Author Topic: 529 - when are you over investing?  (Read 7613 times)

moneymamma

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529 - when are you over investing?
« on: January 19, 2015, 05:56:50 PM »
Any advice on what is the max you will put in 529s.  I recognize there are a maximums but interested in getting perspective.
Right now we have $70K in a 529 for our 6 1/2 year old and 66K for our 4 1/2 year old.   Our goal is to pay for most or all of college.  We are already maxing out $401Ks and after tax 401Ks.   Are you stopping after a certain point?

RapmasterD

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Re: 529 - when are you over investing?
« Reply #1 on: January 19, 2015, 05:59:57 PM »
I am not sure yet.

We have a 4.5 year older. I estimate that private college, full boat, will cost 600K by the time she is of age. While I will "encourage" public college attendance (it did wonders for me)...who the heck knows.

I put 140K in as a lump sum, which is the maximum allowed for a married couple over a five year period. There is about a 1/3 likelihood I may do the same in five years.

GardenFun

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Re: 529 - when are you over investing?
« Reply #2 on: January 19, 2015, 06:04:08 PM »
I found it easier to come up with a dollar amount per year that we will contribute vs. trying to anticipate how much each specific education will cost.  So if you plan on spending $XX/yr on each child's education, work the math to hit that number using your anticipated rate of return. 

If you still want to plan on fully funding college, another way to look at it is to plan on the $XX/yr coming out of the 529, then put anything extra that "may" be needed in a tax-friendly account. 

Personally, you have a very good amount of money socked away.  Based on their ages, that money should at least double, if not increase 2.5x current value.  We stopped putting into the accounts when DS was 8 years old and we achieved the desired amount per year.

Yankuba

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Re: 529 - when are you over investing?
« Reply #3 on: January 19, 2015, 08:45:57 PM »
Any advice on what is the max you will put in 529s.  I recognize there are a maximums but interested in getting perspective.
Right now we have $70K in a 529 for our 6 1/2 year old and 66K for our 4 1/2 year old.   Our goal is to pay for most or all of college.  We are already maxing out $401Ks and after tax 401Ks.   Are you stopping after a certain point?

I'm only investing up to $10K per year (my state tax deductions end at $10K) - and that is split between myself (for current graduate school tuition) and my son. I don't want to be in the situation where I'm fully funded for the tuition because then I decrease my son's chances of getting grants and/or scholarships. Why should I pay full freight when profligate parents get meaty grants and scholarships? Additionally, I don't want to be over funded for obvious reasons. If you're under funded you can always make up the difference w/ money from your IRAs - you can withdraw funds from your IRA without penalty to pay qualified higher education expenses. The good thing about stuffing all you money in IRAs and 401Ks is that it won't count against you when the college determines the grants/scholarships your child will receive. I honestly think you're near the stopping point right now. $70K pays for about three years of public college (looking at today's prices) - hopefully the gains in the account will outpace college price increases and you will be partially covered in year four. Good work! If you're considering private schools maybe you should fund the accounts a little bit longer but I wouldn't sweat it.

I also think there's a not so insignificant chance that the entire college model blows up in 10 years. I think employment options for all but the most talented will continue to deteriorate thanks to globalization and automation and many colleges will shut down because most people will see that it's just not a good investment. So I wouldn't go crazy trying to fully fund the accounts - there's a chance none of our kids goes to the traditional 4 year university and we need to pay penalties to get our money out of the 529s.

JLee

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Re: 529 - when are you over investing?
« Reply #4 on: January 19, 2015, 08:49:55 PM »
$100k sitting for 30 years could end up really close to $1mil - if I had kids, I'd be tempted to have the kids put themselves through college and then have a trust/retirement fund waiting for them at some point.

Just an opinion from someone who's not planning on kids. :P

GardenFun

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Re: 529 - when are you over investing?
« Reply #5 on: January 20, 2015, 07:36:58 AM »
$100k sitting for 30 years could end up really close to $1mil - if I had kids, I'd be tempted to have the kids put themselves through college and then have a trust/retirement fund waiting for them at some point.

Just an opinion from someone who's not planning on kids. :P

That's also part of our thinking - what if a child is super-creative?  What if the time to move on their passion is now, not 4 years from now?  I don't want to be thinking about the penalties we are paying to remove the money from the 529. I want to be focusing on helping the child achieve their passion. 

Also incorporating Yankuba's thoughts, I'm not sure college will look exactly the same 10-12 years from now.  I also wonder if a skilled trade coupled with starting their own company would be better financially for them.  Our state only gives us a tax break up to $3K/yr.  When you look at the small state tax savings along with the account fees (index fund fees would be a wash), the savings vs. a taxable fund still exists, but is much smaller than originally anticipated.  That's why we stopped adding to it and are in the process of maxing out the 401(k)/IRA's instead. 

starguru

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Re: 529 - when are you over investing?
« Reply #6 on: January 20, 2015, 07:58:18 AM »
Excellent thread.  We have the same question as we are about to write checks for our 2015 contribution.

I think at the end of the day:

1)  its impossible to know how much college is going to cost in 10+ years
2)  kiddo might not even want to go to college.
3)  If you want to pay for kiddo's education, you can still do so from other accounts.

I think we plan to contribute 6-8k a year till kiddo is 10 then let compounding do its work, and fund any difference with other accounts.

Random

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Re: 529 - when are you over investing?
« Reply #7 on: January 20, 2015, 08:12:56 AM »
W put a lump sum in from my parents estate that was sufficient for a state university education.  We will let compounding magic happen.  Other funds should be available if needed for a more expensive option.  I have a sense that the higher education paradigm is going to have to shift in the next 15 years.  It is hard to imagine the crushing debt model will persist without some kind of alternatives, necessity being the mother of invention and all of that.  Given that prediction, we don't want too much in the 529

ShoulderThingThatGoesUp

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Re: 529 - when are you over investing?
« Reply #8 on: January 20, 2015, 08:13:45 AM »
It's our bet that college will be relatively cheaper in 17 years than it is now - if something can't go on forever, it won't. So we are maxing out my 401k and this year a Roth as well and plan to pay for college out-of-pocket and from other savings. Besides which, I'm not convinced that Pennsylvania won't one day just take 529s.

rmendpara

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Re: 529 - when are you over investing?
« Reply #9 on: January 20, 2015, 10:18:19 AM »
Any advice on what is the max you will put in 529s.  I recognize there are a maximums but interested in getting perspective.
Right now we have $70K in a 529 for our 6 1/2 year old and 66K for our 4 1/2 year old.   Our goal is to pay for most or all of college.  We are already maxing out $401Ks and after tax 401Ks.   Are you stopping after a certain point?

It's worse to be over-funded in a 529 than underfunded. In order to withdraw for non-education purposes, you end up taking a penalty on top of paying taxes, so err on the side of caution. I'm single with no kids, but am contributing 50/mo toward a 529 to eventually help with some college costs. Once the account hits 10k, I'll probably let it be and then move all new capital into taxable accounts.

I'll be able to capture some of the tax benefits/deferrals from the 529 but won't have a huge risk of overfunding. At least, that's the plan today. We'll see if things change from now.

megamomo

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Re: 529 - when are you over investing?
« Reply #10 on: January 20, 2015, 10:34:47 AM »
It's our bet that college will be relatively cheaper in 17 years than it is now - if something can't go on forever, it won't. So we are maxing out my 401k and this year a Roth as well and plan to pay for college out-of-pocket and from other savings. Besides which, I'm not convinced that Pennsylvania won't one day just take 529s.
Speaking of taking 529s....multiple news stories have shown up in the last couple days that part of the State of the Union speech will be to discuss the "free community college" proposal and how part of it may be paid for by taxing 529 distributions.  If that really happens, I'm not sure I see the advantage of a 529 plan over a regular investment account. 

NeuroPlastic

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Re: 529 - when are you over investing?
« Reply #11 on: January 20, 2015, 10:45:37 AM »
We've got about $30-40k in for each child, with college at least ten years out.  We've stopped contributions there, figuring that will fund most or all of an in-state school.  I believe that there are other methods of getting quality higher-education than getting the family milked. Moo!


Yankuba

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Re: 529 - when are you over investing?
« Reply #12 on: January 20, 2015, 10:50:05 AM »
It's our bet that college will be relatively cheaper in 17 years than it is now - if something can't go on forever, it won't. So we are maxing out my 401k and this year a Roth as well and plan to pay for college out-of-pocket and from other savings. Besides which, I'm not convinced that Pennsylvania won't one day just take 529s.
Speaking of taking 529s....multiple news stories have shown up in the last couple days that part of the State of the Union speech will be to discuss the "free community college" proposal and how part of it may be paid for by taxing 529 distributions.  If that really happens, I'm not sure I see the advantage of a 529 plan over a regular investment account.

Yikes! Here is one article:

http://www.forbes.com/sites/ryanellis/2015/01/19/obamas-new-state-of-the-union-tax-hike-on-middle-class-529-college-savers/
 

ShoulderThingThatGoesUp

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Re: 529 - when are you over investing?
« Reply #13 on: January 20, 2015, 11:48:55 AM »
It's our bet that college will be relatively cheaper in 17 years than it is now - if something can't go on forever, it won't. So we are maxing out my 401k and this year a Roth as well and plan to pay for college out-of-pocket and from other savings. Besides which, I'm not convinced that Pennsylvania won't one day just take 529s.
Speaking of taking 529s....multiple news stories have shown up in the last couple days that part of the State of the Union speech will be to discuss the "free community college" proposal and how part of it may be paid for by taxing 529 distributions.  If that really happens, I'm not sure I see the advantage of a 529 plan over a regular investment account.

Yikes! Here is one article:

http://www.forbes.com/sites/ryanellis/2015/01/19/obamas-new-state-of-the-union-tax-hike-on-middle-class-529-college-savers/

It's my understanding that the growth of it is still tax-free. That said, its inclusion in a SOTU speech indicates to me that 529s are the Free Shit Brigade's first target when they start to look at us "hoarders".

Terrestrial

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Re: 529 - when are you over investing?
« Reply #14 on: January 20, 2015, 12:09:26 PM »
It's our bet that college will be relatively cheaper in 17 years than it is now - if something can't go on forever, it won't. So we are maxing out my 401k and this year a Roth as well and plan to pay for college out-of-pocket and from other savings. Besides which, I'm not convinced that Pennsylvania won't one day just take 529s.
Speaking of taking 529s....multiple news stories have shown up in the last couple days that part of the State of the Union speech will be to discuss the "free community college" proposal and how part of it may be paid for by taxing 529 distributions.  If that really happens, I'm not sure I see the advantage of a 529 plan over a regular investment account.

Yikes! Here is one article:

http://www.forbes.com/sites/ryanellis/2015/01/19/obamas-new-state-of-the-union-tax-hike-on-middle-class-529-college-savers/

Keeping political leanings out of it, this is really frustrating for me, on both ends.   "Free" community college tuition, and a penalty for those responsible enough to save for their own kids education.  Call me heartless, but I feel that decent K-12 education is a public shared responsibility, college is not. 

I'm a red panda

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Re: 529 - when are you over investing?
« Reply #15 on: January 20, 2015, 12:53:10 PM »
Besides which, I'm not convinced that Pennsylvania won't one day just take 529s.

I don't understand this thought- you think they won't allow people to pay with cash?

ShoulderThingThatGoesUp

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Re: 529 - when are you over investing?
« Reply #16 on: January 20, 2015, 01:15:27 PM »
Besides which, I'm not convinced that Pennsylvania won't one day just take 529s.

I don't understand this thought- you think they won't allow people to pay with cash?

No, I mean that they'll just say "Look at all this money people saved for education. We're going to use it to reduce the costs of everybody's education" rather than let the owners of the accounts decide how it's spent. Sounds a little nutty, but at one point the PA 529 website's FAQs included something like "Can the state take the money? This would require a change in state law." Not very reassuring.

megamomo

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Re: 529 - when are you over investing?
« Reply #17 on: January 20, 2015, 01:22:59 PM »
It's our bet that college will be relatively cheaper in 17 years than it is now - if something can't go on forever, it won't. So we are maxing out my 401k and this year a Roth as well and plan to pay for college out-of-pocket and from other savings. Besides which, I'm not convinced that Pennsylvania won't one day just take 529s.
Speaking of taking 529s....multiple news stories have shown up in the last couple days that part of the State of the Union speech will be to discuss the "free community college" proposal and how part of it may be paid for by taxing 529 distributions.  If that really happens, I'm not sure I see the advantage of a 529 plan over a regular investment account.

Yikes! Here is one article:

http://www.forbes.com/sites/ryanellis/2015/01/19/obamas-new-state-of-the-union-tax-hike-on-middle-class-529-college-savers/

Keeping political leanings out of it, this is really frustrating for me, on both ends.   "Free" community college tuition, and a penalty for those responsible enough to save for their own kids education.  Call me heartless, but I feel that decent K-12 education is a public shared responsibility, college is not.
How about we just call it "K-14" and not include the word college?  Does that help change your opinion?  ;-)

I'm a red panda

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Re: 529 - when are you over investing?
« Reply #18 on: January 20, 2015, 01:34:20 PM »

How about we just call it "K-14" and not include the word college?  Does that help change your opinion?  ;-)

What about P?  (P-16 is what gets mentioned all the time in the education conferences I go to. Since the government seems to be wanting to pay P-14...

No, I mean that they'll just say "Look at all this money people saved for education. We're going to use it to reduce the costs of everybody's education" rather than let the owners of the accounts decide how it's spent. Sounds a little nutty, but at one point the PA 529 website's FAQs included something like "Can the state take the money? This would require a change in state law." Not very reassuring.

Oh, that's terrifying.

But if they can change the law to take that, can't the federal government do the same thing with 401ks, or you know, FDIC insured savings accounts or anything they want? It seems unlikely. 

gimp

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Re: 529 - when are you over investing?
« Reply #19 on: January 20, 2015, 02:48:50 PM »
If you overfund it, congratulations, you can keep the cash in the 529 plans to help your grandkids.

College is becoming such a commodity that I would agree with public funding for the first two years / an AS degree. The problem of course is that the education requirements are a bit of a treadmill, with more and more required - and that funding education for "adults" (as much as 18-20 year-old kids are) is a little problematic. Much less problematic is funding school earlier, since it seems to show pretty clear benefits to have kids socializing and playing, and apparently this is something that requires expense. Go for it, I don't care.

On one hand, penalizing those who have invested to fund their own children's education is weird.

On the other hand, 529 programs are middle class pork anyways. There are a million different little ways to pay less in tax if you're "middle class" because we have decided that a million ways to prod, reward, and punish people for doing or not doing stuff with their money is better than a simple "this is what you earn, this is what you pay" tax strategy.

On the other other hand, adding more burdens to the pork system is not a good way to use nor dismantle it, it just becomes inconvenient for everyone.

On the plus side, the next two years will probably see a whole lot of nothing passed, except more pork for people passing the laws and more censorship, tracking, and less free internet, which thankfully everyone (except the people who aren't in office) agrees is of course necessary. Enjoy your 529s, they're not going anywhere.