Author Topic: Funding 529 in retirement  (Read 862 times)

WSUCoug1994

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Funding 529 in retirement
« on: July 26, 2021, 12:22:15 PM »
Just curious how people go about funding their kids 529 in retirement. 50% of my retirement spend will come from interest/dividends and the other 50% from selling my taxable holdings. 

At the moment (while I am working) I am funding my 2 kids 529's at $6000 a year.  They are 5 and 3 - so I have a long way to go.  Just curious if makes sense to just fund it with the interest/dividends from the portfolio or just take that $6K out of my portfolio and into say an imaginary account (not having to take a tax hit on sales of equities) and maybe miss out on some of the tax advantages of the 529. 

I obviously need to do the math on the tax implications - but curious what other people are doing.

secondcor521

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Re: Funding 529 in retirement
« Reply #1 on: July 26, 2021, 04:21:36 PM »
I didn't have to.  I funded my kids 529s before I FIREd.

If I were in your shoes, I'd divide the question into three parts:

1.  How much to fund their college?  I picked a target number when my kids were young and funded to that level, then stopped.  The last five to ten years I've just been monitoring my 529 balances and trying to hit zero when my last kid graduates.

2.  Whether to fund that via 529 or taxable (or Roth, which some people like - I don't).  I chose to fund as much as possible via 529s, ESAs, and UTMAs.  I thought the tax advantages were worth it, but my state also gives a state tax deduction for up to $6000 per year of contributions, which certainly factored into my planning.  I also discovered that the 10% penalty, especially with multiple kids who are all likely to go to college, is quite manageable / avoidable via a number of techniques.

3.  Where to get money from to pay for things?  Dividends, interest, capital gains, Roth distributions, whatever.  Now that my kids are in college, I generally pay for their college via (1) scholarships, (2) financial aid, (3) AOTC / out-of-pocket, (4) 529s.

These three questions are largely independent, so it might be easier for you to analyze them separately.

nereo

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Re: Funding 529 in retirement
« Reply #2 on: July 27, 2021, 04:00:10 AM »
Adding to seconcor521’s good post:

Yes, do the math. My first impression when reading your post is that - given your kids age and amount you are squirreling away - they ought to have a large college fund in 13-15 years. Of course it depends on how much you think is “reasonable” to contribute, but our plan was to put away $5k each year starting at birth and then basically stop when she goes into 1st or 2nd grade.  With slightly below average gains we anticipate >$90k in todays dollars (inflation adjusted). We are comfortable contributing that to our daughter’s post-secondary education, and we could easily contribute another $5k/yr if necessary without to much discomfort.  That - coupled with her own small contributions, grants and possibly a small loan - should be enough, or so we are guessing.

WSUCoug1994

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Re: Funding 529 in retirement
« Reply #3 on: August 02, 2021, 08:52:33 AM »
I appreciate the replies.  I need to double down on the math/taxes before making my final decision.  Thank you.

lhamo

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Re: Funding 529 in retirement
« Reply #4 on: August 02, 2021, 11:04:01 AM »
I did some dirty market timing with our kids college funds that turned out pretty well.  Put 24k in in November 2008 when the market was tanking -- would have done more in spring 2009 but we ended up buying a condo instead so didn't want to use up too much of our cash.  Put another 10k in during the 2011 dip.  Those amounts + the lump sums we started the accounts with when the kids were small and we got the NY state tax deduction make up over 50% of the principal.  The rest was mostly modest monthly contributions made over time, the bulk of them between 2009-2013 when we had the best cash flow.

brellis1vt

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Re: Funding 529 in retirement
« Reply #5 on: August 03, 2021, 10:47:35 AM »
I have 2 young kids and have frontloaded as much as possible.  I used the following calculator https://www.virginia529.com/resources/planner-calculator/ along with a few others to determine my number.  It can be can frustrating because the major inputs have a huge impact on what to contribute (% increase in college cost per year) and (% rate of return.)  Overall, my goal is to pay completely for their college but only for an in state school.  So, after all the calculations and research I determined that my goal is to accumulate $200k per child.  Each year I plan to reevaluate the current situation to see if I should increase/decrease contributions.  I don't worry about the potential tax impacts (deductions now and possible penalties in the future.)  I think it is valid to include those into your calculations but not something I am concerned about.

nereo

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Re: Funding 529 in retirement
« Reply #6 on: August 03, 2021, 11:08:31 AM »
I have 2 young kids and have frontloaded as much as possible.  I used the following calculator https://www.virginia529.com/resources/planner-calculator/ along with a few others to determine my number.  It can be can frustrating because the major inputs have a huge impact on what to contribute (% increase in college cost per year) and (% rate of return.)  Overall, my goal is to pay completely for their college but only for an in state school.  So, after all the calculations and research I determined that my goal is to accumulate $200k per child.  Each year I plan to reevaluate the current situation to see if I should increase/decrease contributions.  I don't worry about the potential tax impacts (deductions now and possible penalties in the future.)  I think it is valid to include those into your calculations but not something I am concerned about.

That's a really awesome calculator - thanks for sharing.