College savings

[giggles]

Our son is 2 months old, and we know we want to get his through college debt free.  Our own parents did this without 529s.  My mom saved almost everything in tax free muni bonds.  I feel like I have an ok grasp on what 529s are, but am overwhelmed with the number of possible investment options. 

My FIL suggested a 529, and has his own savings for the grandkids in one.  For our own money it makes me nervous!  With such a seemingly short investment time line, I am nervous about the market taking a drive right as he starts ala 2008.  It also seems like that great value funds, like the ones guaranteed to cover the cost on an instate school, have been closed. 

Are you using a 529 or something else?  Why?  Are there any great deal 529s left out there?  We are in NJ.

[TreeTired]

We are done.... fini...   both boys have their BA degrees.   We had 529 plans as well as traditional investments -  bank accounts, mutual funds,  and help from grandparents.   I have to say the 529 plans were in some ways quite annoying.  A great concept -  gains on college savings are tax free!  -   but in practice was at times a pain in the ass.   Timing problems were absurd.  You get a tuition bill in December that is paid in January and its a freaking federal incident!  You get a statement from the college on tuition billed in one year and you made your 529 withdrawal in the next year.  Also,  at the end when our income dropped and we became eligible for some really juicy tax credits the 529 gains were not tax free after all!   Very annoying to go through all that hassle and end up paying taxes on the gains... so what was the point?

There was on way the NJ 529 plan (We had NJ Best) was very good to us.   Your experience may vary.  First of all,  economic conditions hopefully won't repeat,  and secondly we were managed by the state of NJ and I think they moved management over to Vanguard or somebody else.   But,  in 2009 when the stock market crashed our boys were in college.  NJ Best had age appropriate allocations and for kids over 16 they had all the money in short term US Treasury bonds.  Our 529 plans were the only accounts that did not lose value during that time. 

[soccerluvof4]

We have 529s one for each of our 4 kids. In our State and I believe alot of others its tax deductable at the state level. Have it set as well so as the kids get older it becomes more conservative. But I too think you should be more diversified outside of the 529 but would use it as well.

[emilypsf]

We have 529's.  Our kids are young, so we haven't tried to withdraw yet, but since we have funded them early, we anticipate that we'll have significant tax savings, so hopefully that will outweigh the hassle.

You have to evaluate whether there is any benefit to using your state's plan.  There is no benefit for our state, so we went with Vanguard's plan (Nevada).  They have target date funds or you can choose from several Vanguard funds.  I believe that there is also a money market option, so you can shift money to the money market option as the kids get older if you want to minimize risk.  You should confirm that they do have a money market because I am not positive about that.

You'll need to find out whether one child can have more than one 529 if your father already started one for your son.  You may also want to make sure that between the two of you, you don't over fund and wind up with withdrawal penalties and taxes if that is a possible concern.

You might consider searching the Bogleheads forum for more information and posting specific questions there once you've learned more about them.  There are many threads on 529s there.

[Gin1984]

Here is my thought process, unless you are in a state that gives a tax break, invest in your own tax advantaged funds, for now.  Those funds are not counted against you for financial aid, but you can remove money from both types of IRAs for college spending.  Past that, have you considered a custodial account for the costs that come with high school, including SAT fees?  It grows at the child's rate but you should be able to use it up before your child hits 18.