Author Topic: Method of Putting away for First Child's Future  (Read 864 times)

nolefan21

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Method of Putting away for First Child's Future
« on: August 22, 2017, 09:04:30 PM »
Expecting first child in November. I expect we'll get some cash from family initially and over the years for her future. We live in NC so no 529 state tax deduction. Thinking of opening a 529 plan to divert some of that money into but wonder what others who may be on the fence about 529 plans, how did you handle $$ received from family AND that you want to put away yourself in general for your kids future?

Did you mostly just focus the money in 529 accounts, your own taxable accounts, start a high yield savings account just for them/UTMA? My main concern with 529 plans is who know what is going to happen with college in 18 years at the talk of change we are seeing, plus the penalties for oversaving or not needing the money for college. I am thinking do the 529 plan but don't go overboard.


Edit: My wife and I save fairly heavily to our retirement accounts and have a fully funded emergency fund.
« Last Edit: August 23, 2017, 04:35:54 PM by nolefan21 »

little_brown_dog

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Re: Method of Putting away for First Child's Future
« Reply #1 on: August 23, 2017, 05:52:51 AM »
We are using 529 accounts for the tax advantaged growth and the gentle treatment they receive in the financial aid calculations compared to other types of accounts. Many people don’t like 529s because of the rules on them (they can only be used for qualified higher ed expenses or otherwise are subject to penalty), but given that we will have multiple children and come from families and cultures where almost everyone goes to higher ed, it is unlikely that we won’t have at least a couple kids go to college. Worst case, none of our kids go and we pay the penalties for taking the money back for ourselves, or using it for non qualified expenses for them (house downpayment, etc). It really isn't that huge of a deal to me. We also don't get a tax deduction for our state, so we went with NY's 529 as it has vanguard funds and low expense ratios.

We personally waited to set up the 529 until around our first was 6mo old, and will do so again for this second baby. We wanted to make sure she got through the birth and her first developmental milestones normally, as children who experience significant delays or birth injuries often go on to be significantly disabled and may not be able to attend higher ed. Once baby was here, safe, and appearing to be cognitively typical as far as everyone could see, we set up the 529. We set a specific max amount for each kids' college fund every year that we hit. Whatever the kids have at age 18 is what they've got, but since we set a generous amount, we expect it to be enough to fully fund an undergrad bachelors education.
« Last Edit: August 23, 2017, 06:12:30 AM by little_brown_dog »

meatface

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Re: Method of Putting away for First Child's Future
« Reply #2 on: August 23, 2017, 07:26:16 AM »
We have a 529 for college. Most people just put money directly into it, if they want the money to go for college savings specifically. Otherwise, we put other money gifts into the kid's savings account if the money wasn't specified to be for college.

bender

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Re: Method of Putting away for First Child's Future
« Reply #3 on: August 23, 2017, 12:33:48 PM »
We also go with a 529 plan for each kid.  We plan to help them with college costs, and this is a much better method than a taxable account.

GizmoTX

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Re: Method of Putting away for First Child's Future
« Reply #4 on: August 23, 2017, 03:21:18 PM »
Your first priority, IMHO, is to adequately fund your retirement & emergency funds. A student can get an educational loan but you won't be able to borrow for your retirement.

When DS was born in 1993, 529 accounts didn't exist, but I still find them too limiting. I certainly would never do an UGMA or UTMA, because you lose control over the funds precisely when you don't want to.

We opted to set up an irrevocable trust for our existing son & any future children (which didn't happen) so we could retain control & to legally avoid paying kiddie tax. We contributed to it annually, invested in tax friendly index funds & dividend stocks, & the trust paid its own taxes at considerably less than our tax bracket. It provides for health & other essential support of our child(ren) in the event of an emergency, not just higher education. DS is entitled but not required to receive 50% of any unused funds at his undergraduate graduation (which happened in 2016), another 50% at age 30, & any residual at age 35 (in case he didn't graduate). Since he received substantial merit scholarships, he & we opted to cash flow his remaining university costs. Since the trust has not been touched & is still growing, it represents a sizable nest egg or FU account. We have always been concerned that this may kill incentive but so far that has not been the case. We've worked with him to instill financial information & self sufficiency, starting in HS -- this is even more important than any fund.

Chesleygirl

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Re: Method of Putting away for First Child's Future
« Reply #5 on: August 24, 2017, 02:41:47 PM »
When DS was born in 1993, 529 accounts didn't exist, but I still find them too limiting. I certainly would never do an UGMA or UTMA, because you lose control over the funds precisely when you don't want to.

Our lawyer recommended UGMA instead of 529. I looked into UGMA and said, no way.

LessIsLess

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Re: Method of Putting away for First Child's Future
« Reply #6 on: August 28, 2017, 08:43:33 AM »
Buy your kids some  bitcoin? 

reeshau

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Re: Method of Putting away for First Child's Future
« Reply #7 on: August 28, 2017, 10:31:41 AM »
We've worked with him to instill financial information & self sufficiency, starting in HS -- this is even more important than any fund.

+1.  Regardless of resources, if a young adult has learned to squander them (through example or neglect) they will.

I set up a 529 when my son was born.  I am in Michigan, so we get tax deductions up to $10k / year as MFJ in our 529, which is managed by TIAA.  I will fund 5 years at $10k (now on year 3) and let that ride for 13 years in an aggressive age-based fund, and expect it to grow 2-3x.  You can't know what college funding will look like in the future, but it has not gone down.  My hope is that this is a "The Price Is Right" strategy--to come close, without going over.  With the mortgage gone by this time, we will have cash flow we can apply if we are under.  And, if we are over, we can manage withdrawals of the excess to be under our current tax rate, even with the penalty.  Or, we can reassign it to a cousin / niece / nephew and share the bounty with family.

529's do seem to attract more discussion than retirement accounts, but I do not understand the significance that the penalty withdrawals pay in people's minds.  I think of it more like insurance:  I am providing a resource for my son's future.  If he is so fortunate not to need it, then it is surplus to be applied elsewhere.  The fact that this isn't the most efficient use of that resource isn't a big deal to me--what is a big deal is that my son has a rewarding life.  Mission accomplished!

To use an analogy:  nobody is cursing their flood insurance premium when the hurricane does not hit them.  That's what it's there for.  I think of a 529 as a college tuition insurance policy.  Only, there may be a residual value to it at the end.  You can always self-insure, but then the hit to your finances is bigger.  (in this case, with full taxes on your investments, and greater impact on financial aid)

Gin1984

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Re: Method of Putting away for First Child's Future
« Reply #8 on: September 04, 2017, 10:26:39 PM »
When DS was born in 1993, 529 accounts didn't exist, but I still find them too limiting. I certainly would never do an UGMA or UTMA, because you lose control over the funds precisely when you don't want to.

Our lawyer recommended UGMA instead of 529. I looked into UGMA and said, no way.
I'd use a educational IRA over a UGMA.