Author Topic: Should I start a 529 plan for my 4 year old or something else?  (Read 644 times)

lilybluerose

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Hi everyone I would love some opinions please. I was wondering if I should start a 529 plan for my daughter or something else like the ugma? I worry about the pros and cons of each.

My husband and I aren't able to save too much for her at the moment because we only started saving for retirement around two years ago. He is 37 I am 31.

The money going into it will be mostly gift money and some from us here and there. She has around 8k in an ally savings account right now mostly from gift money from family. This will continue to be added onto

What would you do?

Thanks!

clutchy

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Re: Should I start a 529 plan for my 4 year old or something else?
« Reply #1 on: July 24, 2018, 09:31:43 AM »
Hi everyone I would love some opinions please. I was wondering if I should start a 529 plan for my daughter or something else like the ugma? I worry about the pros and cons of each.

My husband and I aren't able to save too much for her at the moment because we only started saving for retirement around two years ago. He is 37 I am 31.

The money going into it will be mostly gift money and some from us here and there. She has around 8k in an ally savings account right now mostly from gift money from family. This will continue to be added onto

What would you do?

Thanks!
 

Savings accounts don't pay anything, but you have $8k and you'll have $8k when she goes to college. 


I like 529's but they need to be invested in the market.  You have 14 years. 


One thing that I did (and I made it known to people who gifted) is that we matched 100% of any gifts to my kid's 529 accounts.  So if they get $100 for a birthday I took that and dumped $200 into the 529.  It's worked very well at this point.  Did some people stop sending money?  Yes.  Did others send more?  YES! 

I send out quarterly updates in a "transparency/stakeholder" report.  People love it and it helps keep us in contact. 

I have a 6 and 3 year old and we have about $23k in the accounts now.  We'll need more but I'm pretty happy with it at this point.  about 50% of that money is market returns...

lilybluerose

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Re: Should I start a 529 plan for my 4 year old or something else?
« Reply #2 on: July 24, 2018, 09:46:59 AM »
Ty for thr advice! Is there anywhere you recommend reading about which state to set it up with or which funds to use? I am new to this kind of stuff in general! Thanks so much

terran

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Re: Should I start a 529 plan for my 4 year old or something else?
« Reply #3 on: July 24, 2018, 09:55:29 AM »
I agree with the advice in the investment order sticky to max out all retirement accounts and pay off most debt before funding a 529 because 1) you can take out a loan to fund college, but you can't take out a loan to fund retirement and 2) you can pay for education out of an IRA without penalty regardless of age (you'll still pay applicable tax on traditional IRAs) and IRAs have better tax advantages than 529s.

clutchy

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Re: Should I start a 529 plan for my 4 year old or something else?
« Reply #4 on: July 24, 2018, 09:56:10 AM »
Ty for thr advice! Is there anywhere you recommend reading about which state to set it up with or which funds to use? I am new to this kind of stuff in general! Thanks so much

https://www.savingforcollege.com/?utm_expid=.iDp0qDsLRXqhd_v60lFmwQ.0&utm_referrer=https%3A%2F%2Fwww.google.com%2F


some states have tax deductions and some don't. 

Generally the advice is "IF" your state offers a deduction use their plan.  If not use one of the state's that has Vanguard like Utah or Nevada and has a good rating.  I think Virginia is up there too... 

My state offers a tax deduction so I use their plan but I also had Nevada when I lived in CA. 

It doesn't matter what state you live in.   


Good luck!

lilybluerose

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Re: Should I start a 529 plan for my 4 year old or something else?
« Reply #5 on: July 24, 2018, 10:00:34 AM »
I agree with the advice in the investment order sticky to max out all retirement accounts and pay off most debt before funding a 529 because 1) you can take out a loan to fund college, but you can't take out a loan to fund retirement and 2) you can pay for education out of an IRA without penalty regardless of age (you'll still pay applicable tax on traditional IRAs) and IRAs have better tax advantages than 529s.

Ty I do also. This is for family gift money that just sits in a savings account.

Heroes821

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Re: Should I start a 529 plan for my 4 year old or something else?
« Reply #6 on: July 24, 2018, 11:58:32 AM »
I'll just add a note that most state plans have a minimum opening balance of $25, but plans that are offered by Vanguard and the like have a minimum INITIAL balance of $3000. 


lilybluerose

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Re: Should I start a 529 plan for my 4 year old or something else?
« Reply #7 on: July 24, 2018, 03:43:28 PM »
I'll just add a note that most state plans have a minimum opening balance of $25, but plans that are offered by Vanguard and the like have a minimum INITIAL balance of $3000.

Okay thanks, do you recommend going with Vanguard?

Here is what I have found on the PA one
https://www.pa529.com/investment-plan/
https://www.pa529.com/pdf/Age-Based-Options.pdf

If it were you guys, would you go with the blended growth, or the aggressive portfolio or fully aggressive growth option in the 4 or younger?

Am I supposed to change which fund this is in as she ages, per this chart?

Sorry for the questions, this stuff is hard for me to wrap my mind around, but am trying!
« Last Edit: July 24, 2018, 06:23:14 PM by lilybluerose »

Heroes821

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Re: Should I start a 529 plan for my 4 year old or something else?
« Reply #8 on: July 25, 2018, 08:10:58 AM »
I'll just add a note that most state plans have a minimum opening balance of $25, but plans that are offered by Vanguard and the like have a minimum INITIAL balance of $3000.

Okay thanks, do you recommend going with Vanguard?

Here is what I have found on the PA one
https://www.pa529.com/investment-plan/
https://www.pa529.com/pdf/Age-Based-Options.pdf

If it were you guys, would you go with the blended growth, or the aggressive portfolio or fully aggressive growth option in the 4 or younger?

Am I supposed to change which fund this is in as she ages, per this chart?

Sorry for the questions, this stuff is hard for me to wrap my mind around, but am trying!

So according to this: https://www.savingforcollege.com/529_plan_details/?page=plan_details&plan_id=76

PA529 is already using Vanguard funds so yay!  That being said depending on contributions and if you are married, it looks like you could deduct upto $30,000 in contributions per year from State income tax.   Since it's highly unlikely that you or anyone is going to be doing that just to save on state taxes I would say PA is WAY WAY better than a vanguard 529.


Also minimum starting balance is $25 which is better than the $3000 needed for vanguard.  If you lived in Nevada or any state with no income tax then Vanguard would probably be a winner, but PA has state income tax and a good 529 deduction (Ohio is only $2500 per year upto 5 years of pushing forward [i.e. pay $5000 into the 529 in 2018 you can claim $2500 off state taxes in 2018 and $2500 in 2019]).   Where as in South Carolina I could put anything in and deduct it all (assuming it doesn't surpass my actual income for the year.   Either way PA's looks good and they advertise they are using Vanguard as the underlying funds which to me is always a boon.