529

[2buttons]

Where do you have yours and why did you pick it?

I have some for the kiddos, but the investment options are highly rated, but I have a fear that there might be better options out there, therefore I am considering moving it to another company.  Basically I am trying to tap into anyone who has done the research.

[deadlymonkey]

We picked the Vanguard 529 in Nevada because it was very low cost and had good options.  We do not get any state tax breaks on 529 contributions so that did not play a role.  From what I have read and about 529s, if you get a good state tax break, then use your state plan, otherwise the Nevada and Utah plans tend to get mentioned as the best for cost and investment options.

[Davids]

I use the NY 529 plan which uses vanguard funds. I get a state tax deduction regardless of which state plan I use.

[HPstache]

I chose Utah due to the Vanguard funds as well as the fact that I did not have $3,000 ready to throw into it... which was either a requirement, or, there was some sort of penalty until hitting $3,000 for the Nevada fund (can't remember exactly).  I live in WA so there is currently no viable 529 option and since we have no state income tax, there was no tax benefits to consider.

[Tetsuya Hondo]

Nevada Vanguard here too. I picked it for the low fees and I already have Vanguard accounts.

As deadlymonkey said, see if your state offers any tax breaks and start there. If not, you can't go wrong with a Vanguard 529 through another state.

[2buttons]

Thanks. I appreciate it.

[Chris22]

IL gives a tax break but I don't trust the morons who run this state so I invested through USAA, whom I do trust, and they go through Utah.

[MsPeacock]

Started with Iowa because of Vanguard funds and low fees. Recently opened one in Maryland because I get the tax benefit on my state taxes. Fees are higher but more than compensated for by the tax deduction.

[Paul der Krake]

I use the NY 529 plan which uses vanguard funds. I get a state tax deduction regardless of which state plan I use.

Very nice. You're losing some anonymity by disclosing this since there are only 3 states that do this.

We're onto you.

[clarkm04]

I have Nebraska's. Tax deduction.

I believe Consumer Reports reviewed 529 and stated if you have a tax deduction, then go with your state.  If not, NV is considered the best.

[charis]

NY 529 for vanguard and tax break.

[ender]

I don't feel like 529s are that great, honestly.

Most states have weak tax breaks for them. You incur a 10% penalty on them if you use them for anything other than education expenses (plus taxes).

Capital gains aren't terrible -- and any Mustachian is going to have tons of space under current tax code for free capital gains, unless they are retiring "late."

But otherwise, the nominal tax benefit is not worth the disadvantages that tying money into an account takes. I'd much rather pay some small cost in order to have taxable investments, so when the time for college comes, I can either cash flow it (and then use the investments for ER) or otherwise have flexibility. A 529 decreases that flexibility.

If your kids are very young, you are also assuming that college costs 15-20 years from now will be the same as they are now. I'm less than convinced they will be. You also are assuming that your kid will go to college. And that if they do, they will have to pay (and not get scholarships).

However, if you're maxing retirement accounts (which offer much better tax benefits than 529s do) and also able to have taxable accounts and have extra money, a 529 seems like an ok place to park money, I guess. But I don't really understand the hype. They seem nominally better than taxable investments, assuming all assumptions come through as expected a decade or more into the future for most people.

[jms493]

NY 529 for vanguard and tax break.

this...so happy it has vanguard funds.

[FINate]

Nevada Vanguard, for the same reasons others have listed.

Earnings in 529s grow tax-free AND are not taxed when withdrawn IF used to for qualified higher education expenses. To me this alone is worth it.

The 10% penalty (only on earnings in the 529) for non qualified withdrawal can be avoided in certain cases, including scholarships, though this would still be taxed as income instead of the lower cap gains if invested in mutual funds instead. Qualified expenses include most vocational schools and other education/training beyond high school.

Contributions to 529s made 2 or more years ago are protected from creditors. Hopefully this isn't an issue for Mustachians, but it's a nice feature to have in a worst case scenario. Sometimes stuff happens.

A 529's beneficiary can be changed and/or funds can be rolled over into another 529, so unused funds can be used for someone else (sibling, grandchild, yourself).

Always prioritize maxing out contributions to retirement accounts first, then worry about college savings. If you feel more comfortable with plain mutual funds do that.

IMO, if you decide to use a 529 don't go overboard and save a crazy amount. Be conservative and plan to save (with tax free growth) a reasonable amount you believe will be used (tuition, room and board) and plan to cover the remainder from other funds.

[walkerjks]

I believe Consumer Reports reviewed 529 and stated if you have a tax deduction, then go with your state.

A few states (Kansas, Missouri, Pennsylvania are the ones I know of) allow you to take a state tax deduction for contributing to any 529 plans, including out-of-state plans. 

At least one state (Oklahoma) and possibly more have recapture rules that allow you to get the deduction for contributing to the in-state plan, but you can later (1 year for Oklahoma) move the money to an out-of-state plan without repaying the tax deduction.

Know your own state's rules.

[iwasjustwondering]

I use Fidelity's Rhode Island fund and Vanguard's NY fund.  I started with the Fidelity fund, but then I started earning income in NY state, so I opened the NY fund to be able to take advantage of the state income tax deduction.  My state doesn't offer a tax break on 529 savings. 

[fa]

My advice is to not use a 529 plan.  We over saved due to one kid not going to college.  Now we are having to figure out how to retrieve the money without paying the 10%.  The tax benefits aren't that spectacular anyway.  If you save in a regular taxable account, you are free to use the money any way you want.  Plus, that money can then be used to bridge the time between your early retirement and penalty free withdrawal from tax deferred savings accounts.

The withdrawal rules for 529 plans are pretty strict, which is another drawback.  People used to use 529 to pay for their "French lessons" in the Provence.  The IRS put a stop to that.  We only use the 529 for expenses directly paid to the college, so there is no debate that the withdrawals are legit.  That may be overly cautious but we want our withdrawals to be bulletproof.

[pdxvandal]

Oregon has solid 529 state tax deductions (contributions up to ~$4,600 pear year). But the funds aren't great, so I've transferred them the past two years to Utah's plan, which has far lower expenses and they are more transparent with quarterly dividends (still a mystery re: Oregon's plan).

And now that I live in Maine, first time 529 contributors to this state's plan get one-time $300-500 worth of matching grants as well as a deduction up to $250 in contributions. Not a bad deal. But I don't plan to contribute more than the $250 per year until my kid's in college (if she even goes).

[charis]

My advice is to not use a 529 plan.  We over saved due to one kid not going to college.  Now we are having to figure out how to retrieve the money without paying the 10%.  The tax benefits aren't that spectacular anyway.  If you save in a regular taxable account, you are free to use the money any way you want.  Plus, that money can then be used to bridge the time between your early retirement and penalty free withdrawal from tax deferred savings accounts.

The withdrawal rules for 529 plans are pretty strict, which is another drawback.  People used to use 529 to pay for their "French lessons" in the Provence.  The IRS put a stop to that.  We only use the 529 for expenses directly paid to the college, so there is no debate that the withdrawals are legit.  That may be overly cautious but we want our withdrawals to be bulletproof.

I think the decision to use a 529 depends on your goals.  If you need or want to get the money out of the 529 because plan A doesn't happen, then yes, don't do it.  However, most people in my family went to college, so chances are good that one or both of my kids will go to college at some point, even if they are a nontraditional, older student.  If that is the case, the money will be there or the beneficiary can be changed. It would be very unlikely that no one will have college expenses in our family.

[oldtoyota]

My advice is to not use a 529 plan.  We over saved due to one kid not going to college.  Now we are having to figure out how to retrieve the money without paying the 10%.  The tax benefits aren't that spectacular anyway.  If you save in a regular taxable account, you are free to use the money any way you want.  Plus, that money can then be used to bridge the time between your early retirement and penalty free withdrawal from tax deferred savings accounts...

This.

I would not do a 529 if I had it to do over.

[nancyjnelson]

I started with a USAA 529 for my daughter in 2008.  I only deposited $250, because I then decided to go the Virginia 529 route (this guarantees tuition at U of VA no matter what the price hike has been in the meantime).

This year my daughter entered college. 

Over the last eight years, my original $250 deposit in the USAA fund shrank to about $31.00. (WTF?!)

Even though my kid ended up going to a school in another state (we moved when I retired), Virginia is funneling all the money we had deposited in its 529 to the out-of-state university, which covers tuition for all four years plus a small bit more.

Yes, if I had been more savvy I might have been able to find a 529 program that would have given a profit.  But what's important to me is that I paid for the VA 529 with $$ I earned while I was still working.  The security of having my daughter's tuition taken care of is what enabled me to retire, which I did the same month that I paid off the last installment of the VA529.

 

[Tjat]

Nevada 529, so I could manage directly through the Vanguard site

No state tax break here

[Tim1965]

My advice is to not use a 529 plan.  We over saved due to one kid not going to college.  Now we are having to figure out how to retrieve the money without paying the 10%.  The tax benefits aren't that spectacular anyway.  If you save in a regular taxable account, you are free to use the money any way you want.  Plus, that money can then be used to bridge the time between your early retirement and penalty free withdrawal from tax deferred savings accounts...

This.

I would not do a 529 if I had it to do over.

Another option, if you're going to be over 59.5 by the time your kids are in college, is to just plan on using a certain portion of your retirement funds for college. People say you shouldn't do that, because you might be tempted to take too much out of your retirement kitty.

Yeah, sure, you might. So don't do that.

[MasterStache]

None. We have found that using a regular tax deferred Vanguard account offers more flexibility if we choose to help the kids out with college. More than likely we won't help our kids pay for college. We will provide them a place to live during college rent free. My wife and I have 4 college degrees total between us all paid for with our own money.