529 or ESA? Self-manage or target-date?

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batman2020
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529 or ESA? Self-manage or target-date?

Post by batman2020 » Tue Feb 11, 2020 10:17 am

About to enter Dave Ramsey Baby Step 5 and debating between a 529 or an ESA I would self-manage. We have two kids, one 10 and one 6. We live in WA state, so not tax benefit to choosing the WA State 529 plan.

Wondering what folks do here for 529 choices?

Does anyone do an ESA and self-manage? Do you self-manage in a 529 or use the target-date funds? I like this one https://my529.org/age-based-aggressive-global/ but I heard Dave talking about how most target-based funds are too conservative and it made me think I should do an ESA with funds I choose.

I like the glide path in this target date fund (and that investment choices are automated) but don't want to go too conservative either.

renue74
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Re: 529 or ESA? Self-manage or target-date?

Post by renue74 » Tue Feb 11, 2020 10:24 am

I think the ESA limits you to only $2000/year. So, if you are thinking in the future you might add more.
Also, the ESA has an age limit...where 529 doesn't.

We did 529 plans and a Roth IRA for each of our 2 kids. The 529 plan we used was age based (target date) and then I could decide whether to be aggressive, conservative, or moderate in the asset allocation of each age based product.

My kids are 17 and 15...and I was "aggressive" up until about 2 years ago. But the asset allocation changed based on their ages as well.

We have been happy with the 529/Roth IRA route we chose, but we also get some state tax incentives.

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Re: 529 or ESA? Self-manage or target-date?

Post by wokkawokkawokka » Tue Feb 11, 2020 6:22 pm

With 529s now eligible for primary / secondary costs, not sure what situations where choosing an ESA makes more sense, more often a 529 would (no age at which must spend; can shift amounts between kids or other family members). That being said i have 3 (before the 529 change). I end up crafting the allocation based on the vanguard K-12 goals based on my risk tolerance (https://investor.vanguard.com/529-plan/ ... nvestments) by looking at the underlying MF allocations and copying them in my holding allocation.

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batman2020
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Re: 529 or ESA? Self-manage or target-date?

Post by batman2020 » Tue Feb 11, 2020 7:53 pm

renue74 wrote:
Tue Feb 11, 2020 10:24 am
I think the ESA limits you to only $2000/year. So, if you are thinking in the future you might add more.
Also, the ESA has an age limit...where 529 doesn't.

We did 529 plans and a Roth IRA for each of our 2 kids. The 529 plan we used was age based (target date) and then I could decide whether to be aggressive, conservative, or moderate in the asset allocation of each age based product.

My kids are 17 and 15...and I was "aggressive" up until about 2 years ago. But the asset allocation changed based on their ages as well.

We have been happy with the 529/Roth IRA route we chose, but we also get some state tax incentives.
Yeah, I like the idea of the glide path I posted and not having to make decisions as they age. Also, if I wanted to go above the $2000 per year with the ESA, I could also do a 529.

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batman2020
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Re: 529 or ESA? Self-manage or target-date?

Post by batman2020 » Wed Feb 12, 2020 8:02 am

Wondering what other folks on this forum think?

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Re: 529 or ESA? Self-manage or target-date?

Post by abuss368 » Wed Feb 12, 2020 8:30 am

We have 529 accounts with a simple Vanguard Target Retirement Fund in them. It has worked very well and plan to stay the course.
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Re: 529 or ESA? Self-manage or target-date?

Post by abuss368 » Wed Feb 12, 2020 8:31 am

I think 529 plans are hard to beat. There are just too many options with college planning.
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Re: 529 or ESA? Self-manage or target-date?

Post by Krm45 » Wed Feb 12, 2020 9:22 am

We ended up with both an ESA and a 529 for our now High School Junior. The ESA was better from a cost and control standpoint, but when we reached a point where our income prevented us from contributing, we started the 529. The balance is now about 70/30 ESA/529 with an asset allocation of 20/80 between the two accounts.

Depending on school choice, I hope to cover 100% of his expenses from these two accounts.

ETA - In Texas, so no tax benefit to the 529 for us.

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batman2020
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Re: 529 or ESA? Self-manage or target-date?

Post by batman2020 » Wed Feb 12, 2020 2:09 pm

Who did you open the ESA with? What funds did you pick for the ESA?

Krm45
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Re: 529 or ESA? Self-manage or target-date?

Post by Krm45 » Wed Feb 12, 2020 10:58 pm

batman2020 wrote:
Wed Feb 12, 2020 2:09 pm
Who did you open the ESA with? What funds did you pick for the ESA?
My ESA is with Vanguard. They don’t offer them anymore, but once We opened it, we were able to keep it. As far as funds it started with the S&P 500 index (VFIAX), and has now transitioned to an intermediate bond fund (VBILX) and money market fund VMMXX. We still have some stock funds in the 529 since we’ll expend the ESA first for various reasons.

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Re: 529 or ESA? Self-manage or target-date?

Post by 1789 » Wed Feb 12, 2020 11:14 pm

abuss368 wrote:
Wed Feb 12, 2020 8:31 am
I think 529 plans are hard to beat. There are just too many options with college planning.
I agree. Tax free benefit is good. These accounts can be supported with a taxable if needed.
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batman2020
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Re: 529 or ESA? Self-manage or target-date?

Post by batman2020 » Thu Feb 13, 2020 10:31 am

Krm45 wrote:
Wed Feb 12, 2020 10:58 pm
batman2020 wrote:
Wed Feb 12, 2020 2:09 pm
Who did you open the ESA with? What funds did you pick for the ESA?
My ESA is with Vanguard. They don’t offer them anymore, but once We opened it, we were able to keep it. As far as funds it started with the S&P 500 index (VFIAX), and has now transitioned to an intermediate bond fund (VBILX) and money market fund VMMXX. We still have some stock funds in the 529 since we’ll expend the ESA first for various reasons.
Thanks! At what ages did you transition to VBILX?

Krm45
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Re: 529 or ESA? Self-manage or target-date?

Post by Krm45 » Thu Feb 13, 2020 11:38 pm

batman2020 wrote:
Thu Feb 13, 2020 10:31 am
Krm45 wrote:
Wed Feb 12, 2020 10:58 pm
batman2020 wrote:
Wed Feb 12, 2020 2:09 pm
Who did you open the ESA with? What funds did you pick for the ESA?
My ESA is with Vanguard. They don’t offer them anymore, but once We opened it, we were able to keep it. As far as funds it started with the S&P 500 index (VFIAX), and has now transitioned to an intermediate bond fund (VBILX) and money market fund VMMXX. We still have some stock funds in the 529 since we’ll expend the ESA first for various reasons.
Thanks! At what ages did you transition to VBILX?
I was pretty aggressive until early teens. I think we went to 50% bonds at 14, then continued to drop 10% per year. I think we’ll stay at the 20/80 allocation until we start spending the money (18 months).

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Re: 529 or ESA? Self-manage or target-date?

Post by iamlucky13 » Fri Feb 14, 2020 4:36 am

I have Coverdell ESA's for both my children because at the time the first was born, Washington's 529 was limited to a prepaid tuition program, which the legislators were meddling with, making its apparent future value difficult to predict, but most likely a joke.

Since there is now a standard 529 plan, they end up pretty close.

However, if I read their plan description right, the Washington 529 plans have a $35 annual maintenance fee, plus 0.255% to 0.4% effective expense ratios (pages 12 and 13):
https://dreamahead.wa.gov/sites/default ... folios.pdf

I've got 0.05% ER and no annual fee in my kids' ESA's.

I haven't looked at the target date funds very closely, but I'd be inclined to self-manage if I were in the 529.

Frankly, I need to re-examine Roth accounts as a college savings vehicle, too, since while my savings rate is good for my retirement goals, it's nowhere near maxed out, and a Roth provides some more flexibility. But there might be financial aid impacts.

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batman2020
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Re: 529 or ESA? Self-manage or target-date?

Post by batman2020 » Fri Feb 14, 2020 7:36 am

iamlucky13 wrote:
Fri Feb 14, 2020 4:36 am
I have Coverdell ESA's for both my children because at the time the first was born, Washington's 529 was limited to a prepaid tuition program, which the legislators were meddling with, making its apparent future value difficult to predict, but most likely a joke.

Since there is now a standard 529 plan, they end up pretty close.

However, if I read their plan description right, the Washington 529 plans have a $35 annual maintenance fee, plus 0.255% to 0.4% effective expense ratios (pages 12 and 13):
https://dreamahead.wa.gov/sites/default ... folios.pdf

I've got 0.05% ER and no annual fee in my kids' ESA's.

I haven't looked at the target date funds very closely, but I'd be inclined to self-manage if I were in the 529.

Frankly, I need to re-examine Roth accounts as a college savings vehicle, too, since while my savings rate is good for my retirement goals, it's nowhere near maxed out, and a Roth provides some more flexibility. But there might be financial aid impacts.
I'm in Washington State too, but am not interested in their 529 plan. You can invest in any state, and I really like Utah's. https://my529.org/start/

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