Author Topic: Save cash for house down payment or put it into 529 plan?  (Read 830 times)

WorkingToUnwind

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Save cash for house down payment or put it into 529 plan?
« on: February 16, 2022, 09:12:03 AM »
We have about 80k sitting in our savings account for a down payment on a house. We'll probably need about 140k when the time comes to buy a house. We also have many hundreds of thousands of dollars invested in a brokerage account that we could access at the drop of a hat if need be.

We just had a baby and we're not super motivated to move at the moment. Our house is too small, but it's working for us. If the right house comes on the market, we'll put in an offer but we're also fine with waiting a while. Maybe 3-5 years. We've been house shopping for about eight months and only put in one offer. Now that we've had the baby, we're going to be even more picky because we want to focus on the kids rather than moving.

I'm thinking we should throw 20k or more of our cash savings into our daughter's 529 plan, as I doubt we'll be moving any time soon. However, this means if the right house comes on the market right after we've made the deposit, we're selling more stocks to fund the down payment. I'm going back to work this month and we should be able to start socking away cash again to the tune of about 5k a month in the next few months.

What would you do? Fund the 529 plan now or wait 'til we have the full down payment amount of 140k?

secondcor521

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Re: Save cash for house down payment or put it into 529 plan?
« Reply #1 on: February 16, 2022, 11:59:47 AM »
"Making predictions is hard, especially about the future."  Attributed to Yogi Berra, but more likely an old Danish proverb.

When actions now might turn out better or worse based on how the future unfolds, I like to objectively make the most likely prediction, evaluate the financial alternatives based on that, then act, then don't look back with regret if the future turns out differently.

So in your shoes, I would guess when the most likely purchase date, purchase price, and down payment would be.  I'd then look at how much my new child's 529 needs funding based on how much I wanted to fund towards their college.  I'd then look at the relative priority of house and 529 and liquidity, discuss it all with the partner, and then make a reasonable call.

You probably won't guess perfectly, but if you're reasonable about not buying too much house, you'll probably make a reasonable good choice and things will very likely work out OK.

EvenSteven

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Re: Save cash for house down payment or put it into 529 plan?
« Reply #2 on: February 16, 2022, 12:15:10 PM »
We have about 80k sitting in our savings account for a down payment on a house. We'll probably need about 140k when the time comes to buy a house. We also have many hundreds of thousands of dollars invested in a brokerage account that we could access at the drop of a hat if need be.

We just had a baby and we're not super motivated to move at the moment. Our house is too small, but it's working for us. If the right house comes on the market, we'll put in an offer but we're also fine with waiting a while. Maybe 3-5 years. We've been house shopping for about eight months and only put in one offer. Now that we've had the baby, we're going to be even more picky because we want to focus on the kids rather than moving.

I'm thinking we should throw 20k or more of our cash savings into our daughter's 529 plan, as I doubt we'll be moving any time soon. However, this means if the right house comes on the market right after we've made the deposit, we're selling more stocks to fund the down payment. I'm going back to work this month and we should be able to start socking away cash again to the tune of about 5k a month in the next few months.

What would you do? Fund the 529 plan now or wait 'til we have the full down payment amount of 140k?

If I were you, I would keep the house down payment money in something less volatile than the stock market, and I would plan to contribute enough to hit my desired down payment level in 5 years. If a house that I desperately want comes on the market before 5 years, then I'd pull from taxable brokerage. If this plan allowed me to contribute to a 529 up to my desired funding, then I would do that with any remaining cash flow. If there is still any left over after that, direct it to my taxable brokerage. Assuming all tax advantaged accounts are also being maxed.

ryan_themoneyguy

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Re: Save cash for house down payment or put it into 529 plan?
« Reply #3 on: March 08, 2022, 07:44:15 AM »
By putting away 5k a month, you'll reach your goal of 140k in a year. If you're not thinking you'll move for another 3-5 years, then I'd suggest funding the 529 plan now and then building back up your down payment. In the scheme of things, it will only make a difference of a few months to reach your savings goal, and should the right house come along, you may need to sell some stock to help fund it anyway.

reeshau

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Re: Save cash for house down payment or put it into 529 plan?
« Reply #4 on: March 08, 2022, 06:36:16 PM »
I kind of think the other way: if you can sock away $5k a month, then leave what you have alone, and fund the 529 in 4 months' contributions,  it won't make a difference in terms of tax benefit (tax time next year) and would allow you to DCA through the current market turbulence.  And, less financial activity for busy new parents.  (Congrats!)

Morning Glory

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Re: Save cash for house down payment or put it into 529 plan?
« Reply #5 on: March 08, 2022, 06:54:49 PM »
Are contingent offers no longer a thing? In any case don't buy a house before your other one sells, especially given what you've said about having to be there to set up a pump if it rains.  What a nightmare if you are living across town. Selling first might mean you have to rent for a couple months but it's by far the safer option,  and it obviates the whole down payment conundrum.

WorkingToUnwind

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Re: Save cash for house down payment or put it into 529 plan?
« Reply #6 on: March 14, 2022, 05:28:12 AM »
We've decided to put 5k a month in the 529 plan for the next four months or so. We'll see what the stock market does and how our home improvement projects go. We might end up staying here even longer than 3-5 years, so we feel the down payment money can be safely used for other purposes. Thanks for all the feedback.

nereo

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Re: Save cash for house down payment or put it into 529 plan?
« Reply #7 on: March 14, 2022, 03:29:31 PM »
We've decided to put 5k a month in the 529 plan for the next four months or so. We'll see what the stock market does and how our home improvement projects go. We might end up staying here even longer than 3-5 years, so we feel the down payment money can be safely used for other purposes. Thanks for all the feedback.

We did something similar when we had a pile of cash sitting around when our daughter was born.  It's worked out just fine and it's nice to not have any apprehension whatsoever about future college expenses.

Just be aware of how much (or how little!) you actually need to contribute to a 529 if you start as early as you have.  For example, with your initial $20k contributions (over 4 months) you can very easily wind up with $200k+ just contributing $100/week ($5,200 annually) from here on out and even mediocre market returns.  That may or may not be more than you plan on contributing, but point is with this much of a runway and the initial large contribution it's not hard to [over]fund your anticipated college needs.

A "good problem" to have, for sure... but just one to be aware of.

WorkingToUnwind

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Re: Save cash for house down payment or put it into 529 plan?
« Reply #8 on: March 15, 2022, 03:51:59 AM »
We've decided to put 5k a month in the 529 plan for the next four months or so. We'll see what the stock market does and how our home improvement projects go. We might end up staying here even longer than 3-5 years, so we feel the down payment money can be safely used for other purposes. Thanks for all the feedback.

We did something similar when we had a pile of cash sitting around when our daughter was born.  It's worked out just fine and it's nice to not have any apprehension whatsoever about future college expenses.

Just be aware of how much (or how little!) you actually need to contribute to a 529 if you start as early as you have.  For example, with your initial $20k contributions (over 4 months) you can very easily wind up with $200k+ just contributing $100/week ($5,200 annually) from here on out and even mediocre market returns.  That may or may not be more than you plan on contributing, but point is with this much of a runway and the initial large contribution it's not hard to [over]fund your anticipated college needs.

A "good problem" to have, for sure... but just one to be aware of.

Yes, an excellent problem to have and thank you for pointing this out. We have two kids so I think that 20K now will not grow to be too much in the future. However, if it does that's fantastic. I would love to fund my niece and nephew's college educations and potentially have more left over for grandkids.