Should I open a 529?

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SmokeyAbe
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Should I open a 529?

Post by SmokeyAbe »

Greetings Bogleheads! I'm a 36 year old PA resident with 4 children, aged 4 through 12. My original plan for their college was to have my mortgage paid off by then & to use the additional $2k per month to help offset schooling costs. At this point, I think college is STUPID expensive to the degree that it is not worth it in most cases. I also simultaneously want my children to learn the meaning of hard work & struggle while not letting them get saddled with a crippling amount of debt. My goal for them would be to attend a STEM program at a state school. Becoming a Boglehead over the past year has made me re-think lots of my previous financial planning, including this. In addition to having the extra $2k per month, should I open a PA 529 for each of my 4 children right now? My youngest being 4 means that it should have some time to grow but my oldest being 12 is problematic. How much should I be putting in monthly for each? I currently max out my 401k & started doing annual Roth conversions. I also have ~$70k in a brokerage account. Thank you for all the advice!
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JoeRetire
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Re: Should I open a 529?

Post by JoeRetire »

SmokeyAbe wrote: Wed Mar 10, 2021 4:24 pmshould I open a PA 529 for each of my 4 children right now?
Yes.
How much should I be putting in monthly for each?
- Decide how much you want to contribute in total toward their educations.
- Analyze how many months remain before you will need to draw from the account.
- Compare that to how much money you have available each month.
- Use that to determine how much you should put into each 529 each month.
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UpsetRaptor
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Re: Should I open a 529?

Post by UpsetRaptor »

Pennsylvania has an excellent state tax break for 529 contributions. If you're planning on paying for QEE in the future, it certainly makes sense to leverage a 529 in your case, unless you just like paying taxes for some reason.
delamer
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Re: Should I open a 529?

Post by delamer »

JoeRetire wrote: Wed Mar 10, 2021 4:30 pm
SmokeyAbe wrote: Wed Mar 10, 2021 4:24 pmshould I open a PA 529 for each of my 4 children right now?
Yes.
How much should I be putting in monthly for each?
- Decide how much you want to contribute in total toward their educations.
- Analyze how many months remain before you will need to draw from the account.
- Compare that to how much money you have available each month.
- Use that to determine how much you should put into each 529 each month.
Good advice.

You also need to determine how much it would cost to send each child to college. For instance, 2 years at community college and 2 years commuting to a 4-year state college is going to cost a lot less than 4 years, live-on-campus at a state college.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
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SmokeyAbe
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Re: Should I open a 529?

Post by SmokeyAbe »

UpsetRaptor wrote: Wed Mar 10, 2021 5:00 pm Pennsylvania has an excellent state tax break for 529 contributions. If you're planning on paying for QEE in the future, it certainly makes sense to leverage a 529 in your case, unless you just like paying taxes for some reason.
QEE? And couldn’t I just as easily put $2000 a month in it when I am paying for school and immediately pull it out to pay for things (thereby getting the tax breaks)?
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UpsetRaptor
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Re: Should I open a 529?

Post by UpsetRaptor »

SmokeyAbe wrote: Wed Mar 10, 2021 9:19 pm
UpsetRaptor wrote: Wed Mar 10, 2021 5:00 pm Pennsylvania has an excellent state tax break for 529 contributions. If you're planning on paying for QEE in the future, it certainly makes sense to leverage a 529 in your case, unless you just like paying taxes for some reason.
QEE? And couldn’t I just as easily put $2000 a month in it when I am paying for school and immediately pull it out to pay for things (thereby getting the tax breaks)?
Qualified Educational Expenses.

And sure you can pass through QEE through the 529 when they’re in school too, and in fact should do that if you pass on the 529 now. But you’d give up the tax free gains potential, and tax dollars saved today are worth more than tax dollars saved in a decade.
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SmokeyAbe
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Re: Should I open a 529?

Post by SmokeyAbe »

UpsetRaptor wrote: Thu Mar 11, 2021 12:30 am
SmokeyAbe wrote: Wed Mar 10, 2021 9:19 pm
UpsetRaptor wrote: Wed Mar 10, 2021 5:00 pm Pennsylvania has an excellent state tax break for 529 contributions. If you're planning on paying for QEE in the future, it certainly makes sense to leverage a 529 in your case, unless you just like paying taxes for some reason.
QEE? And couldn’t I just as easily put $2000 a month in it when I am paying for school and immediately pull it out to pay for things (thereby getting the tax breaks)?
Qualified Educational Expenses.

And sure you can pass through QEE through the 529 when they’re in school too, and in fact should do that if you pass on the 529 now. But you’d give up the tax free gains potential, and tax dollars saved today are worth more than tax dollars saved in a decade.
Everything I’ve read in this forum indicates that the boglehead investment philosophy is designed for long term investment. What does a 529 portfolio even look like when you’re starting with “retirement” only 6 years away? It also looks like the PA 529 comes in 2 different styles?
sidwin516
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Re: Should I open a 529?

Post by sidwin516 »

SmokeyAbe wrote: Wed Mar 10, 2021 9:19 pm
UpsetRaptor wrote: Wed Mar 10, 2021 5:00 pm Pennsylvania has an excellent state tax break for 529 contributions. If you're planning on paying for QEE in the future, it certainly makes sense to leverage a 529 in your case, unless you just like paying taxes for some reason.
QEE? And couldn’t I just as easily put $2000 a month in it when I am paying for school and immediately pull it out to pay for things (thereby getting the tax breaks)?
Probably doesn’t work like that. In Louisiana only the first 4800 is tax deductible. In addition once you start pulling out of the account here we can’t continue to add funds. But we get up to 14% matching which is pretty awesome.
SchruteB&B
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Re: Should I open a 529?

Post by SchruteB&B »

sidwin516 wrote: Thu Mar 11, 2021 7:57 am
SmokeyAbe wrote: Wed Mar 10, 2021 9:19 pm
UpsetRaptor wrote: Wed Mar 10, 2021 5:00 pm Pennsylvania has an excellent state tax break for 529 contributions. If you're planning on paying for QEE in the future, it certainly makes sense to leverage a 529 in your case, unless you just like paying taxes for some reason.
QEE? And couldn’t I just as easily put $2000 a month in it when I am paying for school and immediately pull it out to pay for things (thereby getting the tax breaks)?
Probably doesn’t work like that. In Louisiana only the first 4800 is tax deductible. In addition once you start pulling out of the account here we can’t continue to add funds. But we get up to 14% matching which is pretty awesome.
PA allows a $30k contribution per year MFJ to be deducted from state tax, so the OP could do the $2k per month there. I don’t believe the majority of states have a rule like Louisiana’s, I seem to recall most do allow you to put money in and withdraw it in the same year. OP, you would need to check the rules in PA.
Edit: this is an old discussion of the PA issue suggesting PA does not net contributions and withdrawals made in the same year:
https://forum.savingforcollege.com/t/wi ... year/10679
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vineviz
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Re: Should I open a 529?

Post by vineviz »

UpsetRaptor wrote: Thu Mar 11, 2021 12:30 am
SmokeyAbe wrote: Wed Mar 10, 2021 9:19 pm
UpsetRaptor wrote: Wed Mar 10, 2021 5:00 pm Pennsylvania has an excellent state tax break for 529 contributions. If you're planning on paying for QEE in the future, it certainly makes sense to leverage a 529 in your case, unless you just like paying taxes for some reason.
QEE? And couldn’t I just as easily put $2000 a month in it when I am paying for school and immediately pull it out to pay for things (thereby getting the tax breaks)?
Qualified Educational Expenses.

And sure you can pass through QEE through the 529 when they’re in school too, and in fact should do that if you pass on the 529 now. But you’d give up the tax free gains potential, and tax dollars saved today are worth more than tax dollars saved in a decade.
The tax free growth coupled with the state tax deduction is a big advantage to using a 529, even for the older children.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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vineviz
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Re: Should I open a 529?

Post by vineviz »

SmokeyAbe wrote: Wed Mar 10, 2021 4:24 pm Greetings Bogleheads! I'm a 36 year old PA resident with 4 children, aged 4 through 12. My original plan for their college was to have my mortgage paid off by then & to use the additional $2k per month to help offset schooling costs. At this point, I think college is STUPID expensive to the degree that it is not worth it in most cases. I also simultaneously want my children to learn the meaning of hard work & struggle while not letting them get saddled with a crippling amount of debt. My goal for them would be to attend a STEM program at a state school. Becoming a Boglehead over the past year has made me re-think lots of my previous financial planning, including this. In addition to having the extra $2k per month, should I open a PA 529 for each of my 4 children right now? My youngest being 4 means that it should have some time to grow but my oldest being 12 is problematic. How much should I be putting in monthly for each? I currently max out my 401k & started doing annual Roth conversions. I also have ~$70k in a brokerage account. Thank you for all the advice!
Because the beneficiary of each 529 plan can be changed, it can be convenient to open a separate account for each child but it usually isn't necessary. For instance, if you'll never have more than two children in college at once you might only need to open two 529 plans at the beginning. Then, any funds that aren't used for child #1 can be used for child #3, and any funds not used for child #2 can be used for child #4 etc.

As you know, 529 plans can pay for 2-year programs and trade schools which (IMHO) would be the minimum goal for secondary education. That said, I'd be shocked if you and/or your children don't eventually end up spending a total of at least $200k for college and probably more like $275k.

There's a balance to be found between contributing as much as possible to the 529 (to maximize the tax-free growth) and not contributing more than is needed (since there is the 10% penalty for unqualified withdrawals). In Pennsylvania you're lucky that the state tax deduction limit is so high, which makes the stakes a little lower because you can channel the money through the 529 at the last minute if need be.

On balance, I would suggest a funding level of about $10,000/year invested in an aggressive (80% to 100% equity) option. The average tuition bill is 11 or 12 years away and you'd only be planning to the 529 plan to cover a "base level" of expenses, so you can devote most of the 529 balance to equities to maximize the tax-free growth. Either the "Growth Portfolio" or "Aggressive Growth Portfolio" is what I'd choose. You can revisit asset allocation once your oldest chid is finished with college.

Another solution would be to simply contribute $60k from the brokerage account to a pair of 529 plans now. That would get the equity allocation into the 529 plans ASAP, and you can rebuild the brokerage account (possibly contributing to bond funds) using cash flow later.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
delamer
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Re: Should I open a 529?

Post by delamer »

SmokeyAbe wrote: Thu Mar 11, 2021 7:20 am
UpsetRaptor wrote: Thu Mar 11, 2021 12:30 am
SmokeyAbe wrote: Wed Mar 10, 2021 9:19 pm
UpsetRaptor wrote: Wed Mar 10, 2021 5:00 pm Pennsylvania has an excellent state tax break for 529 contributions. If you're planning on paying for QEE in the future, it certainly makes sense to leverage a 529 in your case, unless you just like paying taxes for some reason.
QEE? And couldn’t I just as easily put $2000 a month in it when I am paying for school and immediately pull it out to pay for things (thereby getting the tax breaks)?
Qualified Educational Expenses.

And sure you can pass through QEE through the 529 when they’re in school too, and in fact should do that if you pass on the 529 now. But you’d give up the tax free gains potential, and tax dollars saved today are worth more than tax dollars saved in a decade.
Everything I’ve read in this forum indicates that the boglehead investment philosophy is designed for long term investment. What does a 529 portfolio even look like when you’re starting with “retirement” only 6 years away? It also looks like the PA 529 comes in 2 different styles?
Your perception isn’t quite right.

There is a general assumption that investments are for retirement unless otherwise indicated and therefore long term. But we get lots of questions about investing for college, for house downpayments and other (relatively) short term goals.

A good rule of thumb is that money that you’ll spend within 10 years shouldn’t be in stocks, due to their volatility. “Never bear too much or too little risk” is a key Boglehead principle.

So for your 12-year old, stick with bonds and cash equivalents. For the younger kids, some allocation to stocks makes sense.

You always get tax-free earnings and growth with a 529 plan. And with 4 kids, your chances of overfunding the plan(s) are slim to none. So why wouldn’t you use it?

Figure out how much you want to have available for each kid’s education at age 18 and go from there.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
CoastLawyer2030
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Re: Should I open a 529?

Post by CoastLawyer2030 »

vineviz wrote: Thu Mar 11, 2021 9:07 amAnother solution would be to simply contribute $60k from the brokerage account to a pair of 529 plans now. That would get the equity allocation into the 529 plans ASAP, and you can rebuild the brokerage account (possibly contributing to bond funds) using cash flow later.
What are the tax consequences of doing this?

Would you be better off investing in the 529 earlier, or does this conversion accomplish the same thing?
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SmokeyAbe
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Re: Should I open a 529?

Post by SmokeyAbe »

vineviz wrote: Thu Mar 11, 2021 9:07 am Because the beneficiary of each 529 plan can be changed, it can be convenient to open a separate account for each child but it usually isn't necessary. For instance, if you'll never have more than two children in college at once you might only need to open two 529 plans at the beginning. Then, any funds that aren't used for child #1 can be used for child #3, and any funds not used for child #2 can be used for child #4 etc.

As you know, 529 plans can pay for 2-year programs and trade schools which (IMHO) would be the minimum goal for secondary education. That said, I'd be shocked if you and/or your children don't eventually end up spending a total of at least $200k for college and probably more like $275k.

There's a balance to be found between contributing as much as possible to the 529 (to maximize the tax-free growth) and not contributing more than is needed (since there is the 10% penalty for unqualified withdrawals). In Pennsylvania you're lucky that the state tax deduction limit is so high, which makes the stakes a little lower because you can channel the money through the 529 at the last minute if need be.

On balance, I would suggest a funding level of about $10,000/year invested in an aggressive (80% to 100% equity) option. The average tuition bill is 11 or 12 years away and you'd only be planning to the 529 plan to cover a "base level" of expenses, so you can devote most of the 529 balance to equities to maximize the tax-free growth. Either the "Growth Portfolio" or "Aggressive Growth Portfolio" is what I'd choose. You can revisit asset allocation once your oldest chid is finished with college.

Another solution would be to simply contribute $60k from the brokerage account to a pair of 529 plans now. That would get the equity allocation into the 529 plans ASAP, and you can rebuild the brokerage account (possibly contributing to bond funds) using cash flow later.
I graduated in 2007 with an engineering degree from a state-affiliated school & it cost me $32k...its astounding to me that it might cost 6-10x that for each of my kids. You're basically saying that I need to literally save a million dollars in less than 15 years...

1) My 3 oldest are 5 years apart, so its a distinct possibility that I'll have 3 kids in college at a given point, though it'll likely be only 2. Assuming I start 2-3 accounts & there's money left in each, can a beneficiary have 3 separate 529s?
2) When you say funding at $10k/year, is that per child or overall? If I'm breaking it into 3 accounts, how much should I put in each?
3) Based on your references to "Growth Portfolio" or "Aggressive Growth Portfolio", I assume you recommend the PA Investment Plan & not the Guaranteed Savings plan?
4) Assuming 2-3 accounts, should the investment portfolio be the same across all accounts?
5) Is there a distribution strategy regarding when I should take money out of the account (if markets are up/down)? The Growth Portfolio is 75/25 while the Aggressive Growth Portfolio is 100% equities.

Thanks!
Swimmer
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Re: Should I open a 529?

Post by Swimmer »

delamer wrote: Thu Mar 11, 2021 9:58 am
SmokeyAbe wrote: Thu Mar 11, 2021 7:20 am
UpsetRaptor wrote: Thu Mar 11, 2021 12:30 am
SmokeyAbe wrote: Wed Mar 10, 2021 9:19 pm
UpsetRaptor wrote: Wed Mar 10, 2021 5:00 pm Pennsylvania has an excellent state tax break for 529 contributions. If you're planning on paying for QEE in the future, it certainly makes sense to leverage a 529 in your case, unless you just like paying taxes for some reason.
QEE? And couldn’t I just as easily put $2000 a month in it when I am paying for school and immediately pull it out to pay for things (thereby getting the tax breaks)?
Qualified Educational Expenses.

And sure you can pass through QEE through the 529 when they’re in school too, and in fact should do that if you pass on the 529 now. But you’d give up the tax free gains potential, and tax dollars saved today are worth more than tax dollars saved in a decade.
Everything I’ve read in this forum indicates that the boglehead investment philosophy is designed for long term investment. What does a 529 portfolio even look like when you’re starting with “retirement” only 6 years away? It also looks like the PA 529 comes in 2 different styles?
Your perception isn’t quite right.

There is a general assumption that investments are for retirement unless otherwise indicated and therefore long term. But we get lots of questions about investing for college, for house downpayments and other (relatively) short term goals.

A good rule of thumb is that money that you’ll spend within 10 years shouldn’t be in stocks, due to their volatility. “Never bear too much or too little risk” is a key Boglehead principle.

So for your 12-year old, stick with bonds and cash equivalents. For the younger kids, some allocation to stocks makes sense.

You always get tax-free earnings and growth with a 529 plan. And with 4 kids, your chances of overfunding the plan(s) are slim to none. So why wouldn’t you use it?

Figure out how much you want to have available for each kid’s education at age 18 and go from there.

We have 529s for each of our 3 grandchildren. Although their names are listed as beneficiaries, I think of it as one pot of money to be used by the one who needs it. The eldest will likely get a scholarship and may not need her share but it’s likely one of the others will. I don’t worry about overfunding.
jt90505
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Re: Should I open a 529?

Post by jt90505 »

Regarding cost of college, our 2 recently graduated. Both started in community college then went to highly regarded state universities (in state).

Out the door, including living expenses for the 2 years each spent living at the universities, just under $100K. For both.

One just received very nice job offers he is agonizing over (which one to accept), the second will be starting a masters program. Which we can cover as our undergrad expenses were less than we planned for.
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SmokeyAbe
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Re: Should I open a 529?

Post by SmokeyAbe »

jt90505 wrote: Thu Mar 11, 2021 1:58 pm Regarding cost of college, our 2 recently graduated. Both started in community college then went to highly regarded state universities (in state).

Out the door, including living expenses for the 2 years each spent living at the universities, just under $100K. For both.

One just received very nice job offers he is agonizing over (which one to accept), the second will be starting a masters program. Which we can cover as our undergrad expenses were less than we planned for.
Your situation was what I initially was planning for, but it sounds like you're the exception. :beer
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vineviz
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Re: Should I open a 529?

Post by vineviz »

SmokeyAbe wrote: Thu Mar 11, 2021 1:35 pm I graduated in 2007 with an engineering degree from a state-affiliated school & it cost me $32k...its astounding to me that it might cost 6-10x that for each of my kids. You're basically saying that I need to literally save a million dollars in less than 15 years...

I may have worded my reply poorly. I was estimating/assuming a total cost of $200k to $300k (i.e the grand sum for all four children, not that amount for EACH child), and I was using future (nominal) dollars not current dollars so that might make the amount seem larger.

The biggest challenge for planning college expenses is that the range of possible outcomes is HUGE: my oldest is a college freshman and the costs at schools she was accepted into ranged from roughly $0/year to roughly $55,000/year.

Ultimately, I think, you just have to pick an amount to save that is somewhere between "the least you can afford to save" and the "the most you might reasonably need to save" and be willing to adjust the plan once you get more information.

SmokeyAbe wrote: Thu Mar 11, 2021 1:35 pm 1) My 3 oldest are 5 years apart, so its a distinct possibility that I'll have 3 kids in college at a given point, though it'll likely be only 2. Assuming I start 2-3 accounts & there's money left in each, can a beneficiary have 3 separate 529s?
Yes, there's no effective limit to the number of 529 plans that each beneficiary has. And you can roll over the funds from one account into another account with the same beneficiary up to once a year, so you probably would be able to collapse down to just one 529 account by the end.

SmokeyAbe wrote: Thu Mar 11, 2021 1:35 pm 3) Based on your references to "Growth Portfolio" or "Aggressive Growth Portfolio", I assume you recommend the PA Investment Plan & not the Guaranteed Savings plan?
Yes.

SmokeyAbe wrote: Thu Mar 11, 2021 1:35 pm 2) When you say funding at $10k/year, is that per child or overall? If I'm breaking it into 3 accounts, how much should I put in each?
....
4) Assuming 2-3 accounts, should the investment portfolio be the same across all accounts?
5) Is there a distribution strategy regarding when I should take money out of the account (if markets are up/down)? The Growth Portfolio is 75/25 while the Aggressive Growth Portfolio is 100% equities.

I was thinking "overall". In the end it probably doesn't matter how you split it up, since you can always adjust future contributions to keep things balanced and/or fair and/or tax-efficient. By "tax-efficient" I mean that if you end up having more money in 529 accounts than you can spend on qualified expenses, any taxes and penalties are only calculated on the gains in the portfolio. So when you have multiple 529 accounts it can make sense to put all the stocks in one account and all the bonds in a different account. That way you can spend first from the account with the stocks, since the account with the bonds will (presumably) have fewer gains. Or possibly if there is a huge stock market crash, you spend the "bond" account on qualified expenses and take an unqualified withdrawal from the "stock" account: depending on your state rules, you may end up with no penalty or taxes on the unequaled withdrawal if you have a loss.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
pascalwager
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Re: Should I open a 529?

Post by pascalwager »

SmokeyAbe wrote: Thu Mar 11, 2021 1:35 pm
I graduated in 2007 with an engineering degree from a state-affiliated school & it cost me $32k...its astounding to me that it might cost 6-10x that for each of my kids. You're basically saying that I need to literally save a million dollars in less than 15 years...
I graduated in 1965 with an engineering degree from a state college (now a state university) and it cost me about $450 total in tuition ($45/semester for five years).
delamer
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Re: Should I open a 529?

Post by delamer »

Swimmer wrote: Thu Mar 11, 2021 1:43 pm
delamer wrote: Thu Mar 11, 2021 9:58 am
SmokeyAbe wrote: Thu Mar 11, 2021 7:20 am
UpsetRaptor wrote: Thu Mar 11, 2021 12:30 am
SmokeyAbe wrote: Wed Mar 10, 2021 9:19 pm

QEE? And couldn’t I just as easily put $2000 a month in it when I am paying for school and immediately pull it out to pay for things (thereby getting the tax breaks)?
Qualified Educational Expenses.

And sure you can pass through QEE through the 529 when they’re in school too, and in fact should do that if you pass on the 529 now. But you’d give up the tax free gains potential, and tax dollars saved today are worth more than tax dollars saved in a decade.
Everything I’ve read in this forum indicates that the boglehead investment philosophy is designed for long term investment. What does a 529 portfolio even look like when you’re starting with “retirement” only 6 years away? It also looks like the PA 529 comes in 2 different styles?
Your perception isn’t quite right.

There is a general assumption that investments are for retirement unless otherwise indicated and therefore long term. But we get lots of questions about investing for college, for house downpayments and other (relatively) short term goals.

A good rule of thumb is that money that you’ll spend within 10 years shouldn’t be in stocks, due to their volatility. “Never bear too much or too little risk” is a key Boglehead principle.

So for your 12-year old, stick with bonds and cash equivalents. For the younger kids, some allocation to stocks makes sense.

You always get tax-free earnings and growth with a 529 plan. And with 4 kids, your chances of overfunding the plan(s) are slim to none. So why wouldn’t you use it?

Figure out how much you want to have available for each kid’s education at age 18 and go from there.

We have 529s for each of our 3 grandchildren. Although their names are listed as beneficiaries, I think of it as one pot of money to be used by the one who needs it. The eldest will likely get a scholarship and may not need her share but it’s likely one of the others will. I don’t worry about overfunding.
I mentioned overfunding because the seems to be a standard area of concern when this topic comes up.

“What if I save $125,000 in a 529 and my kid only needs $100,000? Then I might have to pay a tax penalty!” I think that concern is way overblown, but especially unlikely for someone with 4 kids to educate.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
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UpsetRaptor
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Re: Should I open a 529?

Post by UpsetRaptor »

Most of the really bad overfunding threads here seem to be around those who assume/save full sticker price for elite private, so have $300K+ per kid in a 529, and then if that doesn't happen, problem. IMO this should only really be the approach if you're wealthy enough and totally fine if the funds just end up becoming a legacy education fund, for grandkids etc.

Folks who do a more reasonable/flexible approach, such as saving up something like (at most) the cost of in-state flagship public school for each kid in a 529, with other plans (taxable, cash flow, loans, you're on your own) for anything beyond, tend to have far fewer issues.
Rob_Burke
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Re: Should I open a 529?

Post by Rob_Burke »

If you do chose to open 529s I would recommend:

Create one account, change beneficiary once you start pulling funds. Simpler the better. When you arrive at that time for withdrawal it will be obvious how/who you will use it based on your cash flow, children costs etc. Easy to change beneficiary during withdrawal periods.

AVOID 529 Advisor accounts through an investment advisor or broker, deal directly with a state 529 plan. For instance, Michigan has a MiAdvisor 529 with front loaded and higher expense ratio funds but it also has the MESP Michigan Education Savings Plan which gives you access to low cost indexes.
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SmokeyAbe
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Re: Should I open a 529?

Post by SmokeyAbe »

vineviz wrote: Thu Mar 11, 2021 2:20 pm I may have worded my reply poorly. I was estimating/assuming a total cost of $200k to $300k (i.e the grand sum for all four children, not that amount for EACH child), and I was using future (nominal) dollars not current dollars so that might make the amount seem larger.
Whew! Imagine my relief! :sharebeer
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MedicatedMoney
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Re: Should I open a 529?

Post by MedicatedMoney »

We too reside in PA.
We too have 4 children (almost identical to yours in age difference between 1st and 4th).
We currently save in the Investment option of the PA529.

Our reasons for using the 529 are the following:
- Planning to pay for 4 years tuition at state school for each child - figure $80-100k/child (we only invest what is needed to reach this goal). Currently investing $15k/year total to reach this goal.
- Money can be transferred between beneficiaries if a child decides different from Mom & Dad
- If 529 money saved in state plan (PA529), PA state school will not count money against child for possible aid
- Currently max out all retirement vehicles (403b, Backdoor Roth) available to us plus investing in taxable account
- State tax deduction for contributions (3.07%)
- Tax-free growth
- Decided not to pay off mortgage early due to low mortgage rate (2.5%)

In your situation, I would highly recommend using the PA529. The probability that you will have some college expenses are high. You will not over-save for college and with the tax deduction and tax-free growth, IMHO, its a no-brainer. Let me know if I can answer more in-depth questions regarding the PA529
-Medicated
mosilaby
Posts: 23
Joined: Mon Sep 28, 2020 8:47 pm

Re: Should I open a 529?

Post by mosilaby »

MedicatedMoney wrote: Thu Mar 11, 2021 10:02 pm In your situation, I would highly recommend using the PA529. The probability that you will have some college expenses are high. You will not over-save for college and with the tax deduction and tax-free growth, IMHO, its a no-brainer. Let me know if I can answer more in-depth questions regarding the PA529
I live in PA and when I researched 529 options, I found the state plan PA529 options to be expensive compared to alternatives.

Here are the PA529 options:
https://www.mypa529ipaccount.com/patpl/ ... ormance.cs

As an example, the "Total Stock Market Index Portfolio" has an expense ratio of 0.2150%
https://www.mypa529ipaccount.com/patpl/ ... Id=1012025

Whereas the Vanguard "Total Stock Market Portfolio" expense ratio is 0.12%:
https://investor.vanguard.com/529-plan/profile/4514

My understanding was that PA doesn't care where you have your 529 plan and you can still get the tax deduction even if you don't use the state plan. The options at Vanguard seemed better to me and I also prefer an investing platform like Vanguard over state technology.

Am I missing something?
delamer
Posts: 11284
Joined: Tue Feb 08, 2011 6:13 pm

Re: Should I open a 529?

Post by delamer »

mosilaby wrote: Thu Mar 11, 2021 11:55 pm
MedicatedMoney wrote: Thu Mar 11, 2021 10:02 pm In your situation, I would highly recommend using the PA529. The probability that you will have some college expenses are high. You will not over-save for college and with the tax deduction and tax-free growth, IMHO, its a no-brainer. Let me know if I can answer more in-depth questions regarding the PA529
I live in PA and when I researched 529 options, I found the state plan PA529 options to be expensive compared to alternatives.

Here are the PA529 options:
https://www.mypa529ipaccount.com/patpl/ ... ormance.cs

As an example, the "Total Stock Market Index Portfolio" has an expense ratio of 0.2150%
https://www.mypa529ipaccount.com/patpl/ ... Id=1012025

Whereas the Vanguard "Total Stock Market Portfolio" expense ratio is 0.12%:
https://investor.vanguard.com/529-plan/profile/4514

My understanding was that PA doesn't care where you have your 529 plan and you can still get the tax deduction even if you don't use the state plan. The options at Vanguard seemed better to me and I also prefer an investing platform like Vanguard over state technology.

Am I missing something?
On a $10,000 investment, the PA plan will cost you $9.50 more per year.

So basically a non-issue. Make your decision based on the other factors. Obviously, the tax deduction is the most important so make sure you are correct on that.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
mosilaby
Posts: 23
Joined: Mon Sep 28, 2020 8:47 pm

Re: Should I open a 529?

Post by mosilaby »

delamer wrote: Fri Mar 12, 2021 2:33 pm
mosilaby wrote: Thu Mar 11, 2021 11:55 pm
MedicatedMoney wrote: Thu Mar 11, 2021 10:02 pm In your situation, I would highly recommend using the PA529. The probability that you will have some college expenses are high. You will not over-save for college and with the tax deduction and tax-free growth, IMHO, its a no-brainer. Let me know if I can answer more in-depth questions regarding the PA529
I live in PA and when I researched 529 options, I found the state plan PA529 options to be expensive compared to alternatives.

Here are the PA529 options:
https://www.mypa529ipaccount.com/patpl/ ... ormance.cs

As an example, the "Total Stock Market Index Portfolio" has an expense ratio of 0.2150%
https://www.mypa529ipaccount.com/patpl/ ... Id=1012025

Whereas the Vanguard "Total Stock Market Portfolio" expense ratio is 0.12%:
https://investor.vanguard.com/529-plan/profile/4514

My understanding was that PA doesn't care where you have your 529 plan and you can still get the tax deduction even if you don't use the state plan. The options at Vanguard seemed better to me and I also prefer an investing platform like Vanguard over state technology.

Am I missing something?
On a $10,000 investment, the PA plan will cost you $9.50 more per year.

So basically a non-issue. Make your decision based on the other factors. Obviously, the tax deduction is the most important so make sure you are correct on that.
I hear ya on $10k. I'll have $300K in the 529 across multiple kids, so $285 difference a year or over $4K over 15 years at present value (not accounting for growth). For an account that's going to sit there without much messing around, I'll take the extra $4k+ in a good Vanguard fund. As you noted, the tax deduction is important.
delamer
Posts: 11284
Joined: Tue Feb 08, 2011 6:13 pm

Re: Should I open a 529?

Post by delamer »

mosilaby wrote: Fri Mar 12, 2021 2:48 pm
delamer wrote: Fri Mar 12, 2021 2:33 pm
mosilaby wrote: Thu Mar 11, 2021 11:55 pm
MedicatedMoney wrote: Thu Mar 11, 2021 10:02 pm In your situation, I would highly recommend using the PA529. The probability that you will have some college expenses are high. You will not over-save for college and with the tax deduction and tax-free growth, IMHO, its a no-brainer. Let me know if I can answer more in-depth questions regarding the PA529
I live in PA and when I researched 529 options, I found the state plan PA529 options to be expensive compared to alternatives.

Here are the PA529 options:
https://www.mypa529ipaccount.com/patpl/ ... ormance.cs

As an example, the "Total Stock Market Index Portfolio" has an expense ratio of 0.2150%
https://www.mypa529ipaccount.com/patpl/ ... Id=1012025

Whereas the Vanguard "Total Stock Market Portfolio" expense ratio is 0.12%:
https://investor.vanguard.com/529-plan/profile/4514

My understanding was that PA doesn't care where you have your 529 plan and you can still get the tax deduction even if you don't use the state plan. The options at Vanguard seemed better to me and I also prefer an investing platform like Vanguard over state technology.

Am I missing something?
On a $10,000 investment, the PA plan will cost you $9.50 more per year.

So basically a non-issue. Make your decision based on the other factors. Obviously, the tax deduction is the most important so make sure you are correct on that.
I hear ya on $10k. I'll have $300K in the 529 across multiple kids, so $285 difference a year or over $4K over 15 years at present value (not accounting for growth). For an account that's going to sit there without much messing around, I'll take the extra $4k+ in a good Vanguard fund. As you noted, the tax deduction is important.
You’ll have $300K sitting in the 529 for 15 years, untouched? That’s pretty unusual, although not impossible.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
User avatar
MedicatedMoney
Posts: 147
Joined: Mon May 28, 2007 11:22 am
Location: Philadelphia

Re: Should I open a 529?

Post by MedicatedMoney »

mosilaby wrote: Fri Mar 12, 2021 2:48 pm
delamer wrote: Fri Mar 12, 2021 2:33 pm
mosilaby wrote: Thu Mar 11, 2021 11:55 pm
MedicatedMoney wrote: Thu Mar 11, 2021 10:02 pm In your situation, I would highly recommend using the PA529. The probability that you will have some college expenses are high. You will not over-save for college and with the tax deduction and tax-free growth, IMHO, its a no-brainer. Let me know if I can answer more in-depth questions regarding the PA529
I live in PA and when I researched 529 options, I found the state plan PA529 options to be expensive compared to alternatives....

Here are the PA529 options:
https://www.mypa529ipaccount.com/patpl/ ... ormance.cs

As an example, the "Total Stock Market Index Portfolio" has an expense ratio of 0.2150%
https://www.mypa529ipaccount.com/patpl/ ... Id=1012025

Whereas the Vanguard "Total Stock Market Portfolio" expense ratio is 0.12%:
https://investor.vanguard.com/529-plan/profile/4514

My understanding was that PA doesn't care where you have your 529 plan and you can still get the tax deduction even if you don't use the state plan. The options at Vanguard seemed better to me and I also prefer an investing platform like Vanguard over state technology.

Am I missing something?
On a $10,000 investment, the PA plan will cost you $9.50 more per year.

So basically a non-issue. Make your decision based on the other factors. Obviously, the tax deduction is the most important so make sure you are correct on that.
I hear ya on $10k. I'll have $300K in the 529 across multiple kids, so $285 difference a year or over $4K over 15 years at present value (not accounting for growth). For an account that's going to sit there without much messing around, I'll take the extra $4k+ in a good Vanguard fund. As you noted, the tax deduction is important.
You are correct that the PA529 is a little more expensive compared to other plans. However, we decided to use the PA529 for this fact:
State financial aid – PA 529 accounts are not included in determining eligibility for Pennsylvania state financial aid programs. Other 529 plans are. If you or the beneficiary is not a Pennsylvania resident, check with your state to determine its requirements.
Our current plan is to pay for our children to go to a state school. This above rule may allow them to get financial aid (maybe not) even if there is significant money in the 529 account. If we should be eligible for that money, I would hate the saving of a couple thousand (at best for us) make us ineligible for it.

Just my $0.02; not saying this is completely the best option. In the end, do what feels right for you and your family.
-Medicated
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