Author Topic: 529 State Plan vs. Directly at Vanguard  (Read 991 times)

glancep

  • 5 O'Clock Shadow
  • *
  • Posts: 3
529 State Plan vs. Directly at Vanguard
« on: March 06, 2021, 03:18:57 PM »
I searched and couldn't find a good answer to this (apologies if I missed it).

I live in Kentucky, which doesn't offer any real tax benefits for 529 plans.  On account of this, I hadn't really looked too much at 529s since I still had better tax-advantaged space to use.  Now, however, we are pretty well tapped out on our other accounts' yearly contribution limits, and I'm considering whether a 529 would still be better than adding money to our taxable account.

I'm aware of the potential pitfalls around the exclusions on using 529s (qualified expenses, affects of scholarships, etc)--we will be careful not to overfund them accordingly.

Here is my list of questions:

  • Is there any advantages/disadvantages between using Vanguard directly vs. picking a state program that includes Vanguard (or similar) investments?
  • Is a 529 likely better than additional taxable investments, assuming we use the money for qualified expenses?
  • (probably an extension of #2) Between a taxable account and a 529, which more greatly affects our expected contribution (from FAFSA perspective)
  • Does it make a difference whose name the account is in?  i.e. Should it be in my or DW's name instead of the children?

Thank you very much!

reeshau

  • Handlebar Stache
  • *****
  • Posts: 1396
  • Location: Houston, TX
  • Former locations: Detroit, Indianapolis, Dublin
Re: 529 State Plan vs. Directly at Vanguard
« Reply #1 on: March 06, 2021, 03:50:07 PM »
Have you looked through the introductory materials at savingforcollege.com?  They have a very good primer around the questions you are asking, as well as ratings for each state.

https://www.savingforcollege.com/college-savings-101

Regarding question #1:  this either seems like a duplicate of #2, or in need of a clarification:  there is no 529 plan other than the state plans, so going directly to Vanguard would simply be a taxable account.  You can also find out which states have Vanguard as an investment manager at savingforcollege.com

Morning Glory

  • Magnum Stache
  • ******
  • Posts: 3377
  • Location: The Garden Path
Re: 529 State Plan vs. Directly at Vanguard
« Reply #2 on: March 06, 2021, 03:52:33 PM »
1 no. In some states there is, but not Kentucky
2 yes. I is treated like a Roth IRA if used for education expenses. This can include a reasonable amount for room and board even if your child lives off campus or at home.
3 they are treated the same
4 yes, you want it in a parents name with the child as beneficiary. Then it is a "parental asset" for fafsa purposes. You can always change the beneficiary later, for example if your child doesn't go to college you could pass it on to a niece, nephew, or grandchild

To clarify, Vanguard manages Nevada's plan. My state doesn't care which state's plan I use so I went with Nevada since it has one of the lowest expense ratios and I already had assets with Vanguard. I opened it through my Vanguard account, so for all intents and purposes I "went straight to Vanguard".
« Last Edit: March 06, 2021, 03:55:13 PM by Morning Glory »

EricEng

  • Pencil Stache
  • ****
  • Posts: 605
  • Location: CO
Re: 529 State Plan vs. Directly at Vanguard
« Reply #3 on: March 08, 2021, 11:43:52 AM »
1 no. In some states there is, but not Kentucky
2 yes. I is treated like a Roth IRA if used for education expenses. This can include a reasonable amount for room and board even if your child lives off campus or at home.
3 they are treated the same
4 yes, you want it in a parents name with the child as beneficiary. Then it is a "parental asset" for fafsa purposes. You can always change the beneficiary later, for example if your child doesn't go to college you could pass it on to a niece, nephew, or grandchild
What Morning said is spot on.  I don't know if I would bother and lose the flexability by using a 529 without initial tax benefit.

YttriumNitrate

  • Handlebar Stache
  • *****
  • Posts: 1316
  • Location: Northwest Indiana
Re: 529 State Plan vs. Directly at Vanguard
« Reply #4 on: March 08, 2021, 12:32:26 PM »
  • Is there any advantages/disadvantages between using Vanguard directly vs. picking a state program that includes Vanguard (or similar) investments?
It's been a while since I looked into 529 plans, but aren't all of them tied to a specific state in some way?

EricEng

  • Pencil Stache
  • ****
  • Posts: 605
  • Location: CO
Re: 529 State Plan vs. Directly at Vanguard
« Reply #5 on: March 08, 2021, 12:59:35 PM »
  • Is there any advantages/disadvantages between using Vanguard directly vs. picking a state program that includes Vanguard (or similar) investments?
It's been a while since I looked into 529 plans, but aren't all of them tied to a specific state in some way?
They can be used anywhere.  Most states give you a local state tax deduction for using theirs.  Kentucky has none, so he can use any state's plan.

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 6270
  • Age: 37
  • Location: Seattle, WA
    • My blog
Re: 529 State Plan vs. Directly at Vanguard
« Reply #6 on: March 08, 2021, 07:08:57 PM »
  • Is there any advantages/disadvantages between using Vanguard directly vs. picking a state program that includes Vanguard (or similar) investments?
It's been a while since I looked into 529 plans, but aren't all of them tied to a specific state in some way?

They're all sponsored by a state. The Vanguard-branded plan is actually Nevada's. Anyone living in any state can invest in a plan offered by another state (as long as that state allows it) and can spend the money on colleges in any state. Some states give you a tax break only if you join their plan, while other states don't care.

racquetcat

  • 5 O'Clock Shadow
  • *
  • Posts: 31
  • Location: Kansas
Re: 529 State Plan vs. Directly at Vanguard
« Reply #7 on: March 10, 2021, 02:33:52 PM »
1 no. In some states there is, but not Kentucky
2 yes. I is treated like a Roth IRA if used for education expenses. This can include a reasonable amount for room and board even if your child lives off campus or at home.
3 they are treated the same
4 yes, you want it in a parents name with the child as beneficiary. Then it is a "parental asset" for fafsa purposes. You can always change the beneficiary later, for example if your child doesn't go to college you could pass it on to a niece, nephew, or grandchild
What Morning said is spot on.  I don't know if I would bother and lose the flexability by using a 529 without initial tax benefit.

Situation: I set up 529 accounts for both of my children in my name with my children as the beneficiary. Great Grandparents contributed way more to my oldest child because they only had a couple grandchildren at the time. Now with lots more grandchildren they are contributing less and my younger child will have roughly 40% less at age 18. Can I move money from my oldest child's account to my younger child's account or do I just switch beneficiaries on the account at some point?

Chrissy

  • Handlebar Stache
  • *****
  • Posts: 1340
  • Age: 44
  • Location: Chicago
Re: 529 State Plan vs. Directly at Vanguard
« Reply #8 on: March 10, 2021, 03:45:50 PM »
Situation: I set up 529 accounts for both of my children in my name with my children as the beneficiary. Great Grandparents contributed way more to my oldest child because they only had a couple grandchildren at the time. Now with lots more grandchildren they are contributing less and my younger child will have roughly 40% less at age 18. Can I move money from my oldest child's account to my younger child's account or do I just switch beneficiaries on the account at some point?

Yes.  I was able to transfer money between my kids.  I was the owner of both accounts, which are with the same provider, and my kids are the beneficiaries.

Morning Glory

  • Magnum Stache
  • ******
  • Posts: 3377
  • Location: The Garden Path
Re: 529 State Plan vs. Directly at Vanguard
« Reply #9 on: March 10, 2021, 04:28:10 PM »
1 no. In some states there is, but not Kentucky
2 yes. I is treated like a Roth IRA if used for education expenses. This can include a reasonable amount for room and board even if your child lives off campus or at home.
3 they are treated the same
4 yes, you want it in a parents name with the child as beneficiary. Then it is a "parental asset" for fafsa purposes. You can always change the beneficiary later, for example if your child doesn't go to college you could pass it on to a niece, nephew, or grandchild
What Morning said is spot on.  I don't know if I would bother and lose the flexability by using a 529 without initial tax benefit.

Situation: I set up 529 accounts for both of my children in my name with my children as the beneficiary. Great Grandparents contributed way more to my oldest child because they only had a couple grandchildren at the time. Now with lots more grandchildren they are contributing less and my younger child will have roughly 40% less at age 18. Can I move money from my oldest child's account to my younger child's account or do I just switch beneficiaries on the account at some point?

Either one is fine!

racquetcat

  • 5 O'Clock Shadow
  • *
  • Posts: 31
  • Location: Kansas
Re: 529 State Plan vs. Directly at Vanguard
« Reply #10 on: March 10, 2021, 06:38:05 PM »
Situation: I set up 529 accounts for both of my children in my name with my children as the beneficiary. Great Grandparents contributed way more to my oldest child because they only had a couple grandchildren at the time. Now with lots more grandchildren they are contributing less and my younger child will have roughly 40% less at age 18. Can I move money from my oldest child's account to my younger child's account or do I just switch beneficiaries on the account at some point?

Yes.  I was able to transfer money between my kids.  I was the owner of both accounts, which are with the same provider, and my kids are the beneficiaries.

Awesome, thanks!