Author Topic: What do you think about the 529 college savings plan?  (Read 7721 times)

Frugal Vegan Mom

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What do you think about the 529 college savings plan?
« on: December 11, 2014, 01:41:48 PM »
My aunt set up a 529 plan for my daughter who is almost 4 years old.  Family members keep giving us money on her birthday and x-mas to contribute to it, but I wonder is this the best place for the money to be going? 

What happens if your kid doesn't want to go to college?  I'm wary of the standard 4 year liberal arts degree and hope there will be a shift away from this overpriced model in coming years where it is "mandatory" for someone to have a degree (but lots of times no real skills) to get a job. 

I would rather have my kid learn mustachian skills and a trade than just go get a degree because it's what you're "supposed" to do. 

So what should I do with the money?  Is there another type of account I could put it in for her?  Or just put it in our Roth IRA and keep track so I can give it to her when she's an adult for other purposes?

Thanks!

MrFrugalChicago

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Re: What do you think about the 529 college savings plan?
« Reply #1 on: December 11, 2014, 02:29:23 PM »
If people are giving a gift for a 529, you really should put it in there. In your roth seems a little dishonest.

Ignoring that -

How much money are we talking. $200 a year or $10,000 a year? Because if it is a few $100, at compound interest over 14 years.. it really won't be THAT much money. I am sure she can spend $5,000 or $10,000 on college (at even the cheapest state school around). College is the best investment you can make in yourself. Even if for some reason she decided no college, you can gift the money to a cousin or sibling for them to go to college.

Again, if only a few thousand dollars total... you can surely find a use for it in 14 years.

JR

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Re: What do you think about the 529 college savings plan?
« Reply #2 on: December 11, 2014, 02:43:09 PM »
We will not be saving money in a 529 in case our child has no desire to attend college when he is an adult. We have not thought about what to do with money that is gifted to us specifically for his "education" though, maybe we would open an "UTMA" brokerage and deposit the money for his use as an adult.

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Re: What do you think about the 529 college savings plan?
« Reply #3 on: December 11, 2014, 03:00:08 PM »
You could consider buying US Series I or EE bonds, which can be cashed tax free if used for education. The bonds must by purchased by someone aged 24+, not the child, but the child can be listed as the beneficiary.

We did not do a 529 plan, which didn't exist when DS was born. Instead, we created an Educational Trust for him. Although it is taxable, it has its own tax ID & files its own return, which means that anything invested in it is not subject to the "kiddie tax" in our return. It's invested in tax advantaged index funds. The Trust will distribute one half of any remaining value to DS when he obtains a Bachelor's degree, & any remainder at age 35 regardless. So this kind of Trust pays out for college or trade school, stlll pays eventually if the child doesn't go or graduate, but delays such payment until well into adulthood. (UTMA pays out at 18 or 21 -- not good.) We set up similar trusts for 2 nephews; one has already used his entire trust & graduated, while the other will probably get his at age 35. Educational trusts are easy enough to run & file every year. Best of all, you control what you invest in & what school you send the disbursements to.

MrFrugalChicago

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Re: What do you think about the 529 college savings plan?
« Reply #4 on: December 11, 2014, 04:06:01 PM »
You could consider buying US Series I or EE bonds, which can be cashed tax free if used for education. The bonds must by purchased by someone aged 24+, not the child, but the child can be listed as the beneficiary.

We did not do a 529 plan, which didn't exist when DS was born. Instead, we created an Educational Trust for him. Although it is taxable, it has its own tax ID & files its own return, which means that anything invested in it is not subject to the "kiddie tax" in our return. It's invested in tax advantaged index funds. The Trust will distribute one half of any remaining value to DS when he obtains a Bachelor's degree, & any remainder at age 35 regardless. So this kind of Trust pays out for college or trade school, stlll pays eventually if the child doesn't go or graduate, but delays such payment until well into adulthood. (UTMA pays out at 18 or 21 -- not good.) We set up similar trusts for 2 nephews; one has already used his entire trust & graduated, while the other will probably get his at age 35. Educational trusts are easy enough to run & file every year. Best of all, you control what you invest in & what school you send the disbursements to.

Problem with I or E bond: The rate of return is < 1.5%. Over 18 years, you are giving up on the power of compound interest. Meaning 50k invested will be 55k at college time, instead of compound interest making 50k turn into 200k. Pretty huge difference.

Problem with trust: You lose (I assume, tell me if I am wrong) the tax advantaged state of a 529 plan. Right now I can get a "state income tax credit of 20% of contributions to a CollegeChoice 529 account, up to $1,000 credit per year." Kind of like an employee match, it is free money the same year I invest.

Joel

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Re: What do you think about the 529 college savings plan?
« Reply #5 on: December 11, 2014, 10:25:51 PM »
I think the intent of the people giving money as a gift are to have a couple thousand there for the kid to go to college. College may not be for everyone, but 18 year olds are not necessarily the best decision makers and having a couple grand pushing them in the right direction is a good thing, in my opinion. I also have college funds setup for me neice and nephew when my sister did not attend college and had the same excuse on why I should put the money in her hands to save for them. So my opinion might be slightly biased.

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Re: What do you think about the 529 college savings plan?
« Reply #6 on: December 12, 2014, 02:19:30 PM »
     I am not starting a 529 plan for my child because I don't feel like they are a good fit for my situation.  That being said, I agree with the poster that said you shouldn't redirect people's gifts if their intention is for it to be put in the 529.  Regardless of your feelings about traditional college, they may feel differently and have a right to give the gift they want to.  If they ask you for suggestions, then it's certainly fine to steer them toward a better idea, but I actually envy you for having family members that want to put gift money towards education.  If they feel like it isn't appreciated, they may switch to something even less appreciated like the latest Disney branded plastic hunk of crap or a sausage of the month club membership.  Also keep in mind that 529 plans are not limited to traditional 4-year schools but can be used to trade and technical schools, yoga teaching certificates, and a host of other less common options.  I think investing your own money in other ways is a great idea, but unless these family members are going to pile in enough to fully fund a 4 year degree, I think you can find a way for it to be used.       

tofuchampion

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Re: What do you think about the 529 college savings plan?
« Reply #7 on: December 13, 2014, 12:41:15 PM »
     I am not starting a 529 plan for my child because I don't feel like they are a good fit for my situation.  That being said, I agree with the poster that said you shouldn't redirect people's gifts if their intention is for it to be put in the 529.  Regardless of your feelings about traditional college, they may feel differently and have a right to give the gift they want to.  If they ask you for suggestions, then it's certainly fine to steer them toward a better idea, but I actually envy you for having family members that want to put gift money towards education.  If they feel like it isn't appreciated, they may switch to something even less appreciated like the latest Disney branded plastic hunk of crap or a sausage of the month club membership.  Also keep in mind that 529 plans are not limited to traditional 4-year schools but can be used to trade and technical schools, yoga teaching certificates, and a host of other less common options.  I think investing your own money in other ways is a great idea, but unless these family members are going to pile in enough to fully fund a 4 year degree, I think you can find a way for it to be used.       

+1.

I WISH my family would contribute to my kids' 529's, instead of buying them more toys that they don't need and that we don't have space for.   I keep suggesting it, but a 529 contribution isn't shiny and fun and can't be opened on xmas morning, so we get billions of Lego sets instead.
« Last Edit: December 13, 2014, 12:43:03 PM by tofuchampion »
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Frugal Vegan Mom

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Re: What do you think about the 529 college savings plan?
« Reply #8 on: December 13, 2014, 02:25:15 PM »
     Also keep in mind that 529 plans are not limited to traditional 4-year schools but can be used to trade and technical schools, yoga teaching certificates, and a host of other less common options.

Oh wow good to know!  I didn't figure the gov't would let the money be used for "alternative" education, like yoga. 

Don't get me wrong, I'm very thankful to have generous family members.  And even if I moved the money out of the 529, I still intended it to be used for some sort of education, just not a traditional (expensive) four year degree. 

My main concern with the 529 was that there'd be a good chunk of money in there, but not nearly enough for the four year degree, and then it would either go to waste or make it necessary to pay a lot for the remaining cost of the four year schooling. 

Dee18

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Re: What do you think about the 529 college savings plan?
« Reply #9 on: December 13, 2014, 02:45:29 PM »
You can use the money for non-educational expenses, but must pay taxes on the growth portion as well as 10% penalty.  However, if child gets a scholarship, you can take out an amount equal to the scholarship and just pay taxes of the growth with the penalty bring waived.
« Last Edit: December 14, 2014, 06:01:37 AM by Dee18 »

MrFrugalChicago

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Re: What do you think about the 529 college savings plan?
« Reply #10 on: December 13, 2014, 03:25:00 PM »
just not a traditional (expensive) four year degree. 

You seem very opposed to the 4 year degree. Which is fine for you, but not sure you should make this choice for your child. I would not be making high 6 figs without my (not expensive) 4 year degree, and am glad my parents did not sabotage my attempt to go to college.

Mr.Chipper77

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Re: What do you think about the 529 college savings plan?
« Reply #11 on: December 16, 2014, 12:10:58 PM »
we have 529's on our kids and get the state tax deduction every year. I wouldn't put all my eggs in that one basket but definitely one of them

retired?

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Re: What do you think about the 529 college savings plan?
« Reply #12 on: December 18, 2014, 12:40:53 AM »
Yep, there are many ways to direct the benefits of a 529.  I'd go with it and adjust as the initial beneficiary chooses to use it.  The actual beneficiary can be changed and as others have mentioned it does not have to go towards a traditional 4 year degree. 

OurFirstFire

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Re: What do you think about the 529 college savings plan?
« Reply #13 on: January 05, 2015, 10:03:32 PM »
I think 529 plans are a big win if your kid does go to college, and roughly neutral or a small loss if they don't. 

The money grows tax free for 18+ years, so if it's used to pay for schooling then you'd have 30%+ more money to do it with.

If your kid doesn't go to college, then that growth is still tax deferred.  You then pay tax and a 10% penalty on the growth portion as you (or Junior) withdraw(s) it from the account, with the range of outcomes being either a small loss (for a high marginal tax bracket and a low rate of investment return), to a small net benefit (for a low tax bracket and a high rate of investment return, particularly if you hold more than 18 years).  There's a complex set of outcomes, but the key is that the penalties are offset by the tax deferred growth.  Also important to withdraw gradually and wisely so it doesn't bump up your marginal tax bracket.
« Last Edit: January 05, 2015, 10:18:12 PM by FrugalExpat »

Megma

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Re: What do you think about the 529 college savings plan?
« Reply #14 on: January 09, 2015, 01:44:43 PM »
I have just been looking into 529 plans for my nephew who is 2. Our family is concerned that cash gifts for birthday and Christmas are going directly into the pockets of of his less than responsible parents and want to make sure he has something when the time comes. Also he doesn't need more toys. I plan to contribute when his is set up instead of buying him more things.

Iím not sure why you are anti-4 year liberal arts degrees, while I agree many are overpriced (basically any private college), state colleges can be reasonable even for a liberal arts degree but also engineering (MMM!), teaching and many directly employable job-related degrees. Maybe because I have one (and also an MA!), I am biased but you can and do learn useful skills such as critical thinking, good writing skills, communication skills which help you when working in most white collar jobs. Iím not saying colleges only turn out success stories but there is more going on there. Plenty of kids donít graduate and leave with debt and of course itís not the right road for everyone but I agree with those who are saying you shouldnít decide that for your kid when theyíre 4 years old.

As others have said you can also fund community college and technical school. Like FrugalExpat said, you can withdraw for non-college expenses and pay the penalty if your child goes another route.
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gluskap

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Re: What do you think about the 529 college savings plan?
« Reply #15 on: January 30, 2015, 06:13:22 PM »
We started a 529 for our DD.  I don't think we will give her a choice, she will have to attend college.  However, it doesn't have to be expensive.  I would encourage her to do what I did and attend 2 years at a community college and then transfer to our very good state university.  4 year degree that isn't too expensive and will more than pay for itself when she gets a good paying job.  Even if she had non-traditional interests, I still think the experiences that you get in college are invaluable.

TheDude

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Re: What do you think about the 529 college savings plan?
« Reply #16 on: January 30, 2015, 09:17:18 PM »
We wont be putting any of our money in a 529. I will hopefully be putting some money into my Roth via backdoor and that will serve as a college fund.

Now if someone gave us some money with the intent it goes to a 529 it will go to a 529. I also encourage the grandparents to start a 529.

aperture

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Re: What do you think about the 529 college savings plan?
« Reply #17 on: July 31, 2017, 12:46:52 PM »
     I am not starting a 529 plan for my child because I don't feel like they are a good fit for my situation.  That being said, I agree with the poster that said you shouldn't redirect people's gifts if their intention is for it to be put in the 529.  Regardless of your feelings about traditional college, they may feel differently and have a right to give the gift they want to.  If they ask you for suggestions, then it's certainly fine to steer them toward a better idea, but I actually envy you for having family members that want to put gift money towards education.  If they feel like it isn't appreciated, they may switch to something even less appreciated like the latest Disney branded plastic hunk of crap or a sausage of the month club membership.  Also keep in mind that 529 plans are not limited to traditional 4-year schools but can be used to trade and technical schools, yoga teaching certificates, and a host of other less common options.  I think investing your own money in other ways is a great idea, but unless these family members are going to pile in enough to fully fund a 4 year degree, I think you can find a way for it to be used.       

+1.

I WISH my family would contribute to my kids' 529's, instead of buying them more toys that they don't need and that we don't have space for.   I keep suggesting it, but a 529 contribution isn't shiny and fun and can't be opened on xmas morning, so we get billions of Lego sets instead.

+2 Your aunt and family members are pulling together to help share the financial burden of your child.  That is a huge blessing.  I would use the 529 and be grateful.  Unless it is a really bad investment vehicle (fees), I would stick with it - set a $ goal and contribute to it along with the rest of your family.  Make a website with a counter on it for the total assets in the 529 - and every time she gets a gift make it obvious "Aunt Gladys' Christmas Gift" and show how the total value is moving towards the goal. Keep your family involved in getting to the goal. 

You may avoid getting the gifts that steal your wealth (I am looking at you American Girl Doll) if relatives know that the 529 is her/your 'thing'.  Best wishes, ap.

Chesleygirl

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Re: What do you think about the 529 college savings plan?
« Reply #18 on: July 31, 2017, 08:10:32 PM »

I would rather have my kid learn mustachian skills and a trade than just go get a degree because it's what you're "supposed" to do. 


The money in 529 plans can be used for accredited vocational schools, from what I understand.

Paul der Krake

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Re: What do you think about the 529 college savings plan?
« Reply #19 on: July 31, 2017, 09:45:31 PM »
529s are incredibly versatile and can be used for lots of expenses that go well beyond tuition at a 4-year college. They don't even have to be used in the US, if you're that concerned about cost. You can use them on living expenses, study laptops, etc.

But traditional education is the bomb if you know what you're doing. B students who try to get in "the best possible school" with no regards to price are going to have a hard time. An A student that gets into his flagship state school (or even the flagship school of another state) has a much more manageable burden.

No offense to people who work with their hands, but I'm very glad for my university education that lets me earn a living solely with what comes out of my head. Work injuries are no joke. It's great to question the status quo, but don't close doors early just because you think higher education is overpriced.

Dicey

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Re: What do you think about the 529 college savings plan?
« Reply #20 on: July 31, 2017, 10:37:44 PM »
I started a thread on this topic when we wanted to open one for our granddaughter's first birthday. On advice received here, we opened one in Utah that anyone can deposit into. I'll dig up the link tomorrow.
« Last Edit: August 01, 2017, 09:49:47 AM by Dicey »
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Re: What do you think about the 529 college savings plan?
« Reply #22 on: August 01, 2017, 03:58:00 PM »
I LOVE my 529.  I get $10K in state tax deductions every year, while we are both working paying taxes at a high rate, and that grows tax-free for as long as I want.  Even if my kids never go to college OR trade school OR cooking school OR any other post-grad education (unlikely), my worst-case scenario is that I take back my contributions with no penalty or taxes, and withdraw the earnings on those contributions after I RE, which means I pay much lower taxes on that withdrawal.  So even with the 10% penalty, I still probably come out better off than if I had invested that money in a taxable account.
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Re: What do you think about the 529 college savings plan?
« Reply #23 on: August 03, 2017, 07:12:41 PM »
If I contribute to a 529 set up by someone else, can I still claim the tax credit? Or is the tax credit available only to the person who set up the 529?

ETA: I see my question was asked and answered on the linked thread by Paul:

If you owned the account, participated AND lived in a state where there is a tax deduction (say, your northern neighbor Oregon), you definitely could claim the deduction.

It's not as clear cut if you contribute to an account owned by someone else (usually the parents), some states will allow the deduction, some don't. Some states have very complex provisions, so make sure to read the fine print.
« Last Edit: August 03, 2017, 07:16:21 PM by Pushkina2 »

nottoolatetostart

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Re: What do you think about the 529 college savings plan?
« Reply #24 on: August 07, 2017, 06:00:12 AM »
Doesn't having a 529 increase your kid's EFC when it comes time to figure out college cost? Wouldn't your EFC go up if the colleges knew you had this money set aside specifically to pay them? It sounds like a great program with the tax benefits today and the amounts growing tax free, but I am discouraged that it would basically seem like it is a bulls eye on the EFC.

We have shied away from 529's and just opting for Roth IRA, worst case. Retirement savings do not count towards EFC, nor does home equity. You can withdraw Roth IRA earnings penalty-free if used for qualified educational expenses. It also guards in case Junior does not want to go to college.

We plan on pumping our Roth IRA pipeline as much as possible, especially while we have our 2 dependent minors aiding our tax bill(personal exemptions and child tax credit). Those earnings from the tIRA to rIRA conversions should grow pretty substantially (and have already) without counting against EFC. Yes, tax rules could change as college is 14 years away for our oldest. That's the risk.

alexpkeaton

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Re: What do you think about the 529 college savings plan?
« Reply #25 on: August 07, 2017, 02:53:45 PM »
Doesn't having a 529 increase your kid's EFC when it comes time to figure out college cost? Wouldn't your EFC go up if the colleges knew you had this money set aside specifically to pay them? It sounds like a great program with the tax benefits today and the amounts growing tax free, but I am discouraged that it would basically seem like it is a bulls eye on the EFC.

If you have a high income or a lot of assets, you're going to pay either way. Might as well defer some taxes.

Quote
We have shied away from 529's and just opting for Roth IRA, worst case. Retirement savings do not count towards EFC, nor does home equity. You can withdraw Roth IRA earnings penalty-free if used for qualified educational expenses. It also guards in case Junior does not want to go to college.

Why not fund both? If the choice were between a Roth IRA and a 529, I'd always choose the Roth, but many here already fully-fund their Roths every year. Then what?

My wife and I treat the 529 as a replacement for need-based scholarships. We make enough money that our son will almost definitely not qualify for them. My wife was able to pay her way through school only with these sorts of scholarships and a part-time job. I don't expect my son to be able to pay for an education out of pocket without scholarships, and I'd rather not start him off in a deep hole with student loans.

My bigger fear is contributing too much to the 529 plan and having more left over than a college education actually ends up costing and having to pay the 10% penalty. We won't be maxing out our contributions to the plan.

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Re: What do you think about the 529 college savings plan?
« Reply #26 on: August 08, 2017, 06:22:59 AM »
A 529 is considered parents' assets, and up to 5.64% are counted for EFC.  In contrast, an UGMA account is considered the student's assets, so they count 20%.  IRA assets do not count for EFC, but IRA *withdrawals* are counted as non-taxed income, and count 50% to EFC.

See this article on savingforcollege.com: http://www.savingforcollege.com/articles/how-7-different-assets-can-affect-your-financial-aid-eligibility-716?page=1

There are two issues I see with the Roth:  first, the annual contribution limit won't let you save enough to cover college through this alone.  Or, if you have saved for many years and are older parents, your balance may be enough, but then you are draining your retirement savings for this, and you cannot replace it.  I think alexpkeaton had it right:  use both.

My own strategy follows The Price Is Right:  I am trying to come close, without going over, targeting an in-state university.  If my son gets into an expensive, elite school then he should have some merit money coming.  If he has a dream school, I expect he will not shirk working for that.  If he chooses a trade or otherwise goes an alternate way, then I will consider the 529 a bonus, and withdraw it at my retirement tax rate + penalty, which will probably be less than my current tax rate.
« Last Edit: August 09, 2017, 06:42:28 AM by reeshau »

Cgbg

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Re: What do you think about the 529 college savings plan?
« Reply #27 on: August 08, 2017, 02:32:33 PM »
We continue to fund our kids' 529s even though we have a kid with a full ride and one with a nearly full ride for undergrad. They can use the $ for grad school if they need it. We agreed to pay for their undergrad degrees and then it turned out they won't cost us much.

So we continue contribute enough to maximize the tax deduction from the state. Some day we will turn the 529s over to them if they don't deplete them for grad school. They can then choose to hold the $ for their future kids (since you can reassign the plans to another family member) or cash them out eventually and pay the penalty/tax.

JustGettingStarted1980

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Re: What do you think about the 529 college savings plan?
« Reply #28 on: August 08, 2017, 03:39:00 PM »
We continue to fund our kids' 529s even though we have a kid with a full ride and one with a nearly full ride for undergrad. They can use the $ for grad school if they need it. We agreed to pay for their undergrad degrees and then it turned out they won't cost us much.

So we continue contribute enough to maximize the tax deduction from the state. Some day we will turn the 529s over to them if they don't deplete them for grad school. They can then choose to hold the $ for their future kids (since you can reassign the plans to another family member) or cash them out eventually and pay the penalty/tax.

 Could you take out your original contribution, leaving only the growth due to the scholarships?


Cgbg

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Re: What do you think about the 529 college savings plan?
« Reply #29 on: August 08, 2017, 04:39:52 PM »


 Could you take out your original contribution, leaving only the growth due to the scholarships?

Sure we could but we don't need to. We see it as another vehicle to pass down money to our kids and maybe even their kids. Not everyone's intention when people start a 529 plan (and wasn't our intention when we started them) but it's worked out that way for us.

Our kids are pretty much paying their own way. I could pull out the scholarship equivalent each term for each kid, but we view the $ as "their" money. I had to pay $34 (no, not missing any digits there) for this fall for the oldest. That's it for my out of pocket cost. Since I view the 529 money as their $ for college, it would be weird to pull out the money for anything else. (Don't need the $34 reimbursement!) I would love to remodel my kitchen but that's a separate fund and it would feel like I'm raiding what is theirs if I were to take the $ out.

So it'll sit there earning a bit of $, adding in enough to get the state deduction. Maybe they'll need it for grad school, maybe not. But it has its purpose and it will sit there until they are done with college and then we will reassign ownership.

Just a different point of view.

MrsWolfeRN

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Re: What do you think about the 529 college savings plan?
« Reply #30 on: August 08, 2017, 05:33:24 PM »
We continue to fund our kids' 529s even though we have a kid with a full ride and one with a nearly full ride for undergrad. They can use the $ for grad school if they need it. We agreed to pay for their undergrad degrees and then it turned out they won't cost us much.

So we continue contribute enough to maximize the tax deduction from the state. Some day we will turn the 529s over to them if they don't deplete them for grad school. They can then choose to hold the $ for their future kids (since you can reassign the plans to another family member) or cash them out eventually and pay the penalty/tax.

 Could you take out your original contribution, leaving only the growth due to the scholarships?

Nope, withdrawals are proportional. So if say 30% of your money came from growth, then 30% of your withdrawal will be from growth.


Snowman99

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Re: What do you think about the 529 college savings plan?
« Reply #31 on: September 12, 2017, 03:26:41 AM »
Our kids are 3 years old and 5 months old and we just opened two 529 accounts.

Our state allows an income tax deduction up to $2k (not much but we will take it).  Hence, we put $1k in each account to open them.  We are wrestling with how to handle these accounts going forward, but I think we have figured it out (at least for now).

The trick with 529s is that you do not want to overfund them because you get whacked if you don't spend them on higher ed.  The other trick is that you don't get much bang for your buck unless you contribute early to maximize the tax free gains.  In other words, it doesn't make so much sense to open a 529 when your kid is 16, because you are not going to save much on the earnings, and it makes more sense to just put it in an ordinary taxable account or savings account to avoid the restrictions.

A concern is that the rate of inflation for higher ed going forward is going to scale back drastically.  I also believe online learning and incentives to provide free or lower cost higher ed will reduce the cost in the future. This appears to be the "writing on the wall" and we are taking it into consideration for funding the 529 accounts.  Also, I attended an in state public university, which in my opinion provides an equal if not better education than a fancy private school.  There is something to be said for not "pampering" your child, and in my experience I see a lot of graduates from those pricey institutions not really applying themselves, because they never really had to take initiative.  That, and it makes no sense not to take advantage of the reduced cost of in state public universities.

Vanguard has a very handy college saving calculator.  We more or less plugged in the cost of attending an in state public school, assumed a high ROI of 9%, a low college inflation rate of 1%, and assumed we will go forward with $1k contributions per year (each) to maximize the tax deduction. After making these "rosy" assumptions, we more or less determined that $10k (each) invested now coupled with annual $1k contributions hereafter should fund public university by the time our kids are college bound.  By doing it this way, we minimize the risk of overfunding, put something in there to grow and pay for their school, and maximize the state income tax deduction.  We can always fund college through income or a taxable account if there isn't enough there in the kiddy.  We are hesitant to put any more in the account because, again, we do not want to over fund them.  If they do get scholarships, etc., then we can always keep the money there for grandkids, etc.

Granted, we are making these contributions only after we have fully funded our 401k and Roth IRAs, and have stashed sufficient funds away to pay for other expenses and emergency fund.  In other words, if we had more pressing need for the money, we would not be talking about funding the 529 accounts at this time.  These are a place for us to put our bonus money and to avoid paying taxing on earnings for what will likely be something we will end up paying for anyway.

We also got a credit card that puts 2% of our purchases into the accounts.  This is not much (we just buy gas and groceries more or less), but it doesn't hurt.

We did some reading on how the assets in 529s get treated by financial aid.  We read the book "Going to College Without Going Broke" and various internet resources/blogs.  They are considered assets of the parent, which are counted around 5% for the "expected family contribution."  This is the reason why some people I know do not have 529 plans for their children, thinking that they are going to miss out on "financial aid." These same people, keep in mind, drive massive SUVs, take lots of vacations, and complain about how they have no money. This to me does not sound like a very good reason not to contribute to a 529.  First, as far as our situation goes, we are going to have the assets anyway and they will be counted somewhere else if not in the 529.  Second, most "financial aid" we have been reading is in the form of loans.  The entire point of saving for college is so that my kids will not have to incur significant debt.  Avoiding the tax free earnings of the 529 just so my kid will qualify for a loan that he/she should not be undertaking is not a good decision.

somers515

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Re: What do you think about the 529 college savings plan?
« Reply #32 on: September 12, 2017, 05:10:24 AM »

We did some reading on how the assets in 529s get treated by financial aid.  We read the book "Going to College Without Going Broke" and various internet resources/blogs.

Snowman99, I found your post very helpful - thank you.  I plan on reading the book that you recommended "Going to College Without Going Broke".  Can you or anyone else mention other resources/blogs they found helpful?  I'm particularly interested in the best resources for finding scholarships etc.  Thank you!

SEAK

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Re: What do you think about the 529 college savings plan?
« Reply #33 on: September 12, 2017, 12:05:21 PM »
Great college savings related post by jl collins. Comments are also very useful to read.

http://jlcollinsnh.com/2016/04/12/stocks-part-xxix-how-to-save-money-for-college-or-not/

caracarn

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Re: What do you think about the 529 college savings plan?
« Reply #34 on: September 12, 2017, 12:26:33 PM »

We did some reading on how the assets in 529s get treated by financial aid.  We read the book "Going to College Without Going Broke" and various internet resources/blogs.

Snowman99, I found your post very helpful - thank you.  I plan on reading the book that you recommended "Going to College Without Going Broke".  Can you or anyone else mention other resources/blogs they found helpful?  I'm particularly interested in the best resources for finding scholarships etc.  Thank you!
I'd also recommend "Right College Right Price" as a decent book that has some helpful tips.  Also great tables at the end that let you determine what category a given school falls into so that you can target the same types of schools once you isolate your sweet spot for price.

LadyMuMu

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Re: What do you think about the 529 college savings plan?
« Reply #35 on: September 12, 2017, 01:22:13 PM »
Didn't see it mentioned, but if the 529 has money left after your kid finishes their education (and you can take out equivalent to scholarships), you can always transfer it to another beneficiary.

jezebel

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Re: What do you think about the 529 college savings plan?
« Reply #36 on: September 14, 2017, 08:33:49 AM »

The trick with 529s is that you do not want to overfund them because you get whacked if you don't spend them on higher ed.  The other trick is that you don't get much bang for your buck unless you contribute early to maximize the tax free gains.  In other words, it doesn't make so much sense to open a 529 when your kid is 16, because you are not going to save much on the earnings, and it makes more sense to just put it in an ordinary taxable account or savings account to avoid the restrictions.

A concern is that the rate of inflation for higher ed going forward is going to scale back drastically.  I also believe online learning and incentives to provide free or lower cost higher ed will reduce the cost in the future. This appears to be the "writing on the wall" and we are taking it into consideration for funding the 529 accounts.  Also, I attended an in state public university, which in my opinion provides an equal if not better education than a fancy private school. 

Even if the rate of inflation is scaled back, it's still very expensive.  My tuition, room and board, fees, and books was about $20/year for graduate school at a state university.  In light of the costs of undergrad and grad school, and the ability to change the beneficiary on a 529, I don't see any real reason to worry about overfunding.

JustGettingStarted1980

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Re: What do you think about the 529 college savings plan?
« Reply #37 on: September 14, 2017, 02:56:53 PM »
I doubt I'll overfund personally (plan in 60-70K contribution with time to grow for each of 3 kids), but if there's too much money in  there after everyone is done learning, I see it as a multi-generational trust fund just for education, and I might even continue adding a bit over time.

Interestingly enough, education also happens to be, in my personal opinion, the best benefit of generational wealth anyway!

As Mr. Franklin once said (and i paraphrase), "If you think Education is expensive, imagine Ignorance!!!"

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Re: What do you think about the 529 college savings plan?
« Reply #38 on: September 14, 2017, 10:21:15 PM »
Didn't see it mentioned, but if the 529 has money left after your kid finishes their education (and you can take out equivalent to scholarships), you can always transfer it to another beneficiary.

Or use it to take continuing education for yourself, learn a hobby you always wanted to do at a local community college?
Or take out the excess funds and use it for general spending. Just pay the penalty and taxes.

We did open and fund a 529. If I had to do it again, I probably wouldn't without a state tax deduction.
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SavinMaven

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Re: What do you think about the 529 college savings plan?
« Reply #39 on: September 20, 2017, 07:18:53 AM »
Not all four-year degrees are the same.... a four-year degree in engineering, computer science, business, education, or nursing will open a lot more lucrative career doors than an English major will have. I think the key is to go to college for a reason - i.e. to become an "x", and not to go with no aim in mind.

That said, if you have put your relatives' generous contributions in the 529 already (and I agree you should, as this was their intended purpose), you already can't take them out without penalty, so just let them ride. 529s can be transferred within a family, should you have other children, or nieces or nephews; in fact you could even use the money yourself if you decided to go back to school for any reason.

clarkfan1979

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Re: What do you think about the 529 college savings plan?
« Reply #40 on: October 11, 2017, 11:45:38 AM »
Not all four-year degrees are the same.... a four-year degree in engineering, computer science, business, education, or nursing will open a lot more lucrative career doors than an English major will have. I think the key is to go to college for a reason - i.e. to become an "x", and not to go with no aim in mind.

That said, if you have put your relatives' generous contributions in the 529 already (and I agree you should, as this was their intended purpose), you already can't take them out without penalty, so just let them ride. 529s can be transferred within a family, should you have other children, or nieces or nephews; in fact you could even use the money yourself if you decided to go back to school for any reason.

I agree that not all degrees are the same. However, I have a huge disagreement with people who rank degrees based on what your starting salary will be right out of college. This is very short term thinking. College is a long term investment.

Go to college for critical thinking and personal development. I don't think college should be considered vocational training. It's so much more than that.

Many of my friends have done very well in college and in their careers by focusing on learning in college and not narrow minded on careers.

One friend majored in computer science his first two years. He felt like he knew more about computer programming than the profs in the late 1990's, so he switched his major to history. He still got a job as a computer programmer and makes 100K to 120K/year. He is a very well rounded person that enjoys taking calculated risk. He loves working for start-ups that can offer him equity in the company. I think it's rare to find this type of person who did not go to college.

I have another friend that majored in graphic design from a 4 year art school. He is now a manager at an advertising consulting firm and makes about 140K/year. He also flips houses on the side for another 25K to 50K/year. I think he is good at it based on his background in graphic design.

Lastly, I have another friend who is a restaurant manager with a degree in Economics. He technically didn't need a degree to be a restaurant manager, but he was always the first to be promoted because of the skills he learned in college. He was very good with communicating with the wait staff verbally and communicating  via email to his supervisors. He also did a very good job with summarizing the expenses and profits each month. The other managers struggled with communicating the numbers and writing to supervisors.

I have one last friend who has a degree in communications and is a police officer. Because he has a 4 year degree he was eligible to be promoted to Sargent. He works in a rich neighborhood with little crime. Most of his job is communicating with rich folks about minor concerns. The sky is the limit for him. He probably makes 120k/year as a 4th year Sargent.

Lastly, I have a Ph.D. in Applied Social Psychology. I only make 62K/year, but I only work 4 days/week, 8 months out of the year. I am also applying my knowledge to the housing market and rentals. I have 2 rentals that profit about 22K/year after vacancy and repairs. I am in the processing of doing a cash-out re-fi and looking to acquire 2 more rentals in the next 2 years. My goal is to have 10 million in real estate equity by the time I'm 65.

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Re: What do you think about the 529 college savings plan?
« Reply #41 on: October 11, 2017, 12:11:10 PM »
Agreed with everything clarkfan1979 said.

Pushing your kids to go into CS because it pays well can backfire spectacularly. You need to enjoy it on some level, because if you don't the job will grind you. It's already mentally taxing to be fixing problems all day even if that's your thing.

FLBiker

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Re: What do you think about the 529 college savings plan?
« Reply #42 on: October 12, 2017, 08:00:51 AM »
My dad has a 529 for our 2.5 yo DD.  Currently at $35K.  We're not planning to do anything in addition to that.  If he keeps working for a few more years, he'll likely contribute a bit more.

It'll be nice to have, but if she ends up not going to college, that's fine, too.  DW and I both have grad degrees and work in academia, but like other posters we're skeptical of the "automatic" decision to get a 4 year degree.  If she's not interested in a degree that is relevant to a job, I'd recommend trade school or CC over a generic liberal arts degree.  At the same time, my generic liberal arts degree (English) made my career possible (taught English overseas, now admin at a US university).