Should I be concerned about over funding 529?

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hmw
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Should I be concerned about over funding 529?

Post by hmw »

I have only one child who is 10. It is very likely that he will attend college. Obviously that there is no way of accurately predicting the cost of college or if he will attend professional/grad school. We live in a state with no state income tax.

I have 205k inside his 529 account now and currently contributing $1000 a month. Of the $205k, 120k is principal and 85k is earnings.

Should I stop contributing further into the 529 account at this point?

I am currently taking $10k out each year for his private school tuition but putting the same amount back to increase the basis in the 529.

What would you do?
lazynovice
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Re: Should I be concerned about over funding 529?

Post by lazynovice »

I think resetting the basis for the private school amount makes sense. Will tuition be higher in high school?

I would look at your state flagship’s cost of attendance and aim for that amount. Anything else could be funded out of taxable.
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Topic Author
hmw
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Re: Should I be concerned about over funding 529?

Post by hmw »

lazynovice wrote: Tue Apr 06, 2021 12:38 pm I think resetting the basis for the private school amount makes sense. Will tuition be higher in high school?

I would look at your state flagship’s cost of attendance and aim for that amount. Anything else could be funded out of taxable.
I don't know where my son will be in high school. If going private, will probably just pay from cash flow.

We are in TX. UT Austin in-state tuition is about 12k a year. Probably 30k a year with living cost. By this measure, I have already over funded.
Nebraska_Drought
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Re: Should I be concerned about over funding 529?

Post by Nebraska_Drought »

I'd stop, IMO. There are other ways to save funds that are not tied to a 529 plan. As I am finding out this year, when my son got scholarships that paid for his entire way, getting money out of his 529 is doable, but it was not a straight forward as I'd hoped (using turbotax) even though I knew where to include the amounts I needed to.

Even with what you have now, I think he should be fine even if there was no continued growth.
GManSTL
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Re: Should I be concerned about over funding 529?

Post by GManSTL »

I decided to stop contributing to my son's 529 plan (about 125K) once I figured out that he has a pretty good chance of getting some merit scholarships. I started putting that money in a taxable brokerage account instead, which I can still use to help pay for college if he ends up going to a more expensive school. Otherwise, I'll just put it toward retirement.
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luminous
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Re: Should I be concerned about over funding 529?

Post by luminous »

I would also stop.

The cost of tuition+room+board of our in state flagship universities is the same as yours ($30k) and I stopped funding in 2019 when my kids were a tad younger than yours and we reached $60k each in their 529 accounts. We are now at $80k each and should be fine in 10 years to pay for it all, or cash flow if the stock market takes a dip or they go private. We have no desire to create a multigenerational 529.

You can always draw it down on your current private school tuition.
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cshell2
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Re: Should I be concerned about over funding 529?

Post by cshell2 »

205K is a lot in a 529 especially if you can easily cashflow quite a bit while he's in school. I'd move on to taxable accounts at this point instead, especially since you get no state tax break on the contributions anyhow.
illumination
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Re: Should I be concerned about over funding 529?

Post by illumination »

I would stop, and also continue to take some out for his private education to get that balance down a bit.

I do think you can over fund a 529. It's not the end of the world if you say only have 90% of the tuition in a 529 and just save the remainder in an index fund and have to pay some capital gains. I'd much rather be in that situation than have tens of thousands of dollars extra and have to pay a big tax bill to get those funds back (assuming you want them back)

If you have $205k now and no longer contribute a penny, I could easily see scenario where you have like $350k+ by the time he gets to college.
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Re: Should I be concerned about over funding 529?

Post by Grt2bOutdoors »

illumination wrote: Tue Apr 06, 2021 5:05 pm I would stop, and also continue to take some out for his private education to get that balance down a bit.

I do think you can over fund a 529. It's not the end of the world if you say only have 90% of the tuition in a 529 and just save the remainder in an index fund and have to pay some capital gains. I'd much rather be in that situation than have tens of thousands of dollars extra and have to pay a big tax bill to get those funds back (assuming you want them back)

If you have $205k now and no longer contribute a penny, I could easily see scenario where you have like $350k+ by the time he gets to college.
Depends if child goes private or not. Some private give little or no scholarships. Depends on how account is invested, market tanks - all bets are off. I’d stop too unless you think kid is going to graduate school and you will pay for that as well.
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dcd72
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Re: Should I be concerned about over funding 529?

Post by dcd72 »

Grt2bOutdoors wrote: Tue Apr 06, 2021 5:29 pm
illumination wrote: Tue Apr 06, 2021 5:05 pm I would stop, and also continue to take some out for his private education to get that balance down a bit.

I do think you can over fund a 529. It's not the end of the world if you say only have 90% of the tuition in a 529 and just save the remainder in an index fund and have to pay some capital gains. I'd much rather be in that situation than have tens of thousands of dollars extra and have to pay a big tax bill to get those funds back (assuming you want them back)

If you have $205k now and no longer contribute a penny, I could easily see scenario where you have like $350k+ by the time he gets to college.
Depends if child goes private or not. Some private give little or no scholarships. Depends on how account is invested, market tanks - all bets are off. I’d stop too unless you think kid is going to graduate school and you will pay for that as well.
Cost of attendance for 2021-22 at my 14 yo's school of choice (as of now) is more than $85k. We have about $225k in her 529, and I've diverted all investments other than those for which I can get a state tax deduction to the taxable account. There's no guarantee we'll need to spend that much, and we can pay anything more (!!!) out of taxable.
FlamePoint
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Re: Should I be concerned about over funding 529?

Post by FlamePoint »

I saved $75k in each of my kids (twins) 529’s with the idea we’d pay for an in-state 4 year school (estimated at $25k per year, cash flowing the last year). Well, as it is I won’t come anywhere close to spending the entire amount for either. With Covid they both decided to go to the local community college their first 2 years and live at home, then will transfer to an in state flagship university for their final 2 years. The University has a guaranteed admission process for each of their majors and all credits at the CC will transfer.

So, I’ll need to quickly decide if I want to simply hold onto the extra if one of the kids decides to go to grad school, pass it onto a grandchild (no guarantee I’ll end up with any), or start “paying” myself room and board expense (based on allowable amount from the college) from the funds. Either way, I’m glad to have the funds and happy my kids will graduate with a 4 year degree debt-free.
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willthrill81
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Re: Should I be concerned about over funding 529?

Post by willthrill81 »

Full stop. You are likely to already have to pay a penalty to withdraw the unneeded funds unless you're willing and able to change the beneficiary to someone else who can use the funds (e.g., yourself, another family member).
“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
todaysBob
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Re: Should I be concerned about over funding 529?

Post by todaysBob »

As another data point, we are in Seattle area - my 7 year old has $150k($125k principal all contributed in last 6 months) and new born on its way(just couple of weeks to go!) has $108k($100k contributed in last couple of months) in their 529s.

I just made these lump sums and stopped. Will reevaluate in 5 years or so if more money will be needed.

My guess is both of them should have $300k+ when they start college. I do need to make the accounts more conservative in few years, right now they are all equities - 50% US and 50% international.
mstrcvdstr
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Re: Should I be concerned about over funding 529?

Post by mstrcvdstr »

If you continue to pay for private pre college school then you need to continue to contribute. You will make the contributed/earned ratio better if you need to pay penalty later. (You only pay penalty on earned portion and not contributed portion.)
ZMonet
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Re: Should I be concerned about over funding 529?

Post by ZMonet »

I'm probably in the minority but I like the idea of using the 529 as a (potentially) multigenerational education fund. An extra generation of growth seems like a great thing to combat all of the education inflation, if there is even any money left. Even for one kid, after cost of college at say $50k x 4 and then some form of grad school at 2-3 years at the same easily eats up a lot of the 529.

As a data point, we put in $125k and have market gains of about $175k for our now 12-year-old. It is in an age-based fund so gains from here on out will be limited (looks like AA has moved to about 60% bonds/ 40% stocks and it will get more conservative).
Grt2bOutdoors
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Re: Should I be concerned about over funding 529?

Post by Grt2bOutdoors »

dcd72 wrote: Tue Apr 06, 2021 5:41 pm
Grt2bOutdoors wrote: Tue Apr 06, 2021 5:29 pm
illumination wrote: Tue Apr 06, 2021 5:05 pm I would stop, and also continue to take some out for his private education to get that balance down a bit.

I do think you can over fund a 529. It's not the end of the world if you say only have 90% of the tuition in a 529 and just save the remainder in an index fund and have to pay some capital gains. I'd much rather be in that situation than have tens of thousands of dollars extra and have to pay a big tax bill to get those funds back (assuming you want them back)

If you have $205k now and no longer contribute a penny, I could easily see scenario where you have like $350k+ by the time he gets to college.
Depends if child goes private or not. Some private give little or no scholarships. Depends on how account is invested, market tanks - all bets are off. I’d stop too unless you think kid is going to graduate school and you will pay for that as well.
Cost of attendance for 2021-22 at my 14 yo's school of choice (as of now) is more than $85k. We have about $225k in her 529, and I've diverted all investments other than those for which I can get a state tax deduction to the taxable account. There's no guarantee we'll need to spend that much, and we can pay anything more (!!!) out of taxable.
Hopefully she will get in. The interesting thing about some of these institutions is the low admittance rate. Princeton for instance had a 4 percent admittance rate the last I heard, so many apply, I’m sure with excellent qualifications, and yet 96 percent are denied.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
stoptothink
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Re: Should I be concerned about over funding 529?

Post by stoptothink »

We stopped at $28k/each, which is slightly more than the current cost of 4yrs of tuition + fees at local U, which is ~5 miles from our home. My kids are 9 and 5 so plenty of time for those accounts to grow (and for tuition to increase). Some of the 529s balances in this thread (and board in general) blow my mind, but expensive private U with $30k/yr in living costs are not in our plans for our kids.
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hmw
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Re: Should I be concerned about over funding 529?

Post by hmw »

The majority opinion seems to be stopping further contribution at this point.

The problem is trying to accurately predict the future cost of college. (expensive private vs in state public, grad/professional school) It is impossible.

I think I will stop further new contribution except to replace the 10k private school tuition each year to bring up the cost basis.
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