Author Topic: 529 for new child  (Read 6729 times)

BloodyBuddy

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529 for new child
« on: May 31, 2015, 01:29:36 AM »
Ok, what's the best approach here.  How much should I contribute?  Looking to save about half her tuition to a state university, private schools are over priced.

Do you have to use the state sponsored plans?

How do I work this into my investing?  Do I put a lump sum in now, or do a routine contribution.
« Last Edit: May 31, 2015, 01:32:11 AM by BloodyBuddy »

alex trebeck's mustache

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Re: 529 for new child
« Reply #1 on: May 31, 2015, 06:19:37 AM »
I found this article on Wealthfront's blog helpful: https://blog.wealthfront.com/529-college-education-savings-plan-2/

humblefi

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Re: 529 for new child
« Reply #2 on: May 31, 2015, 10:13:36 AM »
The wealthfront link already posted is a good one.

I went through my own analysis for exactly the same questions you have and my experiences are jotted down here. For me, I consider college funding as part of my overall FI plan. When I created all the items in my FI plan ( http://humblefi.com/category/financial-independence/financial-independence-to-me/ and attached a dollar amount to each item, I realized that I cannot afford to fund more than $80K for my kid. If all my FI goals are met, then I may fund more...else, the kid has to manage it. So, I would recommend a FI plan first and treat college funding as one part of it.

My 529 selections are documented in:
+ http://humblefi.com/2014/07/26/college-funding-for-our-kid/
+ http://humblefi.com/2015/01/23/how-long-does-it-take-to-accumulate-80000-in-a-529-college-fund/

Also, there is a link in there on what to do if the 529 money is not used for any reason. There are a lot of misinformed fears on this issue. So, good to know before putting the money in.

Hope that helps.
« Last Edit: May 31, 2015, 10:25:33 AM by humblefi »

Gin1984

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Re: 529 for new child
« Reply #3 on: May 31, 2015, 10:16:28 AM »
I would recommend maxing out ALL retirement vehicle prior to putting in a cent into your 529. 

catccc

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Re: 529 for new child
« Reply #4 on: June 03, 2015, 09:26:50 AM »
From my prior research, I think there are only state sponsored plans.  I ended up going with a New York State 529 Plan, which invests in vanguard and I think has the lowest expenses. (very slight difference - 0.16% for NY v. 0.19% for Nevada).  I have read that the NY plan lacks international exposure, something notable if that is important to you.  I didn't actually know this when I invested with NY's 529.  I was just looking for low expenses.

I really don't know how much to put in, but I'm erring on the side of less.  Our 6 & 4 year old currently have around 20K each.

I don't contribute regularly, just when there is something like a bonus or a birthday gift for a kid, or other random extra money, and I just put 50% of the amount in each kid's account.  My initial larger investment (just a couple of years ago) wasn't split 50/50, I put slightly more in the older girl's account.

Check your state's tax rules.  In PA, I'm lucky that I can deduct contributions to any state's plan from my income for tax purposes.

milesdividendmd

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Re: 529 for new child
« Reply #5 on: June 03, 2015, 04:44:57 PM »
From my prior research, I think there are only state sponsored plans.  I ended up going with a New York State 529 Plan, which invests in vanguard and I think has the lowest expenses. (very slight difference - 0.16% for NY v. 0.19% for Nevada).  I have read that the NY plan lacks international exposure, something notable if that is important to you.  I didn't actually know this when I invested with NY's 529.  I was just looking for low expenses.

I really don't know how much to put in, but I'm erring on the side of less.  Our 6 & 4 year old currently have around 20K each.

I don't contribute regularly, just when there is something like a bonus or a birthday gift for a kid, or other random extra money, and I just put 50% of the amount in each kid's account.  My initial larger investment (just a couple of years ago) wasn't split 50/50, I put slightly more in the older girl's account.

Check your state's tax rules.  In PA, I'm lucky that I can deduct contributions to any state's plan from my income for tax purposes.

My approach:

1.  Max out up to state tax break in oregon 529 (where I live)
2.  Roll over oregon contributions into Utah 529 each year.  (Best 529 investment options, in my view.  NYC is good too but has no international options.)
3.  Invest very aggressively.  (IE all stocks, with small value tilt.)

http://whitecoatinvestor.com/3-reasons-why-you-can-take-more-risk-with-a-529/


pdxvandal

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Re: 529 for new child
« Reply #6 on: June 04, 2015, 12:28:04 AM »
Hey Miles. Interesting proposition. What about the tax-free withdrawals you get in Oregon? Or does this also apply to the Utah 529 plan no matter where you live?

Tjat

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Re: 529 for new child
« Reply #7 on: June 04, 2015, 06:39:28 AM »
My wife is due in July and I plan on starting a NY 529. The fees appear to be the cheapest at a flat 0.16% regardless of investment choice. All other states offering Vanguard seem to have something like a 20% admin fee plus .07-.30 of fund fees, which is absurd when they have access to institutional shares. While there is no international options with NY, I'm not too worried as when combined with my overall portfolio my diversification will be fine.

I live in MA though, so unfortunately no tax deduction, but tax free gains and disbursements make up for it. And deposits are a good mustachian gift from the grandparents :)

Bourbon

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Re: 529 for new child
« Reply #8 on: June 04, 2015, 08:01:18 AM »
My wife is due in July and I plan on starting a NY 529. The fees appear to be the cheapest at a flat 0.16% regardless of investment choice. All other states offering Vanguard seem to have something like a 20% admin fee plus .07-.30 of fund fees, which is absurd when they have access to institutional shares. While there is no international options with NY, I'm not too worried as when combined with my overall portfolio my diversification will be fine.

I live in MA though, so unfortunately no tax deduction, but tax free gains and disbursements make up for it. And deposits are a good mustachian gift from the grandparents :)

We don't get a tax break in KY, so I am invested in the Nevada plan that is administered directly by Vanguard.  I hadn't seen anything on additional fees, so I dug into the program description. It does look like there is an overhead fee of 0.14% - 0.27%.

I'm in the Total Stock Market index there, at 0.02 fund fees plus 0.19 management fee for a total of 0.21%

milesdividendmd

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Re: 529 for new child
« Reply #9 on: June 04, 2015, 01:44:02 PM »

Hey Miles. Interesting proposition. What about the tax-free withdrawals you get in Oregon? Or does this also apply to the Utah 529 plan no matter where you live?

I can still withdraw from the UESP plan tax-free for qualified education expenses when needed. No problem there.

I only invest in Oregon initially in order to take advantage of the state income tax break.

I'm a red panda

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Re: 529 for new child
« Reply #10 on: June 04, 2015, 01:56:20 PM »
What is the best course to take with a 529 when you have no idea what state your child will end up going to school in?

(We are debating the "move in 14 years" so our kid has access to the state schools husband and I went to, which we believe are much better than the options in our current state.)

brooklynguy

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Re: 529 for new child
« Reply #11 on: June 04, 2015, 02:06:16 PM »
Miles, I'm surprised there aren't recapture rules designed to defeat the purpose of investing in Oregon to get the state tax deduction and subsequently rolling over to another state.  Have you looked into that?  I know such rules exist in NY, but I haven't looked into it in Oregon other than the five minute google search I just did, which turned up this:

"The Oregon tax treatment of a rollover to an account in a 529 plan maintained by a state other than Oregon is unclear and may be subject to recapture. Please consult your tax advisor." (on page 29 of the pdf)

https://www.oregoncollegesavings.com/documents/or_disclosure.pdf

milesdividendmd

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Re: 529 for new child
« Reply #12 on: June 04, 2015, 02:13:55 PM »
My tax advisor saw no problem with it prior to my rollover. And no recapture charged on 2014 taxes.

brooklynguy

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Re: 529 for new child
« Reply #13 on: June 04, 2015, 02:27:28 PM »
My tax advisor saw no problem with it prior to my rollover. And no recapture charged on 2014 taxes.

Gotcha.  Without knowing anything more about it, based solely on the fact that the 529 plan's own official documentation simply describes it in the way quoted above, I would guess that it's probably a valid loophole or a gray area where there's not undue risk in taking an aggressive position, because the plan itself has every incentive to describe the state of the law in the most taxpayer-unfriendly way possible.  (In comparison, the NY 529 plan's website says in no uncertain terms that if you roll over to another state's plan the tax deduction may be subject to recapture.)

Just did a bit more googling and found this state-by-state comparison, which says this about Oregon:

"Rollovers apparently are not subject to recapture."

http://www.savingforcollege.com/compare_529_plans/?plan_question_ids%5B%5D=96&page=compare_plan_questions

milesdividendmd

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Re: 529 for new child
« Reply #14 on: June 04, 2015, 09:29:23 PM »

What is the best course to take with a 529 when you have no idea what state your child will end up going to school in?

(We are debating the "move in 14 years" so our kid has access to the state schools husband and I went to, which we believe are much better than the options in our current state.)

529 plans are agnostic about what state your educational expenses are ultimately spent in. Any qualified educational expense can be withdrawn from any 529 tax free and without penalty.

(So you can just worry about finding the best plan for your current circumstances irregardless of future moves. )

waltworks

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Re: 529 for new child
« Reply #15 on: June 05, 2015, 07:32:44 AM »
If you are maxing out all your other tax advantaged accounts, by all means pick the lowest fee 529 you can find (we're in the UT one as well). If not, do everything else first.

-W

Manguy888

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Re: 529 for new child
« Reply #16 on: June 05, 2015, 07:47:34 AM »
The easiest way to say it is this:

Every state has their own 529, but YOU can sign up for 'almost' any state's 529. If you use your own state's, there may be some fringe benefits such as the contributions being tax deductible. My income was too high so I didn't get any state benefits. I ended up opening a 529 with Vanguard, which is called a "Nevada Plan". I don't live in Nevada and it's unlikely the money will be spent in Nevada.