"Why 97% of People Don't Use 529 College Savings Plans."

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nedsaid
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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by nedsaid » Sun May 20, 2018 11:58 am

livesoft wrote:
Tue Sep 09, 2014 3:21 pm
I just read this article which has a tidbit about the GAO report on these plans.

Basically, the answer to the question posed in the title is simple: 97% of people are not wealthy enough.

Also missing from the article was the mantra that a family should not contribute to a 529 plan unless they have made the maximum contributions to retirement plans first.
There gets to be a point where you have to live on something. You can't save it all. I have never been able to maximize my retirement contributions to workplace savings plans and IRA accounts. I am pretty frugal but even my frugality has its limits.
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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by feehater » Sun May 20, 2018 12:14 pm

bling wrote:
Sat May 19, 2018 2:50 pm
i don't understand why 529 threads always end up being so long.

if you can max out your 401k, that alone puts you in the top 90th percentile of americans. add in maxing the IRA, probably bumps your into 95th percentile. add in maxing a HSA (stealth IRA) and yep, you're 97th percentile now.

so if you're in the fortunate top 3% that can afford to put money into a 529, it's a no brainer -- do it.

worst case scenario your kids don't go to college, they don't get married, don't have kids, no nieces/nephews, and you have no interest taking a community cooking class for yourself, so pay a penalty! how bad can it be?

let's assume you contribute 5k yearly for 18 years, 7% return. you'll have about $170k. your contributions were $90k. a 10% penalty on the earnings amounts to $8k, or about 4.7% of the total value.

considering markets easily move 5% monthly on a regular basis i don't really see it as that big of a problem.
You pay 10% + normal income tax rates. So approaching 40% penalty for a lot of people in high tax states, vs 15% on capital gains.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by Grt2bOutdoors » Sun May 20, 2018 7:59 pm

Bacchus01 wrote:
Sun May 20, 2018 8:19 am
Grt2bOutdoors wrote:
Sat May 19, 2018 2:54 pm
bling wrote:
Sat May 19, 2018 2:50 pm
i don't understand why 529 threads always end up being so long.

if you can max out your 401k, that alone puts you in the top 90th percentile of americans. add in maxing the IRA, probably bumps your into 95th percentile. add in maxing a HSA (stealth IRA) and yep, you're 97th percentile now.

so if you're in the fortunate top 3% that can afford to put money into a 529, it's a no brainer -- do it.

worst case scenario your kids don't go to college, they don't get married, don't have kids, no nieces/nephews, and you have no interest taking a community cooking class for yourself, so pay a penalty! how bad can it be?

let's assume you contribute 5k yearly for 18 years, 7% return. you'll have about $170k. your contributions were $90k. a 10% penalty on the earnings amounts to $8k, or about 4.7% of the total value.

considering markets easily move 5% monthly on a regular basis i don't really see it as that big of a problem.
Most folks are not earning 7% on a 529 plan, probably 5% is a more reasonable number.
I disagree. Ours have returned much higher than 7% over the last 10 years.
Past performance is not indicative of future performance. You are free to disagree, but everyone in the industry is predicting lower future returns. Tell us how you believe returns will be higher for the average 529 investor who does not hold an equity heavy portfolio over the life of the plan?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by smitcat » Mon May 21, 2018 7:24 am

Bacchus01 wrote:
Sun May 20, 2018 8:19 am
Grt2bOutdoors wrote:
Sat May 19, 2018 2:54 pm
bling wrote:
Sat May 19, 2018 2:50 pm
i don't understand why 529 threads always end up being so long.

if you can max out your 401k, that alone puts you in the top 90th percentile of americans. add in maxing the IRA, probably bumps your into 95th percentile. add in maxing a HSA (stealth IRA) and yep, you're 97th percentile now.

so if you're in the fortunate top 3% that can afford to put money into a 529, it's a no brainer -- do it.

worst case scenario your kids don't go to college, they don't get married, don't have kids, no nieces/nephews, and you have no interest taking a community cooking class for yourself, so pay a penalty! how bad can it be?

let's assume you contribute 5k yearly for 18 years, 7% return. you'll have about $170k. your contributions were $90k. a 10% penalty on the earnings amounts to $8k, or about 4.7% of the total value.

considering markets easily move 5% monthly on a regular basis i don't really see it as that big of a problem.
Most folks are not earning 7% on a 529 plan, probably 5% is a more reasonable number.
I disagree. Ours have returned much higher than 7% over the last 10 years.
When we had the 529 plan we never had great returns as we knew those funds would be needed in a shorter term and invested accordingly.
As we got even closer the investments became more conservative.
Fortunately as our daughter began utilizing the account in 2009 and had we been aggressive in that account the results would have been much different.
YMMV

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by Broken Man 1999 » Mon May 21, 2018 11:43 am

I am curious about the strategies of those who will be paying for at least some of their children's education but specifically NOT through a 529 plan.

I believe those non-529 activities have less security for the student as they are not separated out from everyday expenses. Even knowing money is fungible, do you not believe money set aside in 529 plans to be a bit more secure from being used for other means?

Example: Dad (or Mom) is a rock-star earner. But Dad (or Mom) also has a wandering eye, and acts upon an opportunity that leads to divorce. Now perhaps the kid's college education via cash-flow doesn't look so great. From what I have seen, and read, two households are typically not as cheap as one household.

Add in various scenarios for early death of provider, disability of one parent, etc. Certainly there is some chance the cash for the cash flow might not be available.

Now it is also possible for the parents/grandparent or other owners of the 529 plan to also raid the plan for funds, but I think the moral issue is stronger to not raid a 529 plan than not to cash flow a child's education.

A 529 account, with funding, seems to me a more explicit declaration that this individual will have funds available to attend college than a statement that when the time comes we will cash flow the costs from our savings and/or current earnings.

With the State of Florida 529 program, it would take BOTH the owner (me) and the survivor (mother of beneficiary) signatures to cancel and receive a disbursement of funds from the plan. I think the requirement is just one more protection from an owner who might want to gamble or drink or raid his beneficiary's college funds. Or, even protect my grandchildren's accounts from the danger of me losing cognitive abilities as I age, perhaps doing transactions that jeopardize the student's funds. I hope Vanguard's 529 Plan (Nevada) has the same requirement.

At any rate, how do the NON-529 account folks protect their children's college funds from the "stuff happens" things of life?

Broken Man 1999
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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by Grt2bOutdoors » Mon May 21, 2018 12:20 pm

Here's one idea - use an UTMA. Tell kid, money is for college from an age of understanding. Parents raiding an UTMA for less than ethical uses can be sued.

Another idea - for those with a wondering eye, the courts may enforce a requirement that you pay for college, period! And they can collect!
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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by sc9182 » Mon May 21, 2018 12:30 pm

Broken Man 1999 wrote:
Mon May 21, 2018 11:43 am
I am curious about the strategies of those who will be paying for at least some of their children's education but specifically NOT through a 529 plan.

I believe those non-529 activities have less security for the student as they are not separated out from everyday expenses. Even knowing money is fungible, do you not believe money set aside in 529 plans to be a bit more secure from being used for other means?

Example: Dad (or Mom) is a rock-star earner. But Dad (or Mom) also has a wandering eye, and acts upon an opportunity that leads to divorce. Now perhaps the kid's college education via cash-flow doesn't look so great. From what I have seen, and read, two households are typically not as cheap as one household.

Add in various scenarios for early death of provider, disability of one parent, etc. Certainly there is some chance the cash for the cash flow might not be available.

Now it is also possible for the parents/grandparent or other owners of the 529 plan to also raid the plan for funds, but I think the moral issue is stronger to not raid a 529 plan than not to cash flow a child's education.

A 529 account, with funding, seems to me a more explicit declaration that this individual will have funds available to attend college than a statement that when the time comes we will cash flow the costs from our savings and/or current earnings.

With the State of Florida 529 program, it would take BOTH the owner (me) and the survivor (mother of beneficiary) signatures to cancel and receive a disbursement of funds from the plan. I think the requirement is just one more protection from an owner who might want to gamble or drink or raid his beneficiary's college funds. Or, even protect my grandchildren's accounts from the danger of me losing cognitive abilities as I age, perhaps doing transactions that jeopardize the student's funds. I hope Vanguard's 529 Plan (Nevada) has the same requirement.

At any rate, how do the NON-529 account folks protect their children's college funds from the "stuff happens" things of life?

Broken Man 1999
Don't think life provides "fair" answers to every scenario, especially when "stuff happens". If divorce or any bad things were to happen - likely one parent (usually one with custody) may have lesser income, and/or in better tax status & bracket. That kid may in-turn be 'more' eligible for FAFSA and/or need-based aid/scholarship due to custodial parents better FAFSA-suited lesser assets/income. Its not as good as an "overflowing" 529, but ain't bad solution at an aggregate level. You may still cash flow extra monies. While you could have changed the old 529 beneficiary to your new "mutual/together" kid(s) ..

Re: "Add in various scenarios for early death of provider, disability of one parent, etc. Certainly there is some chance the cash for the cash flow might not be available." <-- infact those monies stuck in 529 could be rather used for better things if dramatic things happen in life - rather than merely "college funding". And forced withdrawals sure cost a pretty penny (marginal rates + penalty) ..

Re: "moral issue is stronger to not raid a 529 plan than not to cash flow a child's education" -- have noticed some cultures - where the family is sorta obliged to save assets in the name of kids (usually gold for girls, plots of good-pieces of appreciable land for all genders). Hear ya !

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by willthrill81 » Mon May 21, 2018 12:49 pm

As Klangfool has said repeatedly, it's better to not fund a 529 and keep your family fed than not to.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by Broken Man 1999 » Mon May 21, 2018 12:55 pm

Grt2bOutdoors wrote:
Mon May 21, 2018 12:20 pm
Here's one idea - use an UTMA. Tell kid, money is for college from an age of understanding. Parents raiding an UTMA for less than ethical uses can be sued.

Another idea - for those with a wondering eye, the courts may enforce a requirement that you pay for college, period! And they can collect!
UTMA accounts become within the minor's control in many states during the ages minor might be in college. So, yeah, parent can be sued I suppose if they raid the account, but the student can spend his/her money as he/she desires. I suppose "hope" is a plan.

Broken Man 1999
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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by Broken Man 1999 » Mon May 21, 2018 1:12 pm

willthrill81 wrote:
Mon May 21, 2018 12:49 pm
As Klangfool has said repeatedly, it's better to not fund a 529 and keep your family fed than not to.
I believe many people believe you can actually do both. I am one of those people. Certainly others are not.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by willthrill81 » Mon May 21, 2018 1:15 pm

Broken Man 1999 wrote:
Mon May 21, 2018 1:12 pm
willthrill81 wrote:
Mon May 21, 2018 12:49 pm
As Klangfool has said repeatedly, it's better to not fund a 529 and keep your family fed than not to.
I believe many people believe you can actually do both. I am one of those people. Certainly others are not.

Broken Man 1999
You probably can, but there's a reason we call emergency funds that. The future may unfold differently than we planned, and money earmarked for college might be needed for more critical purposes.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by marcopolo » Mon May 21, 2018 3:43 pm

willthrill81 wrote:
Mon May 21, 2018 1:15 pm
Broken Man 1999 wrote:
Mon May 21, 2018 1:12 pm
willthrill81 wrote:
Mon May 21, 2018 12:49 pm
As Klangfool has said repeatedly, it's better to not fund a 529 and keep your family fed than not to.
I believe many people believe you can actually do both. I am one of those people. Certainly others are not.

Broken Man 1999
You probably can, but there's a reason we call emergency funds that. The future may unfold differently than we planned, and money earmarked for college might be needed for more critical purposes.
This is an absurd straw man argument. No one is suggesting putting your emergency fund into a 529 plan.

Sure, lots of things can happen. But, for people in the situation where they are saving a lot of money towards retirement and also have the money to be able to fund a portion of their kids education, the vast majority of them will in fact end up doing so. So, the vast majority of the times the 529 plan would have worked out better for them. To actively avoid using them for some small probability fear that something terrible will happen seems counter productive. Even in KF's case, he ended up paying for his kid's college despite all the periods of unemployment. He would have been better off having put some funds into 529 instead of taxable savings. It comes out better even if you can "cash flow" later.
Last edited by marcopolo on Mon May 21, 2018 3:48 pm, edited 1 time in total.
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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by CnC » Mon May 21, 2018 3:46 pm

For me the risks and opportunity costs of a 529 plan outweigh the benefits that's why I do not fund one.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by willthrill81 » Mon May 21, 2018 4:01 pm

marcopolo wrote:
Mon May 21, 2018 3:43 pm
willthrill81 wrote:
Mon May 21, 2018 1:15 pm
Broken Man 1999 wrote:
Mon May 21, 2018 1:12 pm
willthrill81 wrote:
Mon May 21, 2018 12:49 pm
As Klangfool has said repeatedly, it's better to not fund a 529 and keep your family fed than not to.
I believe many people believe you can actually do both. I am one of those people. Certainly others are not.

Broken Man 1999
You probably can, but there's a reason we call emergency funds that. The future may unfold differently than we planned, and money earmarked for college might be needed for more critical purposes.
This is an absurd straw man argument. No one is suggesting putting your emergency fund into a 529 plan.

Sure, lots of things can happen. But, for people in the situation where they are saving a lot of money towards retirement and also have the money to be able to fund a portion of their kids education, the vast majority of them will in fact end up doing so. So, the vast majority of the times the 529 plan would have worked out better for them. To actively avoid using them for some small probability fear that something terrible will happen seems counter productive. Even in KF's case, he ended up paying for his kid's college despite all the periods of unemployment. He would have been better off having put some funds into 529 instead of taxable savings. It comes out better even if you can "cash flow" later.
You'll note that (1) I never suggested that anyone put their EF into a 529 plan [I was merely pointing out that the limitations for withdrawals in 529 plans are very real and should not be easily dismissed; see my above example of an uncle who used a similar vehicle and may not use it at all] and (2) I've said multiple times in this thread that if all other tax-advantaged space has been maxed out that it can make good sense to use a 529.

If other tax-advantaged space is available, that should nearly always be used first.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by yardarm » Mon May 21, 2018 5:04 pm

This has been an interesting thread. We are currently investing in a 529 plan for a grandchild which seems to be a variation of the theme; and we are certainly not trying to achieve anything near a maximum contribution. At any rate, who knows what the future holds. You could do worst than investing in a child's education. From what I have read it seems like 97% of the people do not invest in anything including their own retirement; oh well....... Cheers. As a side note: I certainly am glad that there was a GI Bill is the past!!

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by DaftInvestor » Mon May 21, 2018 5:06 pm

CnC wrote:
Mon May 21, 2018 3:46 pm
For me the risks and opportunity costs of a 529 plan outweigh the benefits that's why I do not fund one.
We, as US citizens, thank you for the extra taxes :)

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by marcopolo » Mon May 21, 2018 5:13 pm

DaftInvestor wrote:
Mon May 21, 2018 5:06 pm
CnC wrote:
Mon May 21, 2018 3:46 pm
For me the risks and opportunity costs of a 529 plan outweigh the benefits that's why I do not fund one.
We, as US citizens, thank you for the extra taxes :)
Ha! I had not thought about it from that perspective. I think i will stop advocating for it now. :happy
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by Bacchus01 » Mon May 21, 2018 5:18 pm

Grt2bOutdoors wrote:
Sun May 20, 2018 7:59 pm
Bacchus01 wrote:
Sun May 20, 2018 8:19 am
Grt2bOutdoors wrote:
Sat May 19, 2018 2:54 pm
bling wrote:
Sat May 19, 2018 2:50 pm
i don't understand why 529 threads always end up being so long.

if you can max out your 401k, that alone puts you in the top 90th percentile of americans. add in maxing the IRA, probably bumps your into 95th percentile. add in maxing a HSA (stealth IRA) and yep, you're 97th percentile now.

so if you're in the fortunate top 3% that can afford to put money into a 529, it's a no brainer -- do it.

worst case scenario your kids don't go to college, they don't get married, don't have kids, no nieces/nephews, and you have no interest taking a community cooking class for yourself, so pay a penalty! how bad can it be?

let's assume you contribute 5k yearly for 18 years, 7% return. you'll have about $170k. your contributions were $90k. a 10% penalty on the earnings amounts to $8k, or about 4.7% of the total value.

considering markets easily move 5% monthly on a regular basis i don't really see it as that big of a problem.
Most folks are not earning 7% on a 529 plan, probably 5% is a more reasonable number.
I disagree. Ours have returned much higher than 7% over the last 10 years.
Past performance is not indicative of future performance. You are free to disagree, but everyone in the industry is predicting lower future returns. Tell us how you believe returns will be higher for the average 529 investor who does not hold an equity heavy portfolio over the life of the plan?
That’s not what you said. You made what appeared to be a statement of fact that is in fact not backed up by any data at all.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by azanon » Mon May 21, 2018 5:22 pm

I'm not buying the only 3% figure have a 529. I have a kid, so of course I have a 529. It's the best deal out there, but I admit it helps that my state has a decent one which allows a deduction up to 5K along with the federal deduction.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by Broken Man 1999 » Mon May 21, 2018 5:48 pm

willthrill81 wrote:
Mon May 21, 2018 1:15 pm
Broken Man 1999 wrote:
Mon May 21, 2018 1:12 pm
willthrill81 wrote:
Mon May 21, 2018 12:49 pm
As Klangfool has said repeatedly, it's better to not fund a 529 and keep your family fed than not to.
I believe many people believe you can actually do both. I am one of those people. Certainly others are not.

Broken Man 1999
You probably can, but there's a reason we call emergency funds that. The future may unfold differently than we planned, and money earmarked for college might be needed for more critical purposes.
Wouldn't a prudent couple have an emergency fund established PRIOR to having children? If I strongly believed in emergency funds I think I would have had one prior to having children in the family.

A modest 529 plan is certainly doable even for modest earners. You just have to decide what is important to you and your family members. So many of today's expenses are in truth discretionary, not required. A larded-up cable or cell phone plan offers an easy way to pick up $75-$100 a month to start funding a 529 plan for a newborn. Those in states that offset state income taxes with 529 plans have an easy way to get some funds in to start.

The desire must be there, however.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by maddogio » Mon May 21, 2018 6:36 pm

perl wrote:
Sat May 19, 2018 4:49 pm
These discussions about the need to max retirement accounts tend not to notice that some people have a lot of tax deferred space. We could contribute over $130k annually to tax deferred and tax free between the IRA, 401a, 403b, 457, and HSA. We don't need all of that, and will probably never hit the max.

Our state doesn't cap the 529 amount eligible for a state income tax deduction and has good low-cost plans. It's a nice way to lower state income taxes and get tax free growth.
We're in the same situation. (401a + 403b + 457 + IRA)x2 is approximately equal to our annual gross income. We have the potential save a remarkably large fraction of our income in non-liquid, tax-advantaged vehicles. We direct gifts and bonuses into 529s and use Roth IRAs with the idea that we may use contributions to help with some college costs.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by GCD » Mon May 21, 2018 6:54 pm

willthrill81 wrote:
Mon May 21, 2018 1:15 pm
Broken Man 1999 wrote:
Mon May 21, 2018 1:12 pm
willthrill81 wrote:
Mon May 21, 2018 12:49 pm
As Klangfool has said repeatedly, it's better to not fund a 529 and keep your family fed than not to.
I believe many people believe you can actually do both. I am one of those people. Certainly others are not.

Broken Man 1999
You probably can, but there's a reason we call emergency funds that. The future may unfold differently than we planned, and money earmarked for college might be needed for more critical purposes.
I enjoy Klang's posts, but I think his world view has been warped by several lengthy periods of unemployment. There is a spectrum of risk for unemployment as well as for investments. Truth be told, I've never had an "emergency fund". My wife and I have always invested our money in one form or another, some of it more accessible than others. The more accessible accounts with the least tax repercussions for early withdrawl were our "emergency funds".

Why so cavalier? My wife and I were both federal employees with a decade or more of seniority when we got married. We were also both considered essential employees and continued working through govt. shutdowns. Aside from committing a felony or simply not showing up for work there was no way we were going to lose our jobs.

The idea that I would ever have to tap the 529 to feed us is absurd. The kind of black swan that would cause that is also one that wouldn't be alleviated by having an emergency fund.

There were various downsides to federal employment of course, but it's one example of how the spectrum of unemployment risk is very broad.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by dash1s » Mon May 21, 2018 6:57 pm

feehater wrote:
Sun May 20, 2018 12:14 pm
bling wrote:
Sat May 19, 2018 2:50 pm
i don't understand why 529 threads always end up being so long.

if you can max out your 401k, that alone puts you in the top 90th percentile of americans. add in maxing the IRA, probably bumps your into 95th percentile. add in maxing a HSA (stealth IRA) and yep, you're 97th percentile now.

so if you're in the fortunate top 3% that can afford to put money into a 529, it's a no brainer -- do it.

worst case scenario your kids don't go to college, they don't get married, don't have kids, no nieces/nephews, and you have no interest taking a community cooking class for yourself, so pay a penalty! how bad can it be?

let's assume you contribute 5k yearly for 18 years, 7% return. you'll have about $170k. your contributions were $90k. a 10% penalty on the earnings amounts to $8k, or about 4.7% of the total value.

considering markets easily move 5% monthly on a regular basis i don't really see it as that big of a problem.
You pay 10% + normal income tax rates. So approaching 40% penalty for a lot of people in high tax states, vs 15% on capital gains.
Bingo!!

If you have conviction you'll be able to use all your 529 for qualified expenses, than 100% use it. Otherwise if you lack conviction, and as the case above laid out, upside 0% vs 15% base vs 40% downside is a poor decision.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by finite_difference » Mon May 21, 2018 7:14 pm

dash1s wrote:
Mon May 21, 2018 6:57 pm
feehater wrote:
Sun May 20, 2018 12:14 pm
bling wrote:
Sat May 19, 2018 2:50 pm
i don't understand why 529 threads always end up being so long.

if you can max out your 401k, that alone puts you in the top 90th percentile of americans. add in maxing the IRA, probably bumps your into 95th percentile. add in maxing a HSA (stealth IRA) and yep, you're 97th percentile now.

so if you're in the fortunate top 3% that can afford to put money into a 529, it's a no brainer -- do it.

worst case scenario your kids don't go to college, they don't get married, don't have kids, no nieces/nephews, and you have no interest taking a community cooking class for yourself, so pay a penalty! how bad can it be?

let's assume you contribute 5k yearly for 18 years, 7% return. you'll have about $170k. your contributions were $90k. a 10% penalty on the earnings amounts to $8k, or about 4.7% of the total value.

considering markets easily move 5% monthly on a regular basis i don't really see it as that big of a problem.
You pay 10% + normal income tax rates. So approaching 40% penalty for a lot of people in high tax states, vs 15% on capital gains.
Bingo!!

If you have conviction you'll be able to use all your 529 for qualified expenses, than 100% use it. Otherwise if you lack conviction, and as the case above laid out, upside 0% vs 15% base vs 40% downside is a poor decision.
1. Can’t you also make the penalty withdrawals when you have 0 income and thus 0 income tax?
2. What about the dividends (tax drag) on those taxable funds?
3. What about the state income tax deduction for 529 plans?

So it’s not really that simple. It could be (15% + cumulative tax drag) vs (10% - state income tax deduction)?
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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DaftInvestor
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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by DaftInvestor » Mon May 21, 2018 7:28 pm

finite_difference wrote:
Mon May 21, 2018 7:14 pm
dash1s wrote:
Mon May 21, 2018 6:57 pm
feehater wrote:
Sun May 20, 2018 12:14 pm
bling wrote:
Sat May 19, 2018 2:50 pm
i don't understand why 529 threads always end up being so long.

if you can max out your 401k, that alone puts you in the top 90th percentile of americans. add in maxing the IRA, probably bumps your into 95th percentile. add in maxing a HSA (stealth IRA) and yep, you're 97th percentile now.

so if you're in the fortunate top 3% that can afford to put money into a 529, it's a no brainer -- do it.

worst case scenario your kids don't go to college, they don't get married, don't have kids, no nieces/nephews, and you have no interest taking a community cooking class for yourself, so pay a penalty! how bad can it be?

let's assume you contribute 5k yearly for 18 years, 7% return. you'll have about $170k. your contributions were $90k. a 10% penalty on the earnings amounts to $8k, or about 4.7% of the total value.

considering markets easily move 5% monthly on a regular basis i don't really see it as that big of a problem.
You pay 10% + normal income tax rates. So approaching 40% penalty for a lot of people in high tax states, vs 15% on capital gains.
Bingo!!

If you have conviction you'll be able to use all your 529 for qualified expenses, than 100% use it. Otherwise if you lack conviction, and as the case above laid out, upside 0% vs 15% base vs 40% downside is a poor decision.
1. Can’t you also make the penalty withdrawals when you have 0 income and thus 0 income tax?
2. What about the dividends (tax drag) on those taxable funds?
3. What about the state income tax deduction for 529 plans?

So it’s not really that simple. It could be (15% + cumulative tax drag) vs (10% - state income tax deduction)?
Plus you wouldn't want to leave your kids college money at 100% stock right up until you pay tuition - you would want to shift to cash/CDs so no 15%.
I personally love the fact I've had money grow tax free for 20+ years.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by bayview » Mon May 21, 2018 7:45 pm

bling wrote:
Sat May 19, 2018 2:50 pm
i don't understand why 529 threads always end up being so long...
Well, sometimes because they were started four years ago, with the most recent post nearly a year and a half ago, and someone disinterested them? :D

At any rate, posters might want to note the date of a post being responded to, in case the situation has changed since that time.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by Grt2bOutdoors » Mon May 21, 2018 7:47 pm

Bacchus01 wrote:
Mon May 21, 2018 5:18 pm
Grt2bOutdoors wrote:
Sun May 20, 2018 7:59 pm
Bacchus01 wrote:
Sun May 20, 2018 8:19 am
Grt2bOutdoors wrote:
Sat May 19, 2018 2:54 pm
bling wrote:
Sat May 19, 2018 2:50 pm
i don't understand why 529 threads always end up being so long.

if you can max out your 401k, that alone puts you in the top 90th percentile of americans. add in maxing the IRA, probably bumps your into 95th percentile. add in maxing a HSA (stealth IRA) and yep, you're 97th percentile now.

so if you're in the fortunate top 3% that can afford to put money into a 529, it's a no brainer -- do it.

worst case scenario your kids don't go to college, they don't get married, don't have kids, no nieces/nephews, and you have no interest taking a community cooking class for yourself, so pay a penalty! how bad can it be?

let's assume you contribute 5k yearly for 18 years, 7% return. you'll have about $170k. your contributions were $90k. a 10% penalty on the earnings amounts to $8k, or about 4.7% of the total value.

considering markets easily move 5% monthly on a regular basis i don't really see it as that big of a problem.
Most folks are not earning 7% on a 529 plan, probably 5% is a more reasonable number.
I disagree. Ours have returned much higher than 7% over the last 10 years.
Past performance is not indicative of future performance. You are free to disagree, but everyone in the industry is predicting lower future returns. Tell us how you believe returns will be higher for the average 529 investor who does not hold an equity heavy portfolio over the life of the plan?
That’s not what you said. You made what appeared to be a statement of fact that is in fact not backed up by any data at all.
An informal poll done here on Bogleheads a few years ago in this very topic, few responded that their 529 Plan earned more than 5%, some actually earned less than that. A poll is based on individual responses other than my own. I’ll dig around and see what other facts I can find on it.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by willthrill81 » Mon May 21, 2018 7:51 pm

Broken Man 1999 wrote:
Mon May 21, 2018 5:48 pm
Wouldn't a prudent couple have an emergency fund established PRIOR to having children? If I strongly believed in emergency funds I think I would have had one prior to having children in the family.
You don't have to look far, even among Bogleheads, to find those with no emergency fund.

Once again, I'm not bashing 529 plans, but I believe that the math is clear that in the overwhelming majority of instances, investors are better off maxing out other tax-advantaged accounts before investing into 529 plans. I'm sure that there are exceptions to this, and yes, everyone needs to evaluate this for themselves, but we often see people who simply don't want to conduct such an evaluation and, consequently, don't. For them, the mantra of "everything else first" is probably correct.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by dash1s » Mon May 21, 2018 8:02 pm

finite_difference wrote:
Mon May 21, 2018 7:14 pm
dash1s wrote:
Mon May 21, 2018 6:57 pm
feehater wrote:
Sun May 20, 2018 12:14 pm
bling wrote:
Sat May 19, 2018 2:50 pm
i don't understand why 529 threads always end up being so long.

if you can max out your 401k, that alone puts you in the top 90th percentile of americans. add in maxing the IRA, probably bumps your into 95th percentile. add in maxing a HSA (stealth IRA) and yep, you're 97th percentile now.

so if you're in the fortunate top 3% that can afford to put money into a 529, it's a no brainer -- do it.

worst case scenario your kids don't go to college, they don't get married, don't have kids, no nieces/nephews, and you have no interest taking a community cooking class for yourself, so pay a penalty! how bad can it be?

let's assume you contribute 5k yearly for 18 years, 7% return. you'll have about $170k. your contributions were $90k. a 10% penalty on the earnings amounts to $8k, or about 4.7% of the total value.

considering markets easily move 5% monthly on a regular basis i don't really see it as that big of a problem.
You pay 10% + normal income tax rates. So approaching 40% penalty for a lot of people in high tax states, vs 15% on capital gains.
Bingo!!

If you have conviction you'll be able to use all your 529 for qualified expenses, than 100% use it. Otherwise if you lack conviction, and as the case above laid out, upside 0% vs 15% base vs 40% downside is a poor decision.
1. Can’t you also make the penalty withdrawals when you have 0 income and thus 0 income tax?
2. What about the dividends (tax drag) on those taxable funds?
3. What about the state income tax deduction for 529 plans?

So it’s not really that simple. It could be (15% + cumulative tax drag) vs (10% - state income tax deduction)?
1 - Unrealistic to project a 0 income year. Just my opinion.

2 - Ordinary income + 10% penalty will trump whatever the tax drag is on say a 2% dividend yield. I invite you to do the math and prove me otherwise.

3 - Varies case by case. I live in NY. On 10k is a $650 break, Or 6.65 basis points. But the argument we make is the downside of making NON-qualified withdrawals. New York State Claws everything back for non-qualified withdrawals. So downside case remains as is and point 3 doesn't change anything.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by letsgobobby » Mon May 21, 2018 8:08 pm

Note if you are paying 40+% marginal taxes you may be paying 18.8-23.8% capital gains taxes. Unlikely you'll be paying 15%.

I approximate the tag drag in taxable is offset by the slightly higher fees in 529s. Details depend on specific investments and tax rates.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by dash1s » Mon May 21, 2018 8:19 pm

letsgobobby wrote:
Mon May 21, 2018 8:08 pm
Note if you are paying 40+% marginal taxes you may be paying 18.8-23.8% capital gains taxes. Unlikely you'll be paying 15%.

I approximate the tag drag in taxable is offset by the slightly higher fees in 529s. Details depend on specific investments and tax rates.
The 40% marginal we are speaking of is inclusive of a 10% penalty for no-qualified distributions.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by theplayer11 » Mon May 21, 2018 8:30 pm

funded 529 for 2 kids, which paid for their college in full..We didn't fully max out our retirement funds, but would do the same in a heartbeat.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by letsgobobby » Mon May 21, 2018 8:33 pm

dash1s wrote:
Mon May 21, 2018 8:19 pm
letsgobobby wrote:
Mon May 21, 2018 8:08 pm
Note if you are paying 40+% marginal taxes you may be paying 18.8-23.8% capital gains taxes. Unlikely you'll be paying 15%.

I approximate the tag drag in taxable is offset by the slightly higher fees in 529s. Details depend on specific investments and tax rates.
The 40% marginal we are speaking of is inclusive of a 10% penalty for no-qualified distributions.
Understood. I'm in the 32% bracket, and I'm not paying 15% on capital gains. Even some in the 24% bracket will pay NIIT.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by dash1s » Mon May 21, 2018 8:36 pm

theplayer11 wrote:
Mon May 21, 2018 8:30 pm
funded 529 for 2 kids, which paid for their college in full..We didn't fully max out our retirement funds, but would do the same in a heartbeat.
Nice! This is when a 529 plan works out. If your two kids happen to not go college or a less expensive one, is where you can find yourself under serious water.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by tadamsmar » Mon May 21, 2018 8:38 pm

Could someone channel college expenses through a 529 to avoid state income taxes? In most states, contributions can reduce income taxes.

The strategy would be to have money in it for short time so it does not effect federal student aid. But maybe that would not work?

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by sc9182 » Mon May 21, 2018 8:53 pm

letsgobobby wrote:
Mon May 21, 2018 8:33 pm
dash1s wrote:
Mon May 21, 2018 8:19 pm
letsgobobby wrote:
Mon May 21, 2018 8:08 pm
Note if you are paying 40+% marginal taxes you may be paying 18.8-23.8% capital gains taxes. Unlikely you'll be paying 15%.

I approximate the tag drag in taxable is offset by the slightly higher fees in 529s. Details depend on specific investments and tax rates.
The 40% marginal we are speaking of is inclusive of a 10% penalty for no-qualified distributions.
Understood. I'm in the 32% bracket, and I'm not paying 15% on capital gains. Even some in the 24% bracket will pay NIIT.
C'mon now. Think most of the discussion is about prioritizing which tax efficient vehicles. And most likely applicable for new 12-22% tax brackets. If you are in 32% marginal, and have maxed most of savings vehicles, the have additional monies to save, got kids (or plans), 529 seems no brainer - especially if your state incentivizes 529 contributions and ability to invest in low-cost/fee good funds.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by finite_difference » Mon May 21, 2018 9:03 pm

tadamsmar wrote:
Mon May 21, 2018 8:38 pm
Could someone channel college expenses through a 529 to avoid state income taxes? In most states, contributions can reduce income taxes.

The strategy would be to have money in it for short time so it does not effect federal student aid. But maybe that would not work?
Yes, I think in most(?) states this actually works. So you can channel funds through and reap the state income tax benefit, and then just apply the funds for qualified expenses. So in theory you could have it in taxable funds, sell them, then channel through a 529 to get the state income tax deduction, and then use it to pay for college.

Some states I think have a waiting period before funds can be used, though might only be a year or two. So you want to verify this strategy can be used for your situation.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by anoop » Mon May 21, 2018 9:11 pm

cheesepep wrote:
Wed Sep 10, 2014 11:24 pm
I will never use a 529 plan because of simplicity. Imagine I have two kids so I have two 529 plans, a 401K (at least 1), a ROTH, HSA, taxable (maybe more than 1), etc. Too much for me. I like simplicity .

I like to have as few accounts as possible. It keeps my money more focused.
Hurray for simplicity. I don't have an HSA because it would involve creating another account. I do have an FSA but that expires each year and I don't have to worry about investing it.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by DaftInvestor » Mon May 21, 2018 9:18 pm

anoop wrote:
Mon May 21, 2018 9:11 pm
cheesepep wrote:
Wed Sep 10, 2014 11:24 pm
I will never use a 529 plan because of simplicity. Imagine I have two kids so I have two 529 plans, a 401K (at least 1), a ROTH, HSA, taxable (maybe more than 1), etc. Too much for me. I like simplicity .

I like to have as few accounts as possible. It keeps my money more focused.
Hurray for simplicity. I don't have an HSA because it would involve creating another account. I do have an FSA but that expires each year and I don't have to worry about investing it.
If you guys want to go really simple perhaps skip all the tax advantaged accounts and just go with a single taxable account - that would keep things real simple :)

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by bling » Mon May 21, 2018 9:20 pm

anoop wrote:
Mon May 21, 2018 9:11 pm
cheesepep wrote:
Wed Sep 10, 2014 11:24 pm
I will never use a 529 plan because of simplicity. Imagine I have two kids so I have two 529 plans, a 401K (at least 1), a ROTH, HSA, taxable (maybe more than 1), etc. Too much for me. I like simplicity .

I like to have as few accounts as possible. It keeps my money more focused.
Hurray for simplicity. I don't have an HSA because it would involve creating another account. I do have an FSA but that expires each year and I don't have to worry about investing it.
an HSA is amazing. it's tax-deducted *and* tax-free! if you wait until you're 65 you don't even have to use it on medical expenses -- it effectively becomes a traditional IRA at that point for non-medical expenses.
Last edited by bling on Mon May 21, 2018 9:24 pm, edited 1 time in total.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by anoop » Mon May 21, 2018 9:23 pm

DaftInvestor wrote:
Mon May 21, 2018 9:18 pm
anoop wrote:
Mon May 21, 2018 9:11 pm
cheesepep wrote:
Wed Sep 10, 2014 11:24 pm
I will never use a 529 plan because of simplicity. Imagine I have two kids so I have two 529 plans, a 401K (at least 1), a ROTH, HSA, taxable (maybe more than 1), etc. Too much for me. I like simplicity .

I like to have as few accounts as possible. It keeps my money more focused.
Hurray for simplicity. I don't have an HSA because it would involve creating another account. I do have an FSA but that expires each year and I don't have to worry about investing it.
If you guys want to go really simple perhaps skip all the tax advantaged accounts and just go with a single taxable account - that would keep things real simple :)
It's not so much the number of accounts as the number of financial institutions I have to deal with. And I'm getting there slowly...I hit my max at 8 or 9 institutions. I am now down to 5. At the end of this year, I will be down to 3. And I may consider dropping to 2 eventually.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by finite_difference » Mon May 21, 2018 9:25 pm

dash1s wrote:
Mon May 21, 2018 8:02 pm
finite_difference wrote:
Mon May 21, 2018 7:14 pm
dash1s wrote:
Mon May 21, 2018 6:57 pm
feehater wrote:
Sun May 20, 2018 12:14 pm
bling wrote:
Sat May 19, 2018 2:50 pm
i don't understand why 529 threads always end up being so long.

if you can max out your 401k, that alone puts you in the top 90th percentile of americans. add in maxing the IRA, probably bumps your into 95th percentile. add in maxing a HSA (stealth IRA) and yep, you're 97th percentile now.

so if you're in the fortunate top 3% that can afford to put money into a 529, it's a no brainer -- do it.

worst case scenario your kids don't go to college, they don't get married, don't have kids, no nieces/nephews, and you have no interest taking a community cooking class for yourself, so pay a penalty! how bad can it be?

let's assume you contribute 5k yearly for 18 years, 7% return. you'll have about $170k. your contributions were $90k. a 10% penalty on the earnings amounts to $8k, or about 4.7% of the total value.

considering markets easily move 5% monthly on a regular basis i don't really see it as that big of a problem.
You pay 10% + normal income tax rates. So approaching 40% penalty for a lot of people in high tax states, vs 15% on capital gains.
Bingo!!

If you have conviction you'll be able to use all your 529 for qualified expenses, than 100% use it. Otherwise if you lack conviction, and as the case above laid out, upside 0% vs 15% base vs 40% downside is a poor decision.
1. Can’t you also make the penalty withdrawals when you have 0 income and thus 0 income tax?
2. What about the dividends (tax drag) on those taxable funds?
3. What about the state income tax deduction for 529 plans?

So it’s not really that simple. It could be (15% + cumulative tax drag) vs (10% - state income tax deduction)?
1 - Unrealistic to project a 0 income year. Just my opinion.

2 - Ordinary income + 10% penalty will trump whatever the tax drag is on say a 2% dividend yield. I invite you to do the math and prove me otherwise.

3 - Varies case by case. I live in NY. On 10k is a $650 break, Or 6.65 basis points. But the argument we make is the downside of making NON-qualified withdrawals. New York State Claws everything back for non-qualified withdrawals. So downside case remains as is and point 3 doesn't change anything.
1. A lot of folks here do Roth conversions for several years and actually do have 0 income tax for a while? Isn’t there a thread on that? I’m just saying you can wait to time it so that you have little income, in which case the penalty will at least be reduced significantly.
2. Let’s say tax drag from 2% dividends is 0.5% or 50 basis points. Over 20 years.. that will reduce your balance by 10% right there. (1-0.005)^20=0.9. That’s simplistic but 50 basis points is a rather significant drag over time.. after all that’s why everyone here is obsessed with reducing their ER! Many 529 plans have passive funds that have ERs that are competitive with Vanguard funds (~15 basis points) so it’s not fair to write off the tax drag as equivalent to a 529 fund’s higher ER.
3. Good point they can claw it back! I think you mean 665 basis points though?
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by anoop » Mon May 21, 2018 9:28 pm

bling wrote:
Mon May 21, 2018 9:20 pm
anoop wrote:
Mon May 21, 2018 9:11 pm
cheesepep wrote:
Wed Sep 10, 2014 11:24 pm
I will never use a 529 plan because of simplicity. Imagine I have two kids so I have two 529 plans, a 401K (at least 1), a ROTH, HSA, taxable (maybe more than 1), etc. Too much for me. I like simplicity .

I like to have as few accounts as possible. It keeps my money more focused.
Hurray for simplicity. I don't have an HSA because it would involve creating another account. I do have an FSA but that expires each year and I don't have to worry about investing it.
an HSA is amazing. it's tax-deducted *and* tax-free! if you wait until you're 65 you don't even have to use it on medical expenses -- it effectively becomes a traditional IRA at that point for non-medical expenses.
We have a whole bunch of rules around FSA + HSA. First you have to be in a high deductible plan, not a PPO (I choose the PPO because I think it's simpler). Second, if I do FSA + HSA, payments begin from the HSA until a certain % has been hit, and only then does FSA kick in. And if I don't do FSA, then given the lousy deductibles of the high deductible plan, I might be saving like $50 each year. And the HSA is managed by a different financial institution than my 401k.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by teen persuasion » Mon May 21, 2018 9:34 pm

tadamsmar wrote:
Mon May 21, 2018 8:38 pm
Could someone channel college expenses through a 529 to avoid state income taxes? In most states, contributions can reduce income taxes.

The strategy would be to have money in it for short time so it does not effect federal student aid. But maybe that would not work?
I have considered running college expenses thru a 529 just to capture the state credit. As far as FAFSA reporting, value of assets (which would include the balance of a 529) is reported as of the day you file. So you could time contributions and withdrawals if your state's 529 plan has no timing restrictions.

So far, I really don't have extra expenses to run thru the 529 - we usually have to do some contortions to claim parts of scholarships as taxable income to transfer the scholarship monies to non-tuition expenses, so that other funds are "spent" on tuition, so that we qualify for AOTC. Withdrawals from a 529 wouldn't qualify for the AOTC.

The value of the AOTC far outweighs the 4% state tax credit for us at this point in time (DS4 currently in college, older 3 graduated), and when they were young we barely had $ to save for retirement let alone for college savings for 5 kids.

I ran the numbers for our situation; hands down, a 529 would have hurt us much more than helped us afford college. We were better off paying down the mortgage (freed up cash flow) and saving heavily in HSA, traditional 401k and Roth IRA accounts (money already in the retirement accounts was invisible to the FAFSA, and reduced AGI helped us hit the EFC = $0 for some years and hit the Simplified Needs Test others to allow us to not report assets). The heavy pre-tax savings also resulted in significant refundable credits (which I put in Roth IRAs - totally tax free going in), effectively more invisible income.

For lower income families with kids, federal credits like EITC and CTC and AOTC (often with matching partial state analogs) and lower EFC are much better than a small state only credit.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by CnC » Mon May 21, 2018 10:51 pm

DaftInvestor wrote:
Mon May 21, 2018 5:06 pm
CnC wrote:
Mon May 21, 2018 3:46 pm
For me the risks and opportunity costs of a 529 plan outweigh the benefits that's why I do not fund one.
We, as US citizens, thank you for the extra taxes :)
No problem, I'll gladly pay the small amount in extra taxes for the multiple benefits and options a brokerage account offers.

If all goes well I'll retire early enough that the capital gains tax I pay for my girls to go to school will be minimal. And I won't have to worry about saving too much and paying any penalty.

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by willthrill81 » Mon May 21, 2018 11:31 pm

anoop wrote:
Mon May 21, 2018 9:23 pm
DaftInvestor wrote:
Mon May 21, 2018 9:18 pm
anoop wrote:
Mon May 21, 2018 9:11 pm
cheesepep wrote:
Wed Sep 10, 2014 11:24 pm
I will never use a 529 plan because of simplicity. Imagine I have two kids so I have two 529 plans, a 401K (at least 1), a ROTH, HSA, taxable (maybe more than 1), etc. Too much for me. I like simplicity .

I like to have as few accounts as possible. It keeps my money more focused.
Hurray for simplicity. I don't have an HSA because it would involve creating another account. I do have an FSA but that expires each year and I don't have to worry about investing it.
If you guys want to go really simple perhaps skip all the tax advantaged accounts and just go with a single taxable account - that would keep things real simple :)
It's not so much the number of accounts as the number of financial institutions I have to deal with. And I'm getting there slowly...I hit my max at 8 or 9 institutions. I am now down to 5. At the end of this year, I will be down to 3. And I may consider dropping to 2 eventually.
Have you done the math to see the potential impact of an HSA? I'm all for consolidating accounts, but I think you're putting a very hefty premium on simplicity.

"Make things as simple as you can, but not simpler."
-Albert Einstein
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by letsgobobby » Tue May 22, 2018 12:48 am

sc9182 wrote:
Mon May 21, 2018 8:53 pm

C'mon now. Think most of the discussion is about prioritizing which tax efficient vehicles. And most likely applicable for new 12-22% tax brackets. If you are in 32% marginal, and have maxed most of savings vehicles, the have additional monies to save, got kids (or plans), 529 seems no brainer - especially if your state incentivizes 529 contributions and ability to invest in low-cost/fee good funds.
I think you’re agreeing with me. I’m a big proponent of 529s. My point is the proper comparison of tax rates against a taxable account is not “40%+ vs 15%” but either “40%+ vs 18.8-23.8%” or lower marginal rates vs 15%.

SpaceCowboy
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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by SpaceCowboy » Tue May 22, 2018 1:41 am

I’m fortunate to be part of the 3%.
Doubt that I would have psychologically been able to pull the trigger on early retirement while my kids were still in high school if I hadn’t fully funded 529s to cover college for my kids. Tax benefits were worthwhile, even without a state tax deduction. It’s just like my paying off the mortgage the year after I retired. It gives you a sense of security that you can declare yourself FIREd.

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DaftInvestor
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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by DaftInvestor » Tue May 22, 2018 5:23 am

letsgobobby wrote:
Tue May 22, 2018 12:48 am
sc9182 wrote:
Mon May 21, 2018 8:53 pm

C'mon now. Think most of the discussion is about prioritizing which tax efficient vehicles. And most likely applicable for new 12-22% tax brackets. If you are in 32% marginal, and have maxed most of savings vehicles, the have additional monies to save, got kids (or plans), 529 seems no brainer - especially if your state incentivizes 529 contributions and ability to invest in low-cost/fee good funds.
I think you’re agreeing with me. I’m a big proponent of 529s. My point is the proper comparison of tax rates against a taxable account is not “40%+ vs 15%” but either “40%+ vs 18.8-23.8%” or lower marginal rates vs 15%.
I would have paid 28.9% since my state also taxes LTCGs at 5.1%.
Many are certainly underestimating how much 529s could be saving them.

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DaftInvestor
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Re: "Why 97% of People Don't Use 529 College Savings Plans."

Post by DaftInvestor » Tue May 22, 2018 5:30 am

anoop wrote:
Mon May 21, 2018 9:23 pm
DaftInvestor wrote:
Mon May 21, 2018 9:18 pm
anoop wrote:
Mon May 21, 2018 9:11 pm
cheesepep wrote:
Wed Sep 10, 2014 11:24 pm
I will never use a 529 plan because of simplicity. Imagine I have two kids so I have two 529 plans, a 401K (at least 1), a ROTH, HSA, taxable (maybe more than 1), etc. Too much for me. I like simplicity .

I like to have as few accounts as possible. It keeps my money more focused.
Hurray for simplicity. I don't have an HSA because it would involve creating another account. I do have an FSA but that expires each year and I don't have to worry about investing it.
If you guys want to go really simple perhaps skip all the tax advantaged accounts and just go with a single taxable account - that would keep things real simple :)
It's not so much the number of accounts as the number of financial institutions I have to deal with. And I'm getting there slowly...I hit my max at 8 or 9 institutions. I am now down to 5. At the end of this year, I will be down to 3. And I may consider dropping to 2 eventually.
I use the same financial institute for my 529 as other investments. I found it simpler to separate college investments from retirement investments.

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