Please make sure my thinking is correct...
We have 2 kids, 4 and 6 years old. I am 31 and DH is 41. Our current plan is to leave full time work in 5 years to travel with the kiddos in a tiny house. Our investments should be at about 1.2 million at that time with about 300,000-400,000 in low volatility non tax advantaged funds and 800,000-900,000 in a mix of traditional and roth 401ks/IRAs. In 2018 we will be in the 22% tax bracket. In "retirement" we will stick closer to the 0-12%/15% bracket because expenses will be lower.
We want to be able to pay for the tuition at a 4 year state school for each of them, should they choose to go that route.
My thinking is that it is smarter for us to forget about the 529 and to just focus our investing on our other accounts. The only plans that Maryland offers return about 4-5% after fees. The state incentive that is offered is a reduction of $2500 of state AGI per tax year if you make a contribution of that amount. Larger contributions can have that deduction carried forward to subsequent tax years. For us, that deduction would equal a $118 return per year, based on our current tax bracket.
The issue is that we are already maxing out our retirement accounts so the only place for the extra money to go would be into a non tax advantaged account. To me, it still seems to make sense, given our projected lower tax bracket, to invest in non tax advantaged accounts. We are going to pay our 22% tax on the money going in, regardless of where it goes. If we make 7% on a Vanguard fund we are still going to be better off, even after paying a 12-15% tax rate than we would have been making 4-5% and being guaranteed a 0% tax rate on returns.
I guess I'm also a little nervous to lock us into saving money for college when we have no idea what path our kids will take in 12-14 years. Throw in the possibility of scholarships and financial aid and it makes it even more uncertain.
I am still trying to learn about the tax implications of our financial decisions so if I've made any errors in my tax assumptions, please let me know.