Do you think we can stop funding our 529 plan?

Post by biscuit » Wed May 22, 2019 10:29 am

cshell2 wrote:
Wed May 22, 2019 10:23 am
That depends how much you're planning on funding college. I don't see 25K growing enough to cover 4 years tuition and R&B in 13 years unless it's in something really aggressive and risky.
Thank you. that's what I thought. At the same time, I wanted to make sure I don't overfund it.

daheld
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Re: Do you think we can stop funding our 529 plan?

Post by daheld » Wed May 22, 2019 10:30 am

Nobody can answer this for you.

What do you expect to pay for college starting 13 and 16 years from now? How much do you have now? How much do you expect that to grow?

Enter those numbers here and see for yourself. https://vanguard.wealthmsi.com/csp.php

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fortfun
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Re: Do you think we can stop funding our 529 plan?

Post by fortfun » Wed May 22, 2019 10:36 am

biscuit wrote:
Wed May 22, 2019 10:28 am
fortfun wrote:
Wed May 22, 2019 10:21 am
biscuit wrote:
Wed May 22, 2019 10:17 am
I have a 5 yo and 2 yo and investing on Utah 529 plan as my state doesn't offer any tax benefits. 5yo 529 account has $25K while the 2 yo 529 account has $17K.

Considering that they still have more than a decade to go to college, do you think we can stop funding the 529 plan and would still have enough returns for their college expenses by the time they're ready? I understand no one knows how the market would perform in the next decade. What would you do if you were in my situation? We don't want to overfund it as we don't have any immediate family in the country to pass along.

Currently, we are funding $500/month for each account.
How does your retirement look? If it is not fully funded, I would postpone new 529 contributions.
We are saving over 50% of the income and I guess we will be fine? We'd like to fund 100% of our kids' undergrad.
I'd post your entire situation. This way, you'll get the most accurate information. Are you maxing out all other pre-tax, etc?

kmurp
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Re: Do you think we can stop funding our 529 plan?

Post by kmurp » Wed May 22, 2019 10:38 am

Try this calculator: https://www.dinkytown.net/java/future-v ... lator.html
Plug in your stating balance, an expected return MINUS the expected rate of college inflation and an end date. When I did this, it doesn’t look like you have enough.

WhiteMaxima
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Re: Do you think we can stop funding our 529 plan?

Post by WhiteMaxima » Wed May 22, 2019 10:53 am

Fund your retirement 1st. It will have more time to grow. Then 529, college inflation in slight above general inflation. You would target 100K for each kid at today's dollar (4 year college 25k per year).

Hydromod
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Re: Do you think we can stop funding our 529 plan?

Post by Hydromod » Wed May 22, 2019 11:24 am

Personally I would favor using the 529 to fund up to the lower end of your likely cost range, and use a separate taxable account to make up the difference. That way any extra in the taxable can be repurposed.

Also, make sure that you know whether the 529 can be used for room and board. Some don't allow this, as I found out to my chagrin.

cshell2
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Re: Do you think we can stop funding our 529 plan?

Post by cshell2 » Wed May 22, 2019 11:27 am

Hydromod wrote:
Wed May 22, 2019 11:24 am
Also, make sure that you know whether the 529 can be used for room and board. Some don't allow this, as I found out to my chagrin.
I've never heard of this before. We're you using a prepaid 529 plan that just covered tuition as opposed to a 529 savings account?

markcoop
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Re: Do you think we can stop funding our 529 plan?

Post by markcoop » Wed May 22, 2019 11:42 am

Hydromod wrote:
Wed May 22, 2019 11:24 am
Also, make sure that you know whether the 529 can be used for room and board. Some don't allow this, as I found out to my chagrin.
Please explain. It's not up to the 529 plan to decide whether you withdrew the money for a qualified expense including room and board.
Mark

Hydromod
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Re: Do you think we can stop funding our 529 plan?

Post by Hydromod » Wed May 22, 2019 2:24 pm

This is the Texas Promise Fund. You buy tuition credits that are indexed to the most expensive public university program in Texas (a nursing program, if I recall correctly).

I didn't set up the plan, my ex did. We ended up funding 100% tuition, then realized that all other public programs are cheaper and we couldn't use the funds for other expenses. Private universities take the funds as well. The one we selected has tuition higher than the index, so we didn't lose out.

We transferred the second child's funds to another 529 (losing some growth in the process) to avoid having leftovers.

markcoop
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Re: Do you think we can stop funding our 529 plan?

Post by markcoop » Wed May 22, 2019 2:47 pm

Hydromod wrote:
Wed May 22, 2019 2:24 pm
This is the Texas Promise Fund. You buy tuition credits that are indexed to the most expensive public university program in Texas (a nursing program, if I recall correctly).

I didn't set up the plan, my ex did. We ended up funding 100% tuition, then realized that all other public programs are cheaper and we couldn't use the funds for other expenses. Private universities take the funds as well. The one we selected has tuition higher than the index, so we didn't lose out.

We transferred the second child's funds to another 529 (losing some growth in the process) to avoid having leftovers.
I think cshell2 called it right. That's a prepaid plan which works a little different than a 529 plan. As far as I know, any 529 plan can be used for room and board (there are limits as to how much you can spend - see COA for a particular school).

Edit: Of course, even of you go past the limit for a school's COA, you can still use 529 funds for room and board. The portion over the COA limit will just be an unqualified withdrawal (need to pay taxes and penalty).
Last edited by markcoop on Wed May 22, 2019 2:54 pm, edited 1 time in total.
Mark

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Re: Do you think we can stop funding our 529 plan?

Post by DaftInvestor » Wed May 22, 2019 2:48 pm

Look at 4-year in-state Tuition + Room/Board (unless colleges are within commute distance). Then fund to that amount - or if really concerned about overfunding - fund to 70% of that amount. I one child doesn't use it all there is a chance the other child might be able to use it for a Masters/Grad-level degree (which are becoming more and more common).
No clue what is meant by the person above saying they might not be used for Room&Board. The rules for a 529 savings plan clearly allow Room and Board (guessing the person doing the post was in some special pre-pay plan or something and not a true 529).

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UpsetRaptor
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Re: Do you think we can stop funding our 529 plan?

Post by UpsetRaptor » Wed May 22, 2019 2:56 pm

No, you can't stop funding yet if you're targeting paying for 4 years of undergrad. Let's say you're on an age-graded plan that shifts more towards fixed income as child ages, and your 5-yr-old's $25K hypothetically doubles in 12 years to ~$50K. That's likely to only cover 1-2 years of future college costs.

wilked
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Re: Do you think we can stop funding our 529 plan?

Post by wilked » Wed May 22, 2019 3:12 pm

By my estimation, you should keep up the $500 until they are in college, and you'll be able to cover most of the costs.

I would reevaluate every year of course

WhiteMaxima
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Re: Do you think we can stop funding our 529 plan?

Post by WhiteMaxima » Wed May 22, 2019 3:13 pm

If your state has tax incentive, you should take that into account. or you can do a Mega Roth (discussed in this forum before) if you think your kids not going to college.

MichCPA
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Re: Do you think we can stop funding our 529 plan?

Post by MichCPA » Wed May 22, 2019 3:27 pm

biscuit wrote:
Wed May 22, 2019 10:29 am
cshell2 wrote:
Wed May 22, 2019 10:23 am
That depends how much you're planning on funding college. I don't see 25K growing enough to cover 4 years tuition and R&B in 13 years unless it's in something really aggressive and risky.
Thank you. that's what I thought. At the same time, I wanted to make sure I don't overfund it.
Since you have 2 kids which are 3 years apart you can move amounts between these two accounts as need arises. For example if kid 1 graduates early or gets scholarships you can move a remainder to kid 2 (scholarships actually allow for penalty free withdrawal). My parents did this and made gifts to the kids who didn't use up 529 funding. (I was kid 1, for the record). Also, the money my parents moved down to kid 3 is being used right now to get my sister in law a grad degree. The more people that get involved actually allows you to be more flexible and not oversave.

One thing to keep an eye on is that the bi-partisan (unanimous committee approval) SECURE Act as proposed right now would allow a 529 to be used to pay student loans of a potential spouse (only if you choose :twisted: ).

Mods: you can delete the last paragraph if it runs afoul of the rules. I was hoping to give a heads up rather than start a discussion on policy.

TN_INVEST
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Re: Do you think we can stop funding our 529 plan?

Post by TN_INVEST » Thu May 23, 2019 6:16 am

I would slow down the contributions to the 529s (drop it to $100-$200)...and put the difference ($400-$300) into a separate investment account.

If you don't trade much, you wont owe many taxes, and the added flexibility of that account will be nice.

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Re: Do you think we can stop funding our 529 plan?

Post by kramer » Thu May 23, 2019 6:20 am

Also, something to consider is letting the children pay part of their own tuition and expenses so they have some skin in the game.

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Re: Do you think we can stop funding our 529 plan?

Post by Grt2bOutdoors » Thu May 23, 2019 6:37 am

kramer wrote:
Thu May 23, 2019 6:20 am
Also, something to consider is letting the children pay part of their own tuition and expenses so they have some skin in the game.
What part of “we’d like to fund 100% of the cost” did you not understand? What is with this pre-occupation of having kids be burdened with debt on this forum? Kids have plenty vested in what you view as a “game”.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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kramer
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Re: Do you think we can stop funding our 529 plan?

Post by kramer » Thu May 23, 2019 7:29 am

Grt2bOutdoors wrote:
Thu May 23, 2019 6:37 am
kramer wrote:
Thu May 23, 2019 6:20 am
Also, something to consider is letting the children pay part of their own tuition and expenses so they have some skin in the game.
What part of “we’d like to fund 100% of the cost” did you not understand? What is with this pre-occupation of having kids be burdened with debt on this forum? Kids have plenty vested in what you view as a “game”.
I didn't intend to offend anyone. Sorry, I didn't see that quote in the OP's follow up post.

I do disagree with you about skin in the game, I hope that's OK, as you seem very strident in your opinion. Having skin in the game with respect to my college finances changed me as a person for the better. I know people can disagree about this issue.

By the way, saying skin in the game, doesn't imply life or college is a game, as your post implies. It is well known refrain applied to many situations.

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Re: Do you think we can stop funding our 529 plan?

Post by Jack FFR1846 » Thu May 23, 2019 7:37 am

You'd want to answer some questions about the future. Do you think college tuition will rise faster than inflation? I do. So you can look at what's currently in each 529 plan and figure out how much that will pay for in college costs right now for a target college. In my state, that $25k, on campus won't cover a single year for state university. It would cover about a year and a half for a commuter (ignoring all commuting, housing, food costs).

I do agree to fund retirement accounts first. If you happen to retire around college times, there's a chance that you might get student aid. Yah, I know that means overpriced Stafford loans with a front end load, then if lucky, some work study and at a public institution $0 in grants. But if you could have zero income and zero accountable assets (bank accounts, taxable brokerage) by putting all the money into paying all your loans and mortgage and of course filling up your retirement accounts, well, that's the game. Appear to be below the poverty line.

If you'll still be working while they're in college, I'd still favor filling retirement. Perhaps some in savings bonds. For the amounts due to the college, you'll have to find them somewhere.
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billfromct
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Re: Do you think we can stop funding our 529 plan?

Post by billfromct » Thu May 23, 2019 7:38 am

Don't forget the Federal American Opportunity Tax Credit (AOTC).

This allows a tax credit of 100% of the first $2,000 & a 25% tax credit of the next $2,000 of paid tuition & required fees for a potential $2,500 total tax credit per tax year per enrolled student. The ability to take the AOTC starts to phase out when your modified adjusted gross income hits $160,000 if married filing jointly.

You want to plan your 529 funding so you don't over fund the 529. The tuition & required fees must be paid with non 529 funds to be eligible for the AOTC.

You have a long time before you will need to pay college expenses, but this is something to be aware of. I believe the AOTC was permanently extended recently. You may want to check out the "American Opportunity Tax Credit" on "the Google" for the details.

bill

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Re: Do you think we can stop funding our 529 plan?

Post by cshell2 » Thu May 23, 2019 7:48 am

Grt2bOutdoors wrote:
Thu May 23, 2019 6:37 am
kramer wrote:
Thu May 23, 2019 6:20 am
Also, something to consider is letting the children pay part of their own tuition and expenses so they have some skin in the game.
What part of “we’d like to fund 100% of the cost” did you not understand? What is with this pre-occupation of having kids be burdened with debt on this forum? Kids have plenty vested in what you view as a “game”.
Skin in the game doesn't have to mean taking on debt. I have been pounding into my kids since birth my hatred of debt, but at the same time my son knows he'll be responsible for all the "personal expenses" listed in the cost of attendance for college, and maybe books too. 2-3K/year is not a lot to expect for him to come up with. He can get that easily working summers or a work study job on campus. Still, it helps me out a lot. Plus, I don't think he'll be so free with the spending on extras if it's money he earned/saved.

NotWhoYouThink
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Re: Do you think we can stop funding our 529 plan?

Post by NotWhoYouThink » Thu May 23, 2019 7:54 am

It's ok to save for college even before you have fully secured your retirement funding. You can contribute both to 401k/IRA and 529 as early and for as long as you like. If you are determined to retire at the earliest possible date, and are not at all sold on footing the bill for college you might choose differently. But if you plan to keep working and living your life through your kids' college years, then it makes sense to start saving early for college (to maximize the tax-free growth you get in a 529 when the money is used for education), and then you can still put away the maximum allowed (at that future time) in tax-deferred retirement accounts while they are in college. By that time your career should have progressed, and you should be in the highest tax bracket you'll ever be in, so the pre-tax savings plans are more meaningful.

Leemiller
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Re: Do you think we can stop funding our 529 plan?

Post by Leemiller » Thu May 23, 2019 8:02 am

I have a similar amount saved, with kids in a similar age range, and I feel behind in savings. Have you priced public schools in your area? Even that in my area is over 80k per child.

veindoc
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Re: Do you think we can stop funding our 529 plan?

Post by veindoc » Thu May 23, 2019 8:33 am

Grt2bOutdoors wrote:
Thu May 23, 2019 6:37 am
kramer wrote:
Thu May 23, 2019 6:20 am
Also, something to consider is letting the children pay part of their own tuition and expenses so they have some skin in the game.
What part of “we’d like to fund 100% of the cost” did you not understand? What is with this pre-occupation of having kids be burdened with debt on this forum? Kids have plenty vested in what you view as a “game”.
I have a problem with this too.

This is what I hear.

College is super important and it is my expectation that you go. In fact I think it is mandatory. And to reward you for complying with my wishes, you have to take on an eye popping amount of debt for it even though you have never had a job or one that pays very little. When you are done with school many future decisions you make regarding marriage, housing, job choice and location will hinge on your ability and desire to pay this off. Good luck!

I want my kid to go to college so I will pay for it because I have the means. I am and will continue to impress upon them that doing well is likely to have a positive impact on their future. That’s the skin in the game. If they blow it, that’s on them. I’m not the one that will be eating ramen noodles for breakfast, lunch, and dinner.

cshell2
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Re: Do you think we can stop funding our 529 plan?

Post by cshell2 » Thu May 23, 2019 8:55 am

veindoc wrote:
Thu May 23, 2019 8:33 am
Grt2bOutdoors wrote:
Thu May 23, 2019 6:37 am
kramer wrote:
Thu May 23, 2019 6:20 am
Also, something to consider is letting the children pay part of their own tuition and expenses so they have some skin in the game.
What part of “we’d like to fund 100% of the cost” did you not understand? What is with this pre-occupation of having kids be burdened with debt on this forum? Kids have plenty vested in what you view as a “game”.
I have a problem with this too.

This is what I hear.

College is super important and it is my expectation that you go. In fact I think it is mandatory. And to reward you for complying with my wishes, you have to take on an eye popping amount of debt for it even though you have never had a job or one that pays very little. When you are done with school many future decisions you make regarding marriage, housing, job choice and location will hinge on your ability and desire to pay this off. Good luck!

I want my kid to go to college so I will pay for it because I have the means. I am and will continue to impress upon them that doing well is likely to have a positive impact on their future. That’s the skin in the game. If they blow it, that’s on them. I’m not the one that will be eating ramen noodles for breakfast, lunch, and dinner.
Again I'll ask why contributing to one's college expenses means taking on "eye popping" debt? It makes no sense to me that a kid shouldn't help out a little. My son is only 16 and already has saved a couple thousand and hasn't even taken on a regular part-time job yet. This is just from birthday/Christmas gifts and occasional odd jobs the past couple years. He's going to start working this summer and I fully expect he should easily be able to double what he has saved before going to school. If he's frugal he could make that last his first two years for books and personal expenses if he didn't want to work during the school year. A summer job could easily replenish his account every year.

veindoc
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Re: Do you think we can stop funding our 529 plan?

Post by veindoc » Thu May 23, 2019 9:17 am

cshell2 wrote:
Thu May 23, 2019 8:55 am
[quote=veindoc post_id=4558053 time=<a href="tel:1558618395">1558618395</a> user_id=111966]
[quote=Grt2bOutdoors post_id=4557913 time=<a href="tel:1558611478">1558611478</a> user_id=1554]
[quote=kramer post_id=4557893 time=<a href="tel:1558610431">1558610431</a> user_id=188]
Also, something to consider is letting the children pay part of their own tuition and expenses so they have some skin in the game.
What part of “we’d like to fund 100% of the cost” did you not understand? What is with this pre-occupation of having kids be burdened with debt on this forum? Kids have plenty vested in what you view as a “game”.
[/quote]

I have a problem with this too.

This is what I hear.

College is super important and it is my expectation that you go. In fact I think it is mandatory. And to reward you for complying with my wishes, you have to take on an eye popping amount of debt for it even though you have never had a job or one that pays very little. When you are done with school many future decisions you make regarding marriage, housing, job choice and location will hinge on your ability and desire to pay this off. Good luck!

I want my kid to go to college so I will pay for it because I have the means. I am and will continue to impress upon them that doing well is likely to have a positive impact on their future. That’s the skin in the game. If they blow it, that’s on them. I’m not the one that will be eating ramen noodles for breakfast, lunch, and dinner.
[/quote]

Again I'll ask why contributing to one's college expenses means taking on "eye popping" debt? It makes no sense to me that a kid shouldn't help out a little. My son is only 16 and already has saved a couple thousand and hasn't even taken on a regular part-time job yet. This is just from birthday/Christmas gifts and occasional odd jobs the past couple years. He's going to start working this summer and I fully expect he should easily be able to double what he has saved before going to school. If he's frugal he could make that last his first two years for books and personal expenses if he didn't want to work during the school year. A summer job could easily replenish his account every year.
[/quote]

Depends what you consider “a little”? If he’s frugal...he still has to pay for the last two years. At our state school right now it’s still $40k. To me that’s not a little.
The issue I have with skin in the game is that you are making this decision that your kid needs to go to college and then making the decision that they need to pay for it which I think is unfair. I want my kid to learn to play a musical instrument so I will pay for the lessons. I want them to go to college so I will at a minimum pay for a state school. If they want to go to Harvard then they can try to figure that out. But I certainly would not expect them to figure out state school.

To the OP: In deciding to find the 529, ask yourself what you will do if you underfund the 529 and what you will do if you overfund. I started putting in the max for the state tax deduction. Then I superfunded a few years ago to pad the account with $80k - enough to get through state school for four years in today’s dollars. Now I am back to just enough to max out state tax deduction. I anticipate one possibly two might go to grad school. So if I overfund the excess will go towards that. If I underfund, I will just take money out of the taxable account or cash flow.

cshell2
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Re: Do you think we can stop funding our 529 plan?

Post by cshell2 » Thu May 23, 2019 9:25 am

veindoc wrote:
Thu May 23, 2019 9:17 am

Depends what you consider “a little”? If he’s frugal...he still has to pay for the last two years. At our state school right now it’s still $40k. To me that’s not a little.
The issue I have with skin in the game is that you are making this decision that your kid needs to go to college and then making the decision that they need to pay for it which I think is unfair. I want my kid to learn to play a musical instrument so I will pay for the lessons. I want them to go to college so I will at a minimum pay for a state school. If they want to go to Harvard then they can try to figure that out. But I certainly would not expect them to figure out state school.
Sorry, I had posted previously that I had expected DS to contribute an amount equal to the personal expenses line item in the cost of attendance and maybe books. This is 2-3K/year. Any kid smart enough to get into college can earn that amount each year, and there's nothing "unfair" about that. If he chose not to go to college he'd still have those (and a lot more) expenses.

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Re: Do you think we can stop funding our 529 plan?

Post by NotWhoYouThink » Thu May 23, 2019 9:44 am

Back to funding the 529 - you live in Utah? I hear from another poster that your state has some high quality affordable public options. So certainly take that into account. But also take into account that it is cheaper for you to pay for those options with 529 funds that grew tax free than with sales from your brokerage account.

Unless the market tanks during your kids' high school years, and you miss out on the chance to take some tax losses by selling funds that have lost value. Life is uncertain, best learn to deal with that.

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Re: Do you think we can stop funding our 529 plan?

Post by acegolfer » Thu May 23, 2019 9:52 am

WhiteMaxima wrote:
Wed May 22, 2019 10:53 am
Fund your retirement 1st. It will have more time to grow. Then 529, college inflation in slight above general inflation. You would target 100K for each kid at today's dollar (4 year college 25k per year).
imo, best advice given so far

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Re: Do you think we can stop funding our 529 plan?

Post by TN_INVEST » Fri May 24, 2019 9:52 am

Some of you guys would make terrible financial advisors.... mainly because you aren't listening (skin in game, college isn't only way to succeed, etc).

It's as if you bare letting your opinion and best interest dictate the advice you are giving :-/

jes58
Posts: 28
Joined: Fri Sep 28, 2007 9:14 am

Re: Do you think we can stop funding our 529 plan?

Post by jes58 » Fri May 24, 2019 12:24 pm

Say you end up over-funding a 529 for an only child. How is the unused balanced treated vis-a-vis penalties/taxes ?

NotWhoYouThink
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Re: Do you think we can stop funding our 529 plan?

Post by NotWhoYouThink » Fri May 24, 2019 12:33 pm

If you remove money from the 529 and don't spend it on qualified educational expenses for the beneficiary, you pay tax (at ordinary income rates, not capital gains) on the earnings, plus a 10% penalty on the earnings.

If the beneficiary gets a scholarship, you can remove the amount of the scholarship without penalty, but you still have to pay taxes on the gains.

cshell2
Posts: 288
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Re: Do you think we can stop funding our 529 plan?

Post by cshell2 » Fri May 24, 2019 12:34 pm

jes58 wrote:
Fri May 24, 2019 12:24 pm
Say you end up over-funding a 529 for an only child. How is the unused balanced treated vis-a-vis penalties/taxes ?
If you make an unqualified withdrawal you pay regular income taxes and a 10% penalty on the earnings only. Contributions are not taxed..unless you got some kind of state break on the contribution, then there may be clawback from the state there.

There's also the option of just keeping it in and eventually changing the beneficiary to a grandchild, or using it yourself.

GlacierRunner
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Re: Do you think we can stop funding our 529 plan?

Post by GlacierRunner » Fri May 24, 2019 1:04 pm

If you overfund, what about saving it for grandchildren? You may not even know whether it's overfunded until the grandchildren start showing up on the scene.

When someone says "skin in the game", I see making the child responsible for 1 - 100% of their college expenses. It doesn't have to involve debt. I do think there is value to expecting your child to pay for a portion of their education, but I also think that having the safety net of parental contributions can open up some experiences that otherwise wouldn't be available to the student. It is a balancing act that many parents have to weigh.

My parents contributed 20% of my college expenses, plus health insurance, and summer housing/transportation in order to work. I graduated with no debt as have my younger siblings who have graduated in the last couple years. I sometimes wish there would have been the option of an unpaid internship some year, but I did have some wonderful college experiences that my parents worked with me on funding.

Edit to add: no I don't think you have enough saved yet for covering 100% of your children's education. I agree with the poster that you should aim for $100k per child and I don't think you can be certain your current investments to quadruple.

Grt2bOutdoors
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Location: New York

Re: Do you think we can stop funding our 529 plan?

Post by Grt2bOutdoors » Fri May 24, 2019 1:49 pm

NotWhoYouThink wrote:
Fri May 24, 2019 12:33 pm
If you remove money from the 529 and don't spend it on qualified educational expenses for the beneficiary, you pay tax (at ordinary income rates, not capital gains) on the earnings, plus a 10% penalty on the earnings.

If the beneficiary gets a scholarship, you can remove the amount of the scholarship without penalty, but you still have to pay taxes on the gains.
OR use excess balance to take a cooking class in the future for yourself or to use for a future grandchild.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

miamivice
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Joined: Tue Jun 11, 2013 11:46 am

Re: Do you think we can stop funding our 529 plan?

Post by miamivice » Sat May 25, 2019 9:54 am

biscuit wrote:
Wed May 22, 2019 10:17 am
I have a 5 yo and 2 yo and investing on Utah 529 plan as my state doesn't offer any tax benefits. 5yo 529 account has $25K while the 2 yo 529 account has $17K.

Considering that they still have more than a decade to go to college, do you think we can stop funding the 529 plan and would still have enough returns for their college expenses by the time they're ready? I understand no one knows how the market would perform in the next decade. What would you do if you were in my situation? We don't want to overfund it as we don't have any immediate family in the country to pass along.

Currently, we are funding $500/month for each account.
For what is it is worth, we have $180k for our two kids, ages 4 and 8. At the moment that is only enough to pay for about 75% of their education cost....

Hug401k
Posts: 368
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Re: Do you think we can stop funding our 529 plan?

Post by Hug401k » Sat May 25, 2019 12:17 pm

I would say keep going for now. The earlier, the better. You can always stop later (or stop one, or reduce etc). Are you eligible for a Roth IRA? When we were, I funded a Roth as a flex account. I can use the contribution for education or retirement, depending on the need. We have quite a bit saved for retirement, so I'm thinking that will be education for kid #2, but I don't have to use it if the 529's cover it.

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