Superfund 529 plan right now?

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jenbrez
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Joined: Wed Jul 23, 2014 3:11 pm

Superfund 529 plan right now?

Post by jenbrez » Fri May 22, 2020 3:32 pm

Hello! I am in the fortunate position to have $100K to invest. I've got more than a 6 month emergency fund, we max our 401k and do a backdoor IRA each year and have no debt other than a mortgage, so I feel that we're in a decent place financially. I'm 46 and my husband is 44 and we're on track for retirement needs. We have two kids ages 7 and 10. We currently have a total of $100K in 529 plans for them. If we put the 100K in the 529, I would feel like we're in a great place to pay for college when the time comes. Here is what's weighing on my mind:

*The Market seems quite volatile right now, so making one big purchase into the Market seems crazy - even though I know I have a 10 year time horizon. Would it be better to just make purchases in the Market every two weeks over the course of the year to balance this out?

*Uncertainty of college costs in a post-COVID world. I don't imagine costs going away, but I could see an adjustment if courses shift online and a cultural shift in the value of pursuing a traditional degree. I have one child who is dyslexic who I can see just say NO WAY to formal schooling (even though this is very important cultural value for our family)

*Seems like I lose some flexibility on using this money if I put it in the 529. That said, I just used an online calculator and if I go this superfunding route today (thank you compound interest) and add $50/month per kid - I am very close to funding in-state college at 100%. So seems like a smart move. Tell me otherwise or if you agree, would love your POV on if I just put it all in today or buy over the course of this year.

Thank you!

retired@50
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Location: Living in the U.S.A.

Re: Superfund 529 plan right now?

Post by retired@50 » Fri May 22, 2020 6:01 pm

jenbrez wrote:
Fri May 22, 2020 3:32 pm
Hello! I am in the fortunate position to have $100K to invest.
What state are you in?

If your state offers a tax break, contributing annually may take better advantage of said tax break.

Regards,
Last edited by retired@50 on Fri May 22, 2020 8:19 pm, edited 1 time in total.
This is one person's opinion. Nothing more.

lakpr
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Re: Superfund 529 plan right now?

Post by lakpr » Fri May 22, 2020 6:09 pm

Paying down your mortgage could get you GUARANTEED returns on that money. At the same time, with the Covid-19 crisis, I suggest you beef up your emergency fund to at least 1 year. 6-month EF is not really going to cut it ... I had 6 months EF too, but suddenly feel that's not going to be enough. It certainly wont' be enough if I lose my job, it would last exactly 6 months beyond the unemployment benefits period.

Yes you will lose flexibility with paying down your mortgage with the money -- same loss of flexibility when you super-fund the 529 plans. If you want flexibility you have to stick it in a taxable account only.

New Providence
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Re: Superfund 529 plan right now?

Post by New Providence » Fri May 22, 2020 7:51 pm

I read somewhere that the Obamas funded $250,000 in a 529 in one shot, single installment. A good 529 should give you sufficient diversification to protect principal and hedge market volatility. I'd fund the $100K in one installment and be done with it. Whatever happens, you no longer have to think about college costs for the next decade. Hopefully not ever again and you would have met a financial obligation.

Many Bogleheads here feel strongly against funding college costs and wield the 529 as an opportunity to inflict influence on their kids, i.e. money exclusively to pay a cheap engineering school (only engineering!), no fancy, progressive, liberal arts degrees, etc, etc.

During the recent downturn I have thought and considered many financial changes but the one investment that remains firmly in place is 529.

kimura king
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Re: Superfund 529 plan right now?

Post by kimura king » Sat May 23, 2020 12:15 am

I would throw some in a 529 but certainly not all of it.

How many kids do you have? You would think putting in 100k in a down market, and giving it 10 years to grow would cover college for 2 kids. What are you forecasting college to cost?

index245
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Re: Superfund 529 plan right now?

Post by index245 » Sat May 23, 2020 12:29 am

I've got a large portion in 529s and wish it were in a taxable account. I'd now prefer the flexibility, there are now too many variables with respect to schooling / employment, etc. That being said, a 10% penalty on the earnings isn't the end of the world if you go that route and don't need all the education funding.

I'd dump the 100k in a taxable account and move on.

fasteddie911
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Re: Superfund 529 plan right now?

Post by fasteddie911 » Sat May 23, 2020 6:44 am

I'd lean towards a taxable due to the unknown future of your college expenses and to maintain some flexibility in these uncertain times. Presumably the existing 100k in total, or 50k per child, would seem to cover 4yrs of most in-state tuition (not room and board) at today's prices. If invested in the market, it could very well keep up with tuition inflation. I'm not sure if you'd plan on room and board, or if child would live at home or pay their own living expenses. Also for the child that college may be a no for, the 50k may be too much and could be used to cover the other child.

New Providence
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Re: Superfund 529 plan right now?

Post by New Providence » Sat May 23, 2020 8:39 am

New Providence wrote:
Fri May 22, 2020 7:51 pm
I read somewhere that the Obamas funded $250,000 in a 529 in one shot, single installment. A good 529 should give you sufficient diversification to protect principal and hedge market volatility. I'd fund the $100K in one installment and be done with it. Whatever happens, you no longer have to think about college costs for the next decade. Hopefully not ever again and you would have met a financial obligation.

Many Bogleheads here feel strongly against funding college costs and wield the 529 as an opportunity to inflict influence on their kids, i.e. money exclusively to pay a cheap engineering school (only engineering!), no fancy, progressive, liberal arts degrees, etc, etc.

During the recent downturn I have thought and considered many financial changes but the one investment that remains firmly in place is 529.
"...back in 2007, Barack and Michelle Obama made a stunning $240,000 contribution to the 529 plans of their two daughters. There's a special provision in 529 tax rules that allow for a "jumbo" contribution in exchange for not gifting any more money to your kids for the next five years. The Obamas (wisely) took advantage of this..."

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1789
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Re: Superfund 529 plan right now?

Post by 1789 » Sat May 23, 2020 8:55 am

You mentioned you have 100k for two kids now. I wouldn't put the new 100k in 529. i would put it in taxable. To me that sounds a lot of money to put in 529 accounts.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

PatrickA5
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Re: Superfund 529 plan right now?

Post by PatrickA5 » Sat May 23, 2020 9:39 am

retired@50 wrote:
Fri May 22, 2020 6:01 pm
jenbrez wrote:
Fri May 22, 2020 3:32 pm
Hello! I am in the fortunate position to have $100K to invest.
What state are you in?

If your state offers a tax break, contributing annually may take better advantage of said tax break.

Regards,
My state allowed dumping a big amount and deducting it over the next 5 years. Our deduction was limited to 20K per year, so we put in 100K. I remember having to fill out a gift tax return that year.

Topic Author
jenbrez
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Joined: Wed Jul 23, 2014 3:11 pm

Re: Superfund 529 plan right now?

Post by jenbrez » Sun May 24, 2020 6:42 pm

Thank you to all the responders. To follow-up on the questions:

We live in CA and I do not think that there is any tax benefit to participating in a 529.

We have two kids total. No plans for more We have 100K already in a 529. This would be an additional investment or $100K total, and I think that if we did this, we'd hopefully be in the place @New Providence indicated - we'd feel reasonably set for the next 10 years. We have enough savings right now that I feel confident we could survive 2 years if something happened. While I don't consider all of it my emergency fund, I know I don't need more in cash/CDs. I do hear folks on just putting it in a taxable account to give me more flexibility.

Thank you!

Beehave
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Re: Superfund 529 plan right now?

Post by Beehave » Sun May 24, 2020 9:47 pm

Just regarding dyslexia - - from family experience and general observation:

What seems insurmountable and impossible in elementary school can get better. Many dyslexic people learn coping skills and develop ways to compensate. One of the skills is learning to cooperate and team or learn to "trade" to get things done - - something that can become VERY effective in later life - - ability to see the whole picture and what's needed (and who's needed) to get it done and to make it work.
That totals up to effective planning and implementation skills which is not a shabby skill set to have and which results from coping with the dyslexia.

So I'd urge you to be optimistic and determined to get the child the special help available in the school, and to get when possible untimed testing. If they are still giving ACT and SAT tests, be sure to have your child qualified to do them untimed, and look for colleges with LD programs. I'm speaking from experience - - observing what appear to be hopeless problems ending up getting into college and doing internships and then getting employment and getting incredibly increased responsibility over time and handling it smoothly and better and better now mid-career and still rising.

Good luck and best wishes.

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