How much to contribute monthly to 529?

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rightdecisions
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How much to contribute monthly to 529?

Post by rightdecisions » Wed Apr 07, 2010 11:40 am

Lot of threads about 529 lately. Got me to thinking...am I saving enough.

I know it depends on what you can afford.

Not including family/friends contributions, what is everyone contributing?

me .... 3 kids...$75 each a month.

KCJayhawker
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Post by KCJayhawker » Wed Apr 07, 2010 12:14 pm

$100/mo one kid, but I also make one-time contributions a couple times a year. I plan on only saving enough to pay for 75% of expected college costs.

sjb19
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Post by sjb19 » Wed Apr 07, 2010 1:18 pm

Currently $75/month/kid. Our current plan is to fully pay for college, but I am unconvinced the 529 is the best solution for all of the college money. On that note, I have also started buying I-bonds with the specific intent to use them to pay for some college costs.

JV
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Post by JV » Wed Apr 07, 2010 1:28 pm

I am currently maxing out my NY 529 to get the state deduction, so $10K per year ($5K for my wife and I each). I figure with the state tax deduction I get over a 5.5% head start simply to place the $$ in that type of account; where else can I get that? I have two kids: 6 and 4. Retirement is also maxed out. I am fortunate to be able to do this and don't take it for granted. :wink:

bob26
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Post by bob26 » Wed Apr 07, 2010 2:23 pm

Similarly to JV, we are contributing 12K per year (2 kids x 6K) to get state tax deduction. I also contribute 6K for myself (going for that evening MBA) - total 18K

JV
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Post by JV » Wed Apr 07, 2010 2:28 pm

Bob26, I'm curious, and if you don't mind me asking, do you plan to continue that until the kids go to college or are you targeting a maximum saved amount? I've used various calculators to see what college will cost in 11 years but they vary widely. Again, provided my situation does not change, $10K per year for 11 years using a modest 5% return nets over $163K. I wonder if this is overkill. I love the state tax deduction but don't want to throw money away if it's not needed due to the penalties of nonqualified distributions. Thanks!

kiaseduniai
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Post by kiaseduniai » Wed Apr 07, 2010 2:33 pm

320$/month for one kid (3 years old). Hoping to have nominal low six figure by the time he goes to college.

mptfan
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Post by mptfan » Wed Apr 07, 2010 2:45 pm

$0 per month.

bob26
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Post by bob26 » Wed Apr 07, 2010 2:57 pm

The amount of 6K per beneficiary is driven by the state tax deduction.

One daughter is already in college, so money are coming in - and immediately coming out. She's in the private school, so there will be nothing left in her account pretty soon. Total cost for 4 years is about 200K.

The younger kid still has a few more years to go. I think I will have ~170 or so by the time she goes to college. If she goes to state school and do not use all the money, I can pay for her grad or professional school. Or I can transfer money to another beneficiary (grandchildren, nieces and nephews)

Finally, I can always use the money for myself to go to vocational school (learning how to fix cars, for example) or quit my job and go for a PhD in finance for example ;)

Bottom line, if you REALLY need the money, you can always pull it out (you'll have to pay taxes on earnings + 10% penalty), but I don't think I'll ever be in this position.

Grt2bOutdoors
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Post by Grt2bOutdoors » Wed Apr 07, 2010 2:58 pm

$500 a month - no state deduction. If I have the means later on, may up it given what schools are projected to cost.

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BruceM
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Re: How much to contribute monthly to 529?

Post by BruceM » Wed Apr 07, 2010 5:52 pm

rightdecisions wrote:Lot of threads about 529 lately. Got me to thinking...am I saving enough.

I know it depends on what you can afford.

Not including family/friends contributions, what is everyone contributing?

me .... 3 kids...$75 each a month.
Yes, what you can afford is important....but some might argue its more important to know what you should be saving first.

For example: Savings for a 2 year old who would most likely attend the state university her parents attended at age 18, for which current full costs average $16,000/yr, assuming your state's 529 plan averages a 7.5% annual rate of return, college inflation averages 6%/yr, child attends 4 years and all funds are collected by the first year of college.....

$456/month for 100% funding
$228/mo for 50% funding

If instead of 2, the child is 10 today with all other factors remaining the same and assuming no savings yet

$797/mo for 100% funding
$398/mo for 50% funding

But if you don't start saving for that 2 year old until she reaches age 10, then things start getting expensive:

$1,270/mo for 100% funding
$635/mo for 50% funding

That the contributions (or part of them) are State income tax deductible has the effect of reducing the negative cash flow from the house to meet the funding requirement....but the amount put into the 529 plan would be the same.

BruceM

TRC
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Post by TRC » Wed Apr 07, 2010 6:33 pm

I do $250/month per child.

although I live in MA and am thinking of just switching to the pre-paid tuition plan on lock in at today's tuition rate. Considerting that tuition has been increasing at 6-9% per year on average, plus factoring in inflation, I think I'm better off just applying my dollars to today's current tuition prices.

sprmario2k3
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Post by sprmario2k3 » Thu Apr 08, 2010 9:09 am

It seems like a lot of people forget that you don't need to have 100% funding by the time they start college at 18 or so. First, you still will likely be making contributions through the 4 years they are at school. If you have a state deduction you really want to continue to make those contributions while they are at school to get the extra benefit.

Your income is also likely to be much higher when your children are in college than when they are young.

Right now I am saving $100/ month with a number of extra contributions when i get cash gifts for my son such as for his birthday, christmas and baptism.

Grt2bOutdoors
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Post by Grt2bOutdoors » Thu Apr 08, 2010 10:35 am

sprmario2k3 wrote:It seems like a lot of people forget that you don't need to have 100% funding by the time they start college at 18 or so. First, you still will likely be making contributions through the 4 years they are at school. If you have a state deduction you really want to continue to make those contributions while they are at school to get the extra benefit.

Your income is also likely to be much higher when your children are in college than when they are young.

Right now I am saving $100/ month with a number of extra contributions when i get cash gifts for my son such as for his birthday, christmas and baptism.
It's good that your an optimist - but after the last 2 years, I've seen people who planned to pay college from out of their income go up in smoke when they lost their jobs and weren't financially able to continue contributing. It's a big wake-up call, don't procrastinate, if you have the means, do it.

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schnoodlemom
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Post by schnoodlemom » Thu Apr 08, 2010 11:06 am

We do $10k/yr ($5k/child) for the state tax deduction. This is after retirement funding and no debt besides mortgage. We hope to have 75% saved and cash flow the rest with contributions from student/extended family likely. College for the eldest is still 6 years away, so don't know how to anticipate costs. We looked at prepaid tuition last fall ($44.4k/4 yrs) for MI state schools with full benefits. But the blow up with the Texas prepaid fund and a murky crystal ball held us back. This year it's $51.2k (15% increase). What to do...
Amanda

daddydub
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Post by daddydub » Thu Apr 08, 2010 11:54 am

$0 per month..annual contributions of $2000 to $4000 depending on largesse of other family members.

My financial advisor told me it's better to borrow for college because you can't borrow for retirement! :D

sprmario2k3
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Post by sprmario2k3 » Wed Apr 28, 2010 2:01 pm

GRT2BOUTDOORS wrote: It's good that your an optimist - but after the last 2 years, I've seen people who planned to pay college from out of their income go up in smoke when they lost their jobs and weren't financially able to continue contributing. It's a big wake-up call, don't procrastinate, if you have the means, do it.
By no means am I an optimist when it comes to finances, but I am not going to 100% fund a private college education when I am not maxing out all of my tax deferred retirement options. I am maxing my 401k, my Roth and my wife's Roth. She gets no match on her 401k, so i'm only about $4k into her 401k amount. If i can get to the point i can max out all four limits then i'll increase my 529 allocations.

You also have to remember that your child might choose to go to a public school which is considerably cheaper, they might also not go to school at all for a variety of reasons.

If you are in terrible shape financially from an income perspective, you might also then qualify for scholarships and other aid. My parents were smack dab in the middle of "middle class" when i went to college and Stanford put up about 35% of my annual costs via need scholarship. If need be my son can also take out some student loans.

frazil
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Post by frazil » Wed Apr 28, 2010 2:36 pm

Curious as to whether those with more than 1 kid are funding multiple 529 plans or just a single one?

pochax
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Post by pochax » Wed Apr 28, 2010 3:01 pm

frazil wrote:Curious as to whether those with more than 1 kid are funding multiple 529 plans or just a single one?
i have an account for each of my 2 kids. they are <2 yrs apart and thus will likely be in college at the same time at some point.

Scorpion
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Post by Scorpion » Wed Apr 28, 2010 3:22 pm

To me, the more interesting (relevant?) question is how much you or others deposit per year in the aggregate per child? I think we are about $2800 a year per child, but only 25% of that is from us every year. I'm not trying to pay for 100% of college. I have no idea if it will be "enough." I am shocked at the high amount some others have posted - makes me wonder if I am being cheap.

Flashes1
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Post by Flashes1 » Wed Apr 28, 2010 3:49 pm

My childrens' education is very important to me. My parents made the sacrifice to pay 100% of my way, and they said all they wanted in return, is for me to do the same for my kids. I'm admittedly not thrilled with the thought of paying 100% of private school costs, but I think I have my wife convinced to pay the equivalent of State U. costs.

We're currently putting in $100/month per kid, but I'm going to increase to $200/month shortly after an expected promotion. I also drop a few thousand in it periodically during the year. My in-laws contribute $1,000 at each kids' b-days.

I max all retirement funds, and I was shocked by how much the dividends I received in 2009 on FTSE Index taxable account........so I am going to move more funds into tax deferred vehicles via the 529's.

Scorpion
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Post by Scorpion » Wed Apr 28, 2010 4:32 pm

I am not sure I understand the idea of using the 529 as an additional tax-deferred vehicle. I view it as an isolated account for each of my children, even though technically I am the account holder. I do a lot of taxable investing that could technically be going to the 529, and I am certainly not maxing the 529. Is there a Boglehead tenet that we should be doing so before doing taxable?

Sublime8700
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Post by Sublime8700 » Wed Apr 28, 2010 4:56 pm

Yeah, I'm curious about this too. I mean, I'm only 23, but I live in Illinois. And there is a 3% state tax here. 529 contributions up to $10,000 are state-tax deductible, so it seems like it would make sense, if I had excess savings, to do $10,000 here after doing some significant investing in a taxable account.

It just strikes me as one less thing I will have to save for in the future, or less total money I would have to save, if I could get a significant amount in one of these things within a few years and just set it and forget it.

A future wife might be happy about that kind of thing, no?

pochax
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Post by pochax » Wed Apr 28, 2010 5:34 pm

Scorpion wrote:Is there a Boglehead tenet that we should be doing so before doing taxable?
i would not say it is a universal boglehead tenet. the first decision point where bogleheads diverge is whether to pay for one's child's education at all there are varying degrees including the extremes (pay for 0 to 100% kids' college +/- grad school). the next diverging point is how best to save for it....many boglehead-ian options (trad 529, prepaid tuition plan, Roth IRA, taxable, Coverdell, etc etc etc). therefore, no universal tenet.

sprmario2k3
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Post by sprmario2k3 » Thu Apr 29, 2010 8:55 am

Most of the deposits in my son's 529 are deposited by us. My parents, brother and my mother in law have made small contributions like $100 on his birthday or $100 at his bapitism, etc. Any cash gifts i get for him get redirected as much as possible into this account as well. The total for these alternate contributions is probably 15-20% of all contributions at this point.

Chuck
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Post by Chuck » Thu Apr 29, 2010 10:47 am

I start with several bad assumptions. Tuition, investment return, and contributions will increase at 0% real. So all numbers are in today's dollars. (Anything else makes my head hurt.)

Numerically, I start with this year's in-state university tuition and fees: $19,200.
Multiply by 4 years, and 50%. (My child will pay half.): $38,500.

I have 21 years to save. Let's call it 252 months. $38,500 / 252 = $153 per month.

Each year, I re-run the calculation with the time left and the current tuition. (This handles the inflation issue.) The eventual goal should be to approximately pay for half of whatever it costs in 18 years. I believe this is unlikely, but there will be something in this account that will certainly be better than nothing. I'm not going to mortgage my retirement for this, it's just there to help.

bsarabennett
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Post by bsarabennett » Thu Apr 29, 2010 12:06 pm

Bob26, I think you'vre really got a good idea in the planning for your kids.

I would like to encourage all of you, however, to make sure you're investing in their education in a non-monetary way. Make sure that they are taking their education seriously and that they get time to be a kid, but that they appreciate education at an early age. This will help them to apply and receive scholarships. Then you (or them if you choose) will have a nice little nest egg later.

There's nothing wrong with any increment of saving!
---
Canopy
Last edited by bsarabennett on Wed May 05, 2010 11:09 am, edited 1 time in total.

letsgobobby
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Post by letsgobobby » Thu Apr 29, 2010 2:41 pm

$35,000 per child at birth, $9000 per year per child thereafter.

As with my marathons, I run negative splits in real life. When college arrives, I expect my monthly cash flow to increase, not decrease.

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zzcooper123
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Post by zzcooper123 » Thu Apr 29, 2010 2:50 pm

Over the long term, 529s don't really make much sense. A large 529 simply decreases the amount of aid from the school. The state tax deduction might make some sense in high tax states or brackets. otherwise, all you get is tax free compounding with no ability for TLH, step-up basis.
From a FAFSA standpoint, paying off the mortgage and using a HELOC to pay for college makes more sense.
Start a business and pay your kids. put that into a designated account (not in their names) if you must.
Depends on what kind of saver you are.

letsgobobby
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Post by letsgobobby » Thu Apr 29, 2010 2:56 pm

zzcooper123 wrote:Over the long term, 529s don't really make much sense. A large 529 simply decreases the amount of aid from the school. The state tax deduction might make some sense in high tax states or brackets. otherwise, all you get is tax free compounding with no ability for TLH, step-up basis.
From a FAFSA standpoint, paying off the mortgage and using a HELOC to pay for college makes more sense.
Start a business and pay your kids. put that into a designated account (not in their names) if you must.
Depends on what kind of saver you are.
that's a bit oversimplified.

Assume all tax-advantaged retirement accounts are already maximized and mortgage is paid off. Assume 529 is held in parents', or better yet grandparents' name.

Given the long-term advantages of tax-free compounding, in particular with regards to fixed-income, why not utilize a 529?

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Re: How much to contribute monthly to 529?

Post by joebruin77 » Thu Apr 29, 2010 7:13 pm

rightdecisions wrote:Lot of threads about 529 lately. Got me to thinking...am I saving enough.

I know it depends on what you can afford.

Not including family/friends contributions, what is everyone contributing?

me .... 3 kids...$75 each a month.
I have two young kids (ages 3 and 5). Each month, I first put in $166 in each kid's ESA with Vanguard. I then put in $150 each into the Utah Educational Savings Plan, for a total of $316 per kid per month. (I live in California, where we do not get any state tax deduction for 529 contributions. That is why I have gone outside of my state for, in my opinion, a better plan).

I like funding an ESA because 1) I can set it up directly with Vanguard, doesn't have to be administered by a state and 2) funds can be used for K-12 expenses.

I have two questions myself:

1) Has Congress extended the use of ESA funds for K-12 or are they going to let that expire?
2) Are there any disadvantages to having both an ESA and 529 plan, as opposed to just having a 529 plan alone?

Thank you.

puck2005
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Post by puck2005 » Thu Apr 29, 2010 8:32 pm

letsgobobby wrote:
Assume 529 is held in parents', or better yet grandparents' name.
Not following. Until when?

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cyclysm
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Post by cyclysm » Thu Apr 29, 2010 9:58 pm

letsgobobby wrote:
zzcooper123 wrote:Over the long term, 529s don't really make much sense. A large 529 simply decreases the amount of aid from the school. The state tax deduction might make some sense in high tax states or brackets. otherwise, all you get is tax free compounding with no ability for TLH, step-up basis.
From a FAFSA standpoint, paying off the mortgage and using a HELOC to pay for college makes more sense.
Start a business and pay your kids. put that into a designated account (not in their names) if you must.
Depends on what kind of saver you are.
that's a bit oversimplified.

Assume all tax-advantaged retirement accounts are already maximized and mortgage is paid off. Assume 529 is held in parents', or better yet grandparents' name.

Given the long-term advantages of tax-free compounding, in particular with regards to fixed-income, why not utilize a 529?
No offense, but you may be the one oversimplifying. I would wager most people here who have young kids have NOT maxed out all tax advantaged retirement accounts and paid off their mortgages, mainly because they do not have the cash flow to do so. Having met these requirements certainly simplifies the case for using 529s, but reality is not so simple. zzcooper raises very good points for those without such an enviable cash flow situation.

jbk
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Post by jbk » Fri Apr 30, 2010 4:58 pm

cyclysm wrote:
letsgobobby wrote:
zzcooper123 wrote:Over the long term, 529s don't really make much sense. A large 529 simply decreases the amount of aid from the school. The state tax deduction might make some sense in high tax states or brackets. otherwise, all you get is tax free compounding with no ability for TLH, step-up basis.
From a FAFSA standpoint, paying off the mortgage and using a HELOC to pay for college makes more sense.
Start a business and pay your kids. put that into a designated account (not in their names) if you must.
Depends on what kind of saver you are.
that's a bit oversimplified.

Assume all tax-advantaged retirement accounts are already maximized and mortgage is paid off. Assume 529 is held in parents', or better yet grandparents' name.

Given the long-term advantages of tax-free compounding, in particular with regards to fixed-income, why not utilize a 529?
No offense, but you may be the one oversimplifying. I would wager most people here who have young kids have NOT maxed out all tax advantaged retirement accounts and paid off their mortgages, mainly because they do not have the cash flow to do so. Having met these requirements certainly simplifies the case for using 529s, but reality is not so simple. zzcooper raises very good points for those without such an enviable cash flow situation.
Case in point: I contribute to a 529 (two young kids) and while I contribute 19% of income to retirement, I'm not maxing out retirement plans and I certainly haven't paid off the mortgage (28 years to go).

CarlZ993
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529

Post by CarlZ993 » Fri Apr 30, 2010 10:18 pm

Was $100/mo for the great-grandchild. Will be $120 starting next month. She turns 3 next month. Add some extra on birthdays & Christmas.
Carl Z

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zzcooper123
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Post by zzcooper123 » Sat May 01, 2010 6:26 am

The FAFSA form turns investing on its' head. The more money you have saved, the less you get from the school. For high income earners, focus should on getting the cash out in the most tax gentle way possible. This involves income shifting, full use of tax credits , CG rates etc.
Unless the child goes to a BigName school, you will find the cash to pay for tuition. The high tuition charged at these schools will wipe out any gains you may have made in the 529. Plus your diligent savings makes you less eligible for aid.
When my kids were young, UTMAs were the rage. Things will change over 15-21 years guaranteed. Remember you will not need the money all at once but over 4 years. Strive to increase your overall wealth and the "college savings" issue will go away.

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Post by caklim00 » Sat May 01, 2010 7:23 am

$25 a month. Its the minimum required for WVa Smart Select 529 (DFA) without being charged an annual fee. Only after retirement (401k, IRA) and spouse HSA fully funding will I consider adding to the 529. Whether I contribute to the 529 or taxable really does seem to be a tossup to me. I'd rather be under funded for the 529 than over funded.

letsgobobby
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Post by letsgobobby » Sat May 01, 2010 11:42 pm

cyclysm wrote:
letsgobobby wrote:
zzcooper123 wrote:Over the long term, 529s don't really make much sense. A large 529 simply decreases the amount of aid from the school. The state tax deduction might make some sense in high tax states or brackets. otherwise, all you get is tax free compounding with no ability for TLH, step-up basis.
From a FAFSA standpoint, paying off the mortgage and using a HELOC to pay for college makes more sense.
Start a business and pay your kids. put that into a designated account (not in their names) if you must.
Depends on what kind of saver you are.
that's a bit oversimplified.

Assume all tax-advantaged retirement accounts are already maximized and mortgage is paid off. Assume 529 is held in parents', or better yet grandparents' name.

Given the long-term advantages of tax-free compounding, in particular with regards to fixed-income, why not utilize a 529?
No offense, but you may be the one oversimplifying. I would wager most people here who have young kids have NOT maxed out all tax advantaged retirement accounts and paid off their mortgages, mainly because they do not have the cash flow to do so. Having met these requirements certainly simplifies the case for using 529s, but reality is not so simple. zzcooper raises very good points for those without such an enviable cash flow situation.
I don't see how any statement could be more oversimplified than "over the long term, 529s don't really make much sense."

Other than 529s, for high earners/savers, what better options are there?

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zzcooper123
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Post by zzcooper123 » Sun May 02, 2010 7:49 am

My problem is with the type and ownership of the accounts. The state tax savings with 529s are small and capped, but this varies from state to state. 529s amounts are included on the FAFSA ;lowering the amount received from the school, granted, not by much. Overall fees tend to be high. The parent cannot TLH these accounts easily. Home equity is not usually assessed for FAFSA purposes. Most of 529 benefits are from mental accounting.

letsgobobby
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Post by letsgobobby » Sun May 02, 2010 11:42 am

zzcooper123 wrote:My problem is with the type and ownership of the accounts. The state tax savings with 529s are small and capped, but this varies from state to state. 529s amounts are included on the FAFSA ;lowering the amount received from the school, granted, not by much. Overall fees tend to be high. The parent cannot TLH these accounts easily. Home equity is not usually assessed for FAFSA purposes.
1. 529s are included by FAFSA if owned by the parent. What about if owned by a grandparent?

2. How is a non-tax-advantaged account owned by a parent better treated than a 529 owned by a parent, vis-a-vis the FAFSA?

3. Many 529s now have overall fees in the 30 to 40 basis points per year range. This is more than the cheapest of mutual funds, but hardly "high."

4. Does the inability to TLH outweigh the benefits of tax-free growth for fixed income? The tax drag on such holdings, which naturally would increase the closer the beneficiary is to college age, would be quite impactful.

5. If you are arguing that "in the year prior to completing the FAFSA, one should make sure to maximize use of taxable accounts to pay off one's primary mortgage so as to increase your child's need-based aid," why not just say so? That's much less controversial, and less incorrect than saying:
zzcooper123 wrote:Most of 529 benefits are from mental accounting.

mjfrad
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Other 529 Advantages

Post by mjfrad » Sun May 02, 2010 1:45 pm

529 plans also allow:
-Multi-generational estate planning
-Maximizing use of yearly gift tax exemption
-A solid form of asset protection

mjf

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zzcooper123
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Post by zzcooper123 » Sun May 02, 2010 4:17 pm

I do not know about the grandparent exclusion, but would suspect the FAFSA inquires about it. Actually the FAFSA wants you to divulge all assets of this sort. You could lie of course, but they could find out.
Gift tax exclusion? I don't get it. The parent doesn't get any tax benefit.
Multi-generational estate planning? The 529 must be used for educational expenses. A Roth in the child's name would be better.
I would suspect most people with these issues have income high enough never to get need-based aid. So the main goal is to get the cash for college in the most tax efficient manner.
There has to be better asset protection methods than 529s.

letsgobobby
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Post by letsgobobby » Sun May 02, 2010 7:13 pm

zzcooper123 wrote:I do not know about the grandparent exclusion, but would suspect the FAFSA inquires about it. Actually the FAFSA wants you to divulge all assets of this sort. You could lie of course, but they could find out.
Gift tax exclusion? I don't get it. The parent doesn't get any tax benefit.
Multi-generational estate planning? The 529 must be used for educational expenses. A Roth in the child's name would be better.
I would suspect most people with these issues have income high enough never to get need-based aid. So the main goal is to get the cash for college in the most tax efficient manner.
There has to be better asset protection methods than 529s.
ZZ, the FAFSA does not ask about grandparents' assets, even when they are in a 529. The only assets inquired about in any form are those belonging to the student or the parents:

"The FAFSA does not ask for the assets of grandparents or other relatives, even when those assets are earmarked for college."

This is why it may be advantageous to have 529s denominated in the grandparents' names. Once the 529 is tapped, it may 'reveal' itself as a source of income for the student, but again, there are certainly ways to deal with this. At the end of the day, high earner/asset families may not qualify for any aid whatsoever, so these considerations are secondary to the potential tax-free compounding of a 529.

with regards to 'multi-generational tax-planning' understand that a 529 is not in the parents' estate with regards to estate tax. By removing, say, $200,000 per child from the estate, the parents may be saving significant future estate tax liability. The 529 also is not subject to the generational skip tax, thus further enhancing its usefulness in this regard. It is subject to annual gift-tax exclusions, but there is a unique exception with 529s that allows up to 5 years of gifts to be made in a single gift. Another advantage.

A Roth in a child's name is severely limited. First, the child must have earned income; most children do not. Second, the Roth is limited to a maximum of $5000 per year, per child, which for most children will be far too low to pay for college. It is thus not the appropriate tool for the problem of college funding, at least in most cases.

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Sammy_M
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Post by Sammy_M » Sun May 02, 2010 8:13 pm

Most of my co-workers with kids haven't been eligible for financial aid so I'm guessing we won't either. We sock a lot of money away in our 529s and expect to pay over 75% of college expenses from there. We saved a lot in these accounts early and expect to stop contributions soon. We only use the 529s for otherwise tax inefficient investments and always max out 401K, IRA, etc. first. We have not paid down our fixed-rate low-interest, tax-deductible mortgage at all.
zzcooper123 wrote:Home equity is not usually assessed for FAFSA purposes.
I hadn't previously looked at it, and just checked out the EFC formula at collegeboard.com. One interesting observation -- if you have investment property with equity, you could refinance it to reduce your amount of RE equity that FAFSA includes in the formula. Then you could take the money and payoff your primary residence mortgage. As noted above, FAFSA doesn't count home equity in the formula. Of course depending on prevailing rates at the time, that may or may not make sense.

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White Coat Investor
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Post by White Coat Investor » Sun May 02, 2010 8:26 pm

I don't contribute monthly. I contribute once a year if I have the means. My goal thus far is to save up an amount equal to 4 year's tuition at my alma mater (very cheap school) for each child. I don't think that'll be hard, so perhaps I'll expand it later.

I'm soon moving to a state that gives a tax break for 529 plans, so I'll initially start making contributions to the 529 up to the deductible limit. When I figure I've saved enough, I'll start converting my ESAs to the 529s, harvesting the deduction.

If you start when they're born you don't have to save much if your goals are modest. For example, if your goal is $20K/kid in today's money, and you think you can make a 5% real return on the money, and you have 18 years, you only need to contribute $60/month/kid.

Now if you want to have $100K in today's money, you'll need to save a bit more. Likewise if you start late.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Post by White Coat Investor » Sun May 02, 2010 8:43 pm

Scorpion wrote:I am not sure I understand the idea of using the 529 as an additional tax-deferred vehicle. I view it as an isolated account for each of my children, even though technically I am the account holder. I do a lot of taxable investing that could technically be going to the 529, and I am certainly not maxing the 529. Is there a Boglehead tenet that we should be doing so before doing taxable?
It's all about your goals. The first step in investing is setting your goals. THEN you develop the plan to reach them (savings amount and asset allocation). THEN you implement the plan (select investments, actually save the money and make the contributions). If you get out of this order, strange things happen.

It helps to figure out "your number" for retirement. Then figure out "your number" for college for each kid. That's your goal. Sure, it might change a little, but that's okay. You need some kind of number to start with. It might be tuition at Harvard plus $20K/year for room and board, indexed to inflation. Whatever. But get your number. Then use excel's future value calculation and input some reasonable values. Are you saving too much, about right, too little? If too little, put more in the 529. If too much, go with more taxable investing (toward your retirement.)

Like in most things, seeing the end from the beginning is helpful. Don't worry about being exact, there's plenty of time to adapt later. But you should have some idea how much is "enough" for retirement AND for college.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

rainyday1
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Post by rainyday1 » Mon May 03, 2010 12:10 pm

Our plan is to do a 529 for each child with 10k /year for the first 5 years of their lives. I hope that initial 50k savings will cover in-state tuition when the time comes.

If we end up having one with Harvard ambition, I figure we can supplement our savings as they enter high school when we have a more realistic figure of how much college (and possibly grad school) will cost.

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