529 vs Whole Life Policy vs Other

[wannabe-stache]

DW is due in 5 weeks with our first child.  We are in a financial position where we can set some $ away for junior without concerns regarding our own retirement.

I have been doing some research on 529 vs whole life vs simply putting more $ into an IRA or other equity-linked low cost savings vehicle.  I wanted to see how the MMM crowd thinks about it.

I live in FL so no tax deductions for the 529.

Our income is too high to get deductions for traditional IRAs or to contribute to a Roth IRA.

Thanks!

[jamesbond007]

DW is due in 5 weeks with our first child.  We are in a financial position where we can set some $ away for junior without concerns regarding our own retirement.

I have been doing some research on 529 vs whole life vs simply putting more $ into an IRA or other equity-linked low cost savings vehicle.  I wanted to see how the MMM crowd thinks about it.

I live in FL so no tax deductions for the 529.

Our income is too high to get deductions for traditional IRAs or to contribute to a Roth IRA.

Thanks!

You could do a backdoor Roth IRA? I personally find 529, especially non-deductible, a waste. I'd rather fill up my retirement cophers first and build my retirement fund.

[MDM]

I wanted to see how the MMM crowd thinks about it.

Consider Investment Order.

[wannabe-stache]

I wanted to see how the MMM crowd thinks about it.

Consider Investment Order.

I have read that one.  i follow those steps where possible, some are not open to us due to income limitations.

[MDM]

I wanted to see how the MMM crowd thinks about it.

Consider Investment Order.

I have read that one.  i follow those steps where possible, some are not open to us due to income limitations.

In there is the line "Similar to "put on your own oxygen mask before assisting others," you should fund your own retirement before funding 529 or similar plans for children's college costs."  There is also the absence of any comments about life insurance.  The unstated reason is because that is a post about investments, so it discusses investments.  Insurance is for insurance, not investment, so there are no suggestions* to use life insurance as an investment.

*If you are an ultra-high net worth person, there are some circumstances...but for virtually everyone who reads this, insurance is for insurance and investments are for investing.

[Paul der Krake]

Whole life is an estate planning tool for a very limited subset of people, and a terrible investment for everyone else. If you cannot tell which group you belong to, you're in the second one.

Another advantage of the 529 is that you get to provide a convenient conduit for gifts from relatives.

[Beach_Stache]

I do a 529 for my 3 kids, but we live in VA and get up to $4k in state tax benefits per child per account.  My math may be wrong but I figured by just putting money in the account I'm saving 4% just in tax benefits.  Then of course the tax benefits on the tail end when taking it out.  The funds just change to include Vanguard funds, so I'm paying very little to put it in S&P funds, so I'm a fan of it since I get the tax benefit.  If you don't get any tax benefits then I would look somewhere else, like the backdoor Roth IRA option or just a post-tax account and investing that way.  I put a decent amount in my boys 529, but in my opinion the college bubble  has already started to burst.  I was luck enough to go to college when state school cost about $10k/year.  Now with an estimate of 6 figures per child, I have no idea how this is sustainable.  You hear a lot of talk about free tuition in politics, or free community college, work programs, etc.  I save b/c of the tax benefits and I figure best case scenario my kids get a scholarship or worst they don't want to go to college, then I pay the penalty and it's just another savings vehicle.

Regarding life policy and other insurance.  I personally think all insurance is a scam, the commercials all scare you into thinking you will die and your children will be left to sell themselves on the streets.  Insurance companies are not in the business of  helping, they are in the business of making money by taking your money, so if  you are a high income earner I would try to self-insure rather than giving  your money to a company who does not have your best interest in mind.  Again, just my  opinions.  I have limited life insurance but I only expect to need it for about 5 years when my kids are young, and when my savings are enough (probably when my 3 boys are in their middle or high school years) I will cancel it.

http://thisfrugalfather.blogspot.com/