529 and Coverdell ESA advice

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Topic Author
positron
Posts: 3
Joined: Mon Apr 29, 2024 10:16 am
Location: Charlotte, NC

529 and Coverdell ESA advice

Post by positron »

This is my first forum post. My kid#1 is freshman (15 years old) in High School. We have 3 more years before college starts. We are in NC. So far here’s what we have saved for kid#1.
  • Vanguard 529 (NV) – Balance $68,000; 100% in 500 Index with ER 0.13%
  • Coverdell ESA – Balance $30,000; 100% in Primecap Odyssey Growth (POGRX); ER of 0.65% plus $10 per year management fee.
We are currently contributing $1500 per month and hopefully we can contribute another additional $54K in the 3 years. Our goal is to have $150K in 529 in the next 3.5 years for Kid#1 and $40K in ESA. We have similar balance and contributions for kid#2 but that kid is only 8 years old now.

I started Coverdell ESA as that was one of the ways to buy Primecap funds. After pandemic, I feel that Primecap is not performing well so I am open to move or roll the funds into a 529.

For the kid#1 going to college in 3 years, I have the following questions.
  • Vanguard NV 529 versus NC 529; I think we can continue with Vanguard but not sure if there are any advantages of moving to NC 529 just before college starts. There is no tax advantage to NC 529.
  • Coverdell vs 529; Should I move all the Coverdell ESA funds into 529 just before the college starts or should I spend the Coverdell ESA fist for college (as 529 allows $35K Roth one time if any balance remains). We don’t plan to use any funds for K-12 education. So, if there anything that I am not anticipating regarding Coverdell ESA for College, please let me know?
  • Allocation: Mostly it is SP500 or equivalent. As the balance is lower, we are okay with taking the risk with SP500. We anticipate paying out of pocket for one to 3 semesters, so can plan withdrawal if there is a market crash.
  • Since NC does not have any benefits for 529 plan, Am I better off saving the future money in a brokerage account instead of a 529?
Thanks to the forum we have learnt quite a lot. However, financials are about details and strategy. So, your critique and wisdom are most welcome.
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ichee_marone
Posts: 197
Joined: Sun Dec 18, 2022 11:20 am
Location: NC

Re: 529 and Coverdell ESA advice

Post by ichee_marone »

Hi positron and welcome to the forum!

I am a NC resident with two kids still in state university (NCSU and App State). We originally funded the Utah 529 which I think is still probably the best 529 plan in the country (low fees/good investment choices). You might check https://www.savingforcollege.com/ for the latest advice. My wife's parents also had a smallist 529 for both kids through NC. I did open one year when there was a tax deduction in NC. We exhausted the NC 529 plans first. Paying out of NC and UT was straightforward.

We over-saved, but I guess that this a legacy to (potential) grandkids.
Laff
Posts: 39
Joined: Wed Apr 05, 2023 10:36 am

Re: 529 and Coverdell ESA advice

Post by Laff »

A Coverdell is typically cheaper and has more flexibility than a 529. Where is your Coverdell? If you don't like POGRX, why not just exchange it for an index fund?
Topic Author
positron
Posts: 3
Joined: Mon Apr 29, 2024 10:16 am
Location: Charlotte, NC

Re: 529 and Coverdell ESA advice

Post by positron »

ichee_marone wrote: Tue May 14, 2024 2:29 pm Hi positron and welcome to the forum!

I am a NC resident with two kids still in state university (NCSU and App State). We originally funded the Utah 529 which I think is still probably the best 529 plan in the country (low fees/good investment choices). You might check https://www.savingforcollege.com/ for the latest advice. My wife's parents also had a smallist 529 for both kids through NC. I did open one year when there was a tax deduction in NC. We exhausted the NC 529 plans first. Paying out of NC and UT was straightforward.

We over-saved, but I guess that this a legacy to (potential) grandkids.
Thank you for your response. Over saving is a good problem to have. Also you know that you can contribute $35 into Roth IRA if the money is not spent. There is a 15 year requirement and so on. However, moving the max amount to Roth IRA is what I want to do if there are any remaining funds.
Topic Author
positron
Posts: 3
Joined: Mon Apr 29, 2024 10:16 am
Location: Charlotte, NC

Re: 529 and Coverdell ESA advice

Post by positron »

Laff wrote: Tue May 14, 2024 3:04 pm A Coverdell is typically cheaper and has more flexibility than a 529. Where is your Coverdell? If you don't like POGRX, why not just exchange it for an index fund?
My Coverdell ESA is with primecap.com; They only have three funds (stock fund, growth fund and aggressive growth fund). They are a good and trusted mutual fund from Pasadena, CA.
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