Is a 529 the right path?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Topic Author
parr4thecourse
Posts: 16
Joined: Wed Nov 02, 2016 4:14 pm

Is a 529 the right path?

Post by parr4thecourse »

My wife and I have a two month old daughter and my initial thought upon learning that we were expecting was to setup a 529 account for her and start contributing to it in earnest. I now have some hesitancy towards this and hoping the BH community can lend their helpful input!

My wife is a college professor and her current plan is to continue in this role her entire career. She is pretty much dead set on this, however, in my mind I know there's plenty of time over the next 18 years for her plan to change. One perk of being a professor is that your children can attend college with no tuition costs so if that plan holds true then there's no need to fund the 529.

There's also consideration for K-12 private school as a use of 529 funds. The area we live in does not have the greatest public schools but it's still TBD if we'll opt to go the private school route. A lot could change on this front in 5-6 years as well. We would have to fund it aggressively over the next 5 years. And with a shorter time horizon will the gains outweigh the restriction.

My concern in both use cases is that there's a good possibility that the 529 would not be needed. Sure, we could find some smaller expenses to use it for but none that move the financial needed IMO. I would hate to be in a position 5 or 18 years from now where we wish we had taken advantage of it. On the other hand I'd hate to be in a position where these funds are restricted and can't be put to use. Maybe the middle ground is to fund it less aggressively. So my questions revolve around, is a 529 the right move? Would we be better off just using a taxable account or some other saving/investment vehicle?

If any financials would be helpful for the conversation please let me know. Thanks in advance for your guidance! :sharebeer

Update: My state of residence is TN so no state income tax considerations.
Last edited by parr4thecourse on Fri Dec 09, 2022 3:12 pm, edited 1 time in total.
Mtn7880
Posts: 8
Joined: Tue May 12, 2015 1:44 pm

Re: Is a 529 the right path?

Post by Mtn7880 »

I personally have 529 plans for my two oldest daughters. I’m intentionally not finding my third daughters in case one or both of the older daughters don’t use the money. I think in your case I would limit the 529 plan to get the state tax deduction and then mostly use taxable instead. The 529 money could be used for books, room and board, etc. Depending on income and generational plans, you could also contribute enough to get the annual state tax deduction. If your kid(s) end up needing the 529 money instead of the tuition waiver, great. If not, change the beneficiary to a grandchild after many years of compounding.
billfromct
Posts: 2057
Joined: Tue Dec 03, 2013 8:05 am

Re: Is a 529 the right path?

Post by billfromct »

What if she doesn’t want to go to the college where your wife is a professor? If she does go to the local college, it would be nice to live on campus to get the full college experience.

If she doesn’t use the 529 funds, the money could be used for her children, your grandchildren, if she has any, for their college education.

My son who was in high school at the time said, “ Everything in moderation.” Maybe fund half in a 529 college savings plan & the rest in a taxable account.

bill
Aventinus
Posts: 18
Joined: Sun Apr 24, 2022 11:14 pm

Re: Is a 529 the right path?

Post by Aventinus »

I’ve struggled with this myself. I find it hard to lock in a significant amount of money to a single purpose with limited flexibility and too many future unknowns.

As a result I’m looking at doing a small amount in 529s but mostly just saving in taxable. Max flexibility to use the money when I want for whatever we need is more important to me than the potential tax savings.

Also ensuring my wife and I’s retirement is much more important since we can’t take loans out for that. Don’t want to have to pay a penalty to pull out the money if we needed it for something other than our kid’s education. Kids can pursue scholarships, make sensible college choices, join the military like we did (GI Bill), or take loans if necessary to fill any gaps.
stoptothink
Posts: 15368
Joined: Fri Dec 31, 2010 8:53 am

Re: Is a 529 the right path?

Post by stoptothink »

billfromct wrote: Fri Dec 09, 2022 2:36 pm What if she doesn’t want to go to the college where your wife is a professor? If she does go to the local college, it would be nice to live on campus to get the full college experience.
Maybe irrelevant, but if I was in this situation and my child said they wanted to attend somewhere else (and paying wasn't a financial rounding error for our family), my response would be "best of luck".

We have saved enough in 529s for both our kids to attend local public U (which is among the cheapest in the country). If by chance they decide to go somewhere and we are willing to help fund the difference (wife is totally against, I am open), we have several other buckets we could tap.
bloom2708
Posts: 9861
Joined: Wed Apr 02, 2014 2:08 pm

Re: Is a 529 the right path?

Post by bloom2708 »

We are currently heavily using 529s right now. 1 in grad school, 1 in undergrad and 1 in high school.

There are a lot of costs past tuition. Room and board, food, fees, books, internet, rent when off campus, etc.

Maybe shoot for 50% of project costs in the 529 for each kid? Starting now means 18 years of "in the market". Go 80-20 if you want to be conservative.
Last edited by bloom2708 on Fri Dec 09, 2022 4:09 pm, edited 1 time in total.
User avatar
JoeRetire
Posts: 15381
Joined: Tue Jan 16, 2018 1:44 pm

Re: Is a 529 the right path?

Post by JoeRetire »

parr4thecourse wrote: Fri Dec 09, 2022 2:22 pm My wife is a college professor and her current plan is to continue in this role her entire career. She is pretty much dead set on this, however, in my mind I know there's plenty of time over the next 18 years for her plan to change. One perk of being a professor is that your children can attend college with no tuition costs so if that plan holds true then there's no need to fund the 529.
That's a good perk. What's the chance that of all the colleges out there your infant daughter will want to attend the college where your wife works 18 years from now? Or will you not make that an option? My brother in law worked at a local college with the same perk. None of his sons chose to go there.

What about non-tuition expenses? (I know lots of colleges in my area are raising fees a lot, so that they can keep tuition relatively low.)
What about grad school?

Industries (even academics) can change a lot in 18 years, and not always for the better. I wouldn't want my wife to feel she must continue working where she isn't happy, just because of a perk we were depending on.

If it was me, I'd fund a 529 plan. If your child doesn't end up needing it, the beneficiary can always be changed - to another relative, perhaps a grandchild.
This isn't just my wallet. It's an organizer, a memory and an old friend.
yolointopants
Posts: 238
Joined: Wed Jun 29, 2022 8:08 am

Re: Is a 529 the right path?

Post by yolointopants »

Aventinus wrote: Fri Dec 09, 2022 3:04 pm I’ve struggled with this myself. I find it hard to lock in a significant amount of money to a single purpose with limited flexibility and too many future unknowns.

As a result I’m looking at doing a small amount in 529s but mostly just saving in taxable. Max flexibility to use the money when I want for whatever we need is more important to me than the potential tax savings.

Also ensuring my wife and I’s retirement is much more important since we can’t take loans out for that. Don’t want to have to pay a penalty to pull out the money if we needed it for something other than our kid’s education. Kids can pursue scholarships, make sensible college choices, join the military like we did (GI Bill), or take loans if necessary to fill any gaps.
This is my approach as well. The state tax savings is minimal for me, the purpose too specific, and the limitations too extreme. I see it as a vehicle suitable for people in a much better financial position than me. I'd much rather have a minor account or taxable account because no matter what we make too much money to get any good financial aid and far to little to write a check for college.
er999
Posts: 1343
Joined: Wed Nov 05, 2008 10:00 am

Re: Is a 529 the right path?

Post by er999 »

If room and board isn’t covered by her benefit you could still target a 529 to fund that amount, might still be $40-60k total over 4 years.
cmr79
Posts: 1309
Joined: Mon Dec 02, 2013 3:25 pm

Re: Is a 529 the right path?

Post by cmr79 »

529 contributions can be withdrawn without federal penalties because they aren't subject to any sort of tax breaks on their own...just the earnings get these. Presumably with no state income tax there is no tax break or reason for clawbacks in Tennessee either. One would hope to have significant earnings over 18 years if front loading a 529, but since room, board and some fees are considered qualified expenses, it seems relatively low risk to at least partially fund the 529 and hope that the earnings can fully cover these expenses.

529 earnings can be withdrawn without penalty but subject to federal taxes if students get a scholarship (so as not to penalize this). I'm not sure how employer dependent tuition benefits are considered and couldn't find this after a quick Google search, but might be reasonable to look into as in OP's case, this would significantly decrease the downside of inadvertently overfunding the 529 and make it essentially equal to a taxable account under that situation.
dred pirate
Posts: 667
Joined: Tue Nov 27, 2018 10:46 am

Re: Is a 529 the right path?

Post by dred pirate »

OP- would your child have to go to the school your wife teaches at? or can they go to others? I know some schools are part of a conglomerate where the child can have a choice amongst many nationwide. That might change your thoughts (and clarify some people's statements)
Wannaretireearly
Posts: 4881
Joined: Wed Mar 31, 2010 4:39 pm

Re: Is a 529 the right path?

Post by Wannaretireearly »

I like it. Bucket method helps too. Money earmarked for a purpose, so I don’t count it with retirement budgeting
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
Topic Author
parr4thecourse
Posts: 16
Joined: Wed Nov 02, 2016 4:14 pm

Re: Is a 529 the right path?

Post by parr4thecourse »

dred pirate wrote: Fri Dec 09, 2022 4:43 pm OP- would your child have to go to the school your wife teaches at? or can they go to others? I know some schools are part of a conglomerate where the child can have a choice amongst many nationwide. That might change your thoughts (and clarify some people's statements)
Its part of a conglomerate of private schools where they do tuition sharing across the network.
ThankYouJack
Posts: 5704
Joined: Wed Oct 08, 2014 7:27 pm

Re: Is a 529 the right path?

Post by ThankYouJack »

Without no state tax deduction, I'm not a fan. I don't like the strings for not much (if any) benefit.
aristotelian
Posts: 12277
Joined: Wed Jan 11, 2017 7:05 pm

Re: Is a 529 the right path?

Post by aristotelian »

With no state tax deduction and a good chance your daughter will never need it, I would be generally hesitant. I would do it only if you are very high income and basically have more money than you know what to do with. In that case, it could be saved for daughter's grad school, or even switched over to grandkids should you be so lucky.

One possibility is I Bonds. They don't have the same expected return but they provide similar tax benefit when used for education, but can be used for other purposes without penalty.
User avatar
winterfan
Posts: 826
Joined: Mon Jan 05, 2015 10:06 am

Re: Is a 529 the right path?

Post by winterfan »

Wannaretireearly wrote: Fri Dec 09, 2022 4:51 pm I like it. Bucket method helps too. Money earmarked for a purpose, so I don’t count it with retirement budgeting
I agree. When our child was born, I just dumped a lump sum into a 529 and then added minimal contributions over the years since there wasn't any great tax incentive. My child is almost in HS and I'm glad I did it.
ThankYouJack
Posts: 5704
Joined: Wed Oct 08, 2014 7:27 pm

Re: Is a 529 the right path?

Post by ThankYouJack »

aristotelian wrote: Fri Dec 09, 2022 5:05 pm
One possibility is I Bonds. They don't have the same expected return but they provide similar tax benefit when used for education, but can be used for other purposes without penalty.
For I-Bonds to be tax free for college, income needs to be under a certain level, correct?
aristotelian
Posts: 12277
Joined: Wed Jan 11, 2017 7:05 pm

Re: Is a 529 the right path?

Post by aristotelian »

ThankYouJack wrote: Fri Dec 09, 2022 5:33 pm
aristotelian wrote: Fri Dec 09, 2022 5:05 pm
One possibility is I Bonds. They don't have the same expected return but they provide similar tax benefit when used for education, but can be used for other purposes without penalty.
For I-Bonds to be tax free for college, income needs to be under a certain level, correct?
Good catch. Yes, cutoff is around 160k for couples.
https://www.treasurydirect.gov/savings- ... education/
User avatar
Lee_WSP
Posts: 10403
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Is a 529 the right path?

Post by Lee_WSP »

Depending on priorities and state tax deductions it’s somewhere between medium and low interest debt on the priority list.

https://www.bogleheads.org/wiki/Priorit ... nvestments

If you’re going to do it, it’s best to front load and let it grow or be okay with giving it to grandchildren.
User avatar
Wiggums
Posts: 7051
Joined: Thu Jan 31, 2019 7:02 am

Re: Is a 529 the right path?

Post by Wiggums »

We did not go the 529 route and our state had no deduction. I think a lot of parents have concerns regarding the restrictions on the 529 plan or overfunding it. In our case, the university did not have a spot and offered delayed acceptance. Our son did not like the vibe of the college that his friends attended. We have seen a lot of kids dropout, too. My coworkers all paid for college using their savings.

When went the UTMA route and ran into a long lasting bull market. We assumed our kids would go the local state school and started saving when they has a SS number. Our kids ended up going to a smaller, private college and finished with money leftover. So our kids have a head start on life. The good news is that we are retired and they don’t ask us for money. Both kids do their own taxes and add money to their brokerage account. So this was a happy accident with the downside being the kiddie tax.

A combination of 529 and UTMA or savings might be a good compromise.
"I started with nothing and I still have most of it left."
RetiredCSProf
Posts: 1228
Joined: Tue Feb 28, 2017 3:59 pm

Re: Is a 529 the right path?

Post by RetiredCSProf »

My next-door neighbors both teach at the local LAC. The youngest of their three children saved on tuition by going to undergrad school there. He shared a house near campus with other students, although he could have commuted from home. Their two older children saved on tuition at the law school that is associated with the LAC.

The parents needed to show the tuition reimbursement as income on their taxes.

Consider starting a 529 fund to cover room and board.
User avatar
SmileyFace
Posts: 9186
Joined: Wed Feb 19, 2014 9:11 am

Re: Is a 529 the right path?

Post by SmileyFace »

Maybe save enough for college room and board and other expenses (e.g. $1000 for a laptop).
Nothing beats 18-20 years of tax free gains.
529s saved me thousands in taxes.
User avatar
enad
Posts: 1581
Joined: Fri Aug 12, 2022 2:50 pm

Re: Is a 529 the right path?

Post by enad »

It might affect the amount of financial aid a child can get at the time it's used.
What Goes Up Must come down -- David Clayton-Thomas (1968), BST
bltn
Posts: 1844
Joined: Mon Feb 20, 2017 8:32 pm

Re: Is a 529 the right path?

Post by bltn »

JoeRetire wrote: Fri Dec 09, 2022 3:53 pm
parr4thecourse wrote: Fri Dec 09, 2022 2:22 pm My wife is a college professor and her current plan is to continue in this role her entire career. She is pretty much dead set on this, however, in my mind I know there's plenty of time over the next 18 years for her plan to change. One perk of being a professor is that your children can attend college with no tuition costs so if that plan holds true then there's no need to fund the 529.
That's a good perk. What's the chance that of all the colleges out there your infant daughter will want to attend the college where your wife works 18 years from now? Or will you not make that an option? My brother in law worked at a local college with the same perk. None of his sons chose to go there.

What about non-tuition expenses? (I know lots of colleges in my area are raising fees a lot, so that they can keep tuition relatively low.)
What about grad school?

Industries (even academics) can change a lot in 18 years, and not always for the better. I wouldn't want my wife to feel she must continue working where she isn't happy, just because of a perk we were depending on.

If it was me, I'd fund a 529 plan. If your child doesn't end up needing it, the beneficiary can always be changed - to another relative, perhaps a grandchild.
I agree with these points.

I also would fund the 529. Worst case, take the money out of a 529 for non qualified expenses, pay the taxes plus 10% on the investment gains, and no penalty on the principal contributed. To me providing for a debt free education for a child is worth the gamble of funding a 529.
invest4
Posts: 1905
Joined: Wed Apr 24, 2019 2:19 am

Re: Is a 529 the right path?

Post by invest4 »

stoptothink wrote: Fri Dec 09, 2022 3:15 pm
billfromct wrote: Fri Dec 09, 2022 2:36 pm What if she doesn’t want to go to the college where your wife is a professor? If she does go to the local college, it would be nice to live on campus to get the full college experience.
Maybe irrelevant, but if I was in this situation and my child said they wanted to attend somewhere else (and paying wasn't a financial rounding error for our family), my response would be "best of luck".
Fully agree.

Of course, I recognize people have different opinions and priorities...to each their own.
happy_statistician
Posts: 73
Joined: Sun Jan 03, 2016 3:51 pm

Re: Is a 529 the right path?

Post by happy_statistician »

We had the same question when our first child was born 3 years ago (in a state with no income tax benefits for 529). I wouldn't give up any other tax-advantaged space for a 529, but ultimately settled on funding to a moderate degree, with a number that we would be unlikely to *need* to cash out, outside of life-changing circumstances/tragedies. We figured the money could be used for grad school, private school, our other (at the time hypothetical) children, future grandkids (if any) or nieces/nephews etc, even if our kid didn't go to college or went back to thehomeland where college is not expensive.

If circumstances changed and I couldn't max out my other tax advantaged options, 529 would be the first to go!
marcopolo
Posts: 8446
Joined: Sat Dec 03, 2016 9:22 am

Re: Is a 529 the right path?

Post by marcopolo »

parr4thecourse wrote: Fri Dec 09, 2022 2:22 pm My wife and I have a two month old daughter and my initial thought upon learning that we were expecting was to setup a 529 account for her and start contributing to it in earnest. I now have some hesitancy towards this and hoping the BH community can lend their helpful input!

My wife is a college professor and her current plan is to continue in this role her entire career. She is pretty much dead set on this, however, in my mind I know there's plenty of time over the next 18 years for her plan to change. One perk of being a professor is that your children can attend college with no tuition costs so if that plan holds true then there's no need to fund the 529.

There's also consideration for K-12 private school as a use of 529 funds. The area we live in does not have the greatest public schools but it's still TBD if we'll opt to go the private school route. A lot could change on this front in 5-6 years as well. We would have to fund it aggressively over the next 5 years. And with a shorter time horizon will the gains outweigh the restriction.

My concern in both use cases is that there's a good possibility that the 529 would not be needed. Sure, we could find some smaller expenses to use it for but none that move the financial needed IMO. I would hate to be in a position 5 or 18 years from now where we wish we had taken advantage of it. On the other hand I'd hate to be in a position where these funds are restricted and can't be put to use. Maybe the middle ground is to fund it less aggressively. So my questions revolve around, is a 529 the right move? Would we be better off just using a taxable account or some other saving/investment vehicle?

If any financials would be helpful for the conversation please let me know. Thanks in advance for your guidance! :sharebeer

Update: My state of residence is TN so no state income tax considerations.
What does your other savings look like?

I think in most scenarios it only makes sense to fund 529 plans after you have maxed out all your other tax-advantaged accounts.
So, are you already filling all your 401k, 403B, 457, etc. IRAs, HSA, and other tax advantaged opportunities? If not, i would do that first and skip the 529 plans. If after all that, you still having money left over to put into savings, and your choices are a taxable account and a 529, I would go ahead and fund the 529 at least to some level.

As others have said, there a re other expenses in college than tuition, kids may go to different schools, or grad school/professional degrees. If not, there is also the ability to pass it on to the next generation. If you are maxing out all your other tax-advantaged accounts, you will likely end up not needing the excess dollars in the 529, so they would make a great tax-free legacy for the next generation.

We utilized 529 plans quite extensively. We saved enough to full pay for elite private schools. Both kids ended up going to state flagship schools, so we have a significant amount left in over in 529 plans even after funding some grad school expenses. We have no regrets, and look forward to passing it on to our grand kids (yet to come, hopefully) someday.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Nivek
Posts: 102
Joined: Sat Jan 23, 2021 5:29 am

Re: Is a 529 the right path?

Post by Nivek »

I have 2 kids in college now and as others have pointed out, books, fees, room and board are the same if not more than tuition so keep that in mind. Both kids ended up getting full ride scholarships BUT now we are using the 529 to pay for grad school.
levelride
Posts: 19
Joined: Wed Oct 28, 2015 4:50 pm

Re: Is a 529 the right path?

Post by levelride »

In addition to what's already been stated by others, I think there is at least one additional item to consider. There's no guarantee the free tuition benefit will still be in place 18 years from now. I serve in an executive level position with a major R1 university. We once offered generous tuition benefits for dependents. However, those benefits no longer exists. Today, it's just a reduction on select course fees and not tuition.

I think we're going to see the business model of higher ed continue to evolve over the next decade. I would assume no guarantees.
thedaybeforetoday
Posts: 847
Joined: Fri Sep 02, 2022 5:16 am

Re: Is a 529 the right path?

Post by thedaybeforetoday »

ThankYouJack wrote: Fri Dec 09, 2022 4:56 pm Without no state tax deduction, I'm not a fan. I don't like the strings for not much (if any) benefit.
+1
We are on the tail end of paying for 12 years of college over an 8 year period (3 kids, 3 years apart) and in hindsight, esp. in the OP's case with no tax break, I would rec. the OP look at using a Roth (depends on household income level for Roth contribution on the front end and financial aid on the back end) if HHI is in the 5 figures to very low 6 figures as that seemed to be the financial aid "sweet spot", at least in our case.

Maybe fund some minor amount for room/board/computer purchase, books, and other less costly parts of college.
Last edited by thedaybeforetoday on Sat Dec 10, 2022 6:10 am, edited 3 times in total.
"When I was a kid my parents moved a lot, but I always found them." R. Dangerfield
thedaybeforetoday
Posts: 847
Joined: Fri Sep 02, 2022 5:16 am

Re: Is a 529 the right path?

Post by thedaybeforetoday »

levelride wrote: Sat Dec 10, 2022 5:43 am In addition to what's already been stated by others, I think there is at least one additional item to consider. There's no guarantee the free tuition benefit will still be in place 18 years from now. I serve in an executive level position with a major R1 university. We once offered generous tuition benefits for dependents. However, those benefits no longer exists. Today, it's just a reduction on select course fees and not tuition.

I think we're going to see the business model of higher ed continue to evolve over the next decade. I would assume no guarantees.
Out of curiosity, did your university "grandfather in" those who were hired with that tuition benefit in place or was that benefit removed regardless of when first date of employment occurred?
Don't mean to derail the thread, just curious.
"When I was a kid my parents moved a lot, but I always found them." R. Dangerfield
levelride
Posts: 19
Joined: Wed Oct 28, 2015 4:50 pm

Re: Is a 529 the right path?

Post by levelride »

thedaybeforetoday wrote: Sat Dec 10, 2022 6:08 am
levelride wrote: Sat Dec 10, 2022 5:43 am In addition to what's already been stated by others, I think there is at least one additional item to consider. There's no guarantee the free tuition benefit will still be in place 18 years from now. I serve in an executive level position with a major R1 university. We once offered generous tuition benefits for dependents. However, those benefits no longer exists. Today, it's just a reduction on select course fees and not tuition.

I think we're going to see the business model of higher ed continue to evolve over the next decade. I would assume no guarantees.
Out of curiosity, did your university "grandfather in" those who were hired with that tuition benefit in place or was that benefit removed regardless of when first date of employment occurred?
Don't mean to derail the thread, just curious.
No, not the tuition benefit. It did, however, "grandfather in" a generous free health care benefit for those who retire from the U after a set number of years (sadly, for me, I'm too new to qualify).
User avatar
Harry Livermore
Posts: 1937
Joined: Thu Apr 04, 2019 5:32 am

Re: Is a 529 the right path?

Post by Harry Livermore »

As some others have pointed out, it's certainly not all or nothing. Why not set up a monthly auto investment for some reasonable amount* and revisit each year, as you learn about your child, and as external developments affect your plans (college inflation, your wife's career plans, changes yo the funding of higher education)?
If things work out all rosy, and you're both gainfully employed and school is low- or zero-cost, you've "over saved". You can always use the funds later for your child's graduate school studies. If life has thrown some curve balls regarding employment, tax laws, or any number of things, you might be very happy that you at least put something aside. Ask me how I know.
Your decision to contribute to an unknown expense in 18 years represents, in a small way, a hedge. Much of the standard and sensible advice given here and elsewhere has a component of hedging to it. I'd say AA, tax diversity, HSAs, and 529s have at least some component of the unknown associated with it.
Cheers

* you could take the cost of in-state tuition and apply 18 years of "college inflation". Take half of that number as your goal in 18 years. Calculate (using the expected return of your choice) and find out the monthly contribution needed to get there.
Triple digit golfer
Posts: 10433
Joined: Mon May 18, 2009 5:57 pm

Re: Is a 529 the right path?

Post by Triple digit golfer »

Are you fully funding all other tax advantaged retirement accounts?
LeftCoastIV
Posts: 1030
Joined: Wed May 01, 2019 7:19 pm

Re: Is a 529 the right path?

Post by LeftCoastIV »

Making an assumption about where your spouse will be working 18 years from now, as well as assuming that your child will want to attend a limited set of colleges (not knowing what those colleges will be like in 18 years), both seem very difficult to predict.

Personally, we have been funding 529 plans along the way and I'm glad we have. Future tax consequences always seem far away until the future arrives and you have to actually pay the taxes. I'm glad we'll be pulling out the money tax free.

That said, we've only put away around $100k+ per kid, with college near soon, so likely not enough to fund 4 years each depending on school.
ThankYouJack
Posts: 5704
Joined: Wed Oct 08, 2014 7:27 pm

Re: Is a 529 the right path?

Post by ThankYouJack »

Triple digit golfer wrote: Sat Dec 10, 2022 7:56 am Are you fully funding all other tax advantaged retirement accounts?
Yeah, more details about where the OP stands financially would be helpful before being able to give specific recommendations.
bltn wrote: Fri Dec 09, 2022 8:24 pm To me providing for a debt free education for a child is worth the gamble of funding a 529.

I don't think there's a right or wrong answer, but I look at it opposite.
I still plan to provide a debt free education for my kids without funding a 529. Maybe I'll pay slightly more in taxes (or maybe not) than if I went with a 529, but I'm fine with that for the added flexibility.
User avatar
Tyrael314
Posts: 81
Joined: Wed May 18, 2022 7:01 pm
Location: Boston

Re: Is a 529 the right path?

Post by Tyrael314 »

enad wrote: Fri Dec 09, 2022 8:02 pm It might affect the amount of financial aid a child can get at the time it's used.
If they were to divert the funds into another vehicle like a taxable account etc. doesn't that also get taken into consideration for financial aid? Albeit at a lower rate if it is in the parent's name.
"A society grows great when old men plants trees under whose shade they know they shall never sit."
welldone
Posts: 127
Joined: Sun Aug 17, 2014 2:53 pm

Re: Is a 529 the right path?

Post by welldone »

Before counting on the tuition benefit offered through your wife's employment, I would definitely spend some time learning the ins and outs of the program. Most Tuition Exchange programs with other schools are now highly competitive with relatively few spots available at each school, so just because your wife's employer is part of the exchange group doesn't mean your child will necessarily have access to those other schools.

If you are fully funding all tax advantaged accounts to which you have access and you still have remaining funds you are looking to invest - then perhaps a 529 would make sense. For all the sturm un drang regarding worries about overfunding a 529, I've seen precious little evidence of that actually being a problem.

I would not recommend planning on using a Roth to fund school; if you don't have excess cash to invest outside of a Roth, you most likely don't have the assets to pay for college in general.
Topic Author
parr4thecourse
Posts: 16
Joined: Wed Nov 02, 2016 4:14 pm

Re: Is a 529 the right path?

Post by parr4thecourse »

Triple digit golfer wrote: Sat Dec 10, 2022 7:56 am Are you fully funding all other tax advantaged retirement accounts?
Yes, we fully fund all tax advantaged accounts and invest in taxable on top of that thanks to the input of the BH group over the years.

So many great considerations posted by all which is exactly what was going through my head. I like the approach that most have suggested here which funding a 529 to some extent but maybe not as aggressively as we could. There are so many unknowns that could fall into place over time that could impact these funds but it's an amount that wouldn't hurt us to contribute either way.
KlangFool
Posts: 31527
Joined: Sat Oct 11, 2008 12:35 pm

Re: Is a 529 the right path?

Post by KlangFool »

parr4thecourse wrote: Sat Dec 10, 2022 1:39 pm
Triple digit golfer wrote: Sat Dec 10, 2022 7:56 am Are you fully funding all other tax advantaged retirement accounts?
Yes, we fully fund all tax advantaged accounts and invest in taxable on top of that thanks to the input of the BH group over the years.
parr4thecourse,

Then why do you need to save for the college education? Your annual saving is big enough to pay for the college education. And, when the time come, your taxable account's annual dividend/distribution might be big enough to pay for the college education.

I do not contribute to the 529. My annual saving is big enough to pay for the college education. There is no reason for me to save for the college education.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Triple digit golfer
Posts: 10433
Joined: Mon May 18, 2009 5:57 pm

Re: Is a 529 the right path?

Post by Triple digit golfer »

KlangFool wrote: Sat Dec 10, 2022 1:56 pm
parr4thecourse wrote: Sat Dec 10, 2022 1:39 pm
Triple digit golfer wrote: Sat Dec 10, 2022 7:56 am Are you fully funding all other tax advantaged retirement accounts?
Yes, we fully fund all tax advantaged accounts and invest in taxable on top of that thanks to the input of the BH group over the years.
parr4thecourse,

Then why do you need to save for the college education? Your annual saving is big enough to pay for the college education. And, when the time come, your taxable account's annual dividend/distribution might be big enough to pay for the college education.

I do not contribute to the 529. My annual saving is big enough to pay for the college education. There is no reason for me to save for the college education.

KlangFool
Additional tax advantaged space. That's always the reason.
gavinsiu
Posts: 4543
Joined: Sun Nov 14, 2021 11:42 am

Re: Is a 529 the right path?

Post by gavinsiu »

I have a question regarding the part where you can withdraw the 529 if your child managed to get a scholarship. So if you get $10K in scholarship, you can with $10K without penalty?

What about circumstances where you get tuition reimbursement. My wife's college does have a program where you can go to her college and participating colleges tuition free. If my child chose this option, would that be considered scholarship?

Despite this program, I am saving for college. I have no idea if the program will disappear before they are ready. I have enough financial means to at least grant my kids some freedom on choice within reason of course.
KlangFool
Posts: 31527
Joined: Sat Oct 11, 2008 12:35 pm

Re: Is a 529 the right path?

Post by KlangFool »

Triple digit golfer wrote: Sat Dec 10, 2022 2:10 pm
KlangFool wrote: Sat Dec 10, 2022 1:56 pm
parr4thecourse wrote: Sat Dec 10, 2022 1:39 pm
Triple digit golfer wrote: Sat Dec 10, 2022 7:56 am Are you fully funding all other tax advantaged retirement accounts?
Yes, we fully fund all tax advantaged accounts and invest in taxable on top of that thanks to the input of the BH group over the years.
parr4thecourse,

Then why do you need to save for the college education? Your annual saving is big enough to pay for the college education. And, when the time come, your taxable account's annual dividend/distribution might be big enough to pay for the college education.

I do not contribute to the 529. My annual saving is big enough to pay for the college education. There is no reason for me to save for the college education.

KlangFool
Additional tax advantaged space. That's always the reason.
1) At a cost of flexibility.

There was a poster at the forum with 300K in 529 and 300K in other tax-advantaged accounts. Then, he was laid off right before the kids go to college. He had too much money in the 529 and too little elsewhere.

2) I moved my money from the taxable account to my tax-advantaged accounts when my kids go to college. Aka, more time to grow tax-free than the 529. And, at the taxable account, my long term capital gain tax rate was 0%. I enjoyed near tax-free growth at my taxable account too.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Triple digit golfer
Posts: 10433
Joined: Mon May 18, 2009 5:57 pm

Re: Is a 529 the right path?

Post by Triple digit golfer »

KlangFool wrote: Sat Dec 10, 2022 2:55 pm
Triple digit golfer wrote: Sat Dec 10, 2022 2:10 pm
KlangFool wrote: Sat Dec 10, 2022 1:56 pm
parr4thecourse wrote: Sat Dec 10, 2022 1:39 pm
Triple digit golfer wrote: Sat Dec 10, 2022 7:56 am Are you fully funding all other tax advantaged retirement accounts?
Yes, we fully fund all tax advantaged accounts and invest in taxable on top of that thanks to the input of the BH group over the years.
parr4thecourse,

Then why do you need to save for the college education? Your annual saving is big enough to pay for the college education. And, when the time come, your taxable account's annual dividend/distribution might be big enough to pay for the college education.

I do not contribute to the 529. My annual saving is big enough to pay for the college education. There is no reason for me to save for the college education.

KlangFool
Additional tax advantaged space. That's always the reason.
1) At a cost of flexibility.

There was a poster at the forum with 300K in 529 and 300K in other tax-advantaged accounts. Then, he was laid off right before the kids go to college. He had too much money in the 529 and too little elsewhere.

2) I moved my money from the taxable account to my tax-advantaged accounts when my kids go to college. Aka, more time to grow tax-free than the 529. And, at the taxable account, my long term capital gain tax rate was 0%. I enjoyed near tax-free growth at my taxable account too.

KlangFool
Money in a 529 can be accessed without the child going to college. It's not like it disappears.
KlangFool
Posts: 31527
Joined: Sat Oct 11, 2008 12:35 pm

Re: Is a 529 the right path?

Post by KlangFool »

gavinsiu wrote: Sat Dec 10, 2022 2:30 pm I have a question regarding the part where you can withdraw the 529 if your child managed to get a scholarship. So if you get $10K in scholarship, you can with $10K without penalty?

What about circumstances where you get tuition reimbursement. My wife's college does have a program where you can go to her college and participating colleges tuition free. If my child chose this option, would that be considered scholarship?

Despite this program, I am saving for college. I have no idea if the program will disappear before they are ready. I have enough financial means to at least grant my kids some freedom on choice within reason of course.
gavinsiu,

That freedom of choice does not include using the 529 money for your kids' Roth IRA. Hence, even longer term tax-free growth than the 529s.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
KlangFool
Posts: 31527
Joined: Sat Oct 11, 2008 12:35 pm

Re: Is a 529 the right path?

Post by KlangFool »

Triple digit golfer wrote: Sat Dec 10, 2022 2:58 pm
KlangFool wrote: Sat Dec 10, 2022 2:55 pm
Triple digit golfer wrote: Sat Dec 10, 2022 2:10 pm
KlangFool wrote: Sat Dec 10, 2022 1:56 pm
parr4thecourse wrote: Sat Dec 10, 2022 1:39 pm

Yes, we fully fund all tax advantaged accounts and invest in taxable on top of that thanks to the input of the BH group over the years.
parr4thecourse,

Then why do you need to save for the college education? Your annual saving is big enough to pay for the college education. And, when the time come, your taxable account's annual dividend/distribution might be big enough to pay for the college education.

I do not contribute to the 529. My annual saving is big enough to pay for the college education. There is no reason for me to save for the college education.

KlangFool
Additional tax advantaged space. That's always the reason.
1) At a cost of flexibility.

There was a poster at the forum with 300K in 529 and 300K in other tax-advantaged accounts. Then, he was laid off right before the kids go to college. He had too much money in the 529 and too little elsewhere.

2) I moved my money from the taxable account to my tax-advantaged accounts when my kids go to college. Aka, more time to grow tax-free than the 529. And, at the taxable account, my long term capital gain tax rate was 0%. I enjoyed near tax-free growth at my taxable account too.

KlangFool
Money in a 529 can be accessed without the child going to college. It's not like it disappears.
Like used it to pay your bill when you are unemployed?

Or, contribute to your kids' Roth IRA and get even longer tax-free growth?

You lose flexibility when the money is inside 529.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Triple digit golfer
Posts: 10433
Joined: Mon May 18, 2009 5:57 pm

Re: Is a 529 the right path?

Post by Triple digit golfer »

KlangFool wrote: Sat Dec 10, 2022 3:00 pm
Triple digit golfer wrote: Sat Dec 10, 2022 2:58 pm
KlangFool wrote: Sat Dec 10, 2022 2:55 pm
Triple digit golfer wrote: Sat Dec 10, 2022 2:10 pm
KlangFool wrote: Sat Dec 10, 2022 1:56 pm

parr4thecourse,

Then why do you need to save for the college education? Your annual saving is big enough to pay for the college education. And, when the time come, your taxable account's annual dividend/distribution might be big enough to pay for the college education.

I do not contribute to the 529. My annual saving is big enough to pay for the college education. There is no reason for me to save for the college education.

KlangFool
Additional tax advantaged space. That's always the reason.
1) At a cost of flexibility.

There was a poster at the forum with 300K in 529 and 300K in other tax-advantaged accounts. Then, he was laid off right before the kids go to college. He had too much money in the 529 and too little elsewhere.

2) I moved my money from the taxable account to my tax-advantaged accounts when my kids go to college. Aka, more time to grow tax-free than the 529. And, at the taxable account, my long term capital gain tax rate was 0%. I enjoyed near tax-free growth at my taxable account too.

KlangFool
Money in a 529 can be accessed without the child going to college. It's not like it disappears.
Like used it to pay your bill when you are unemployed?

Or, contribute to your kids' Roth IRA and get even longer tax-free growth?

You lose flexibility when the money is inside 529.

KlangFool
Pay the taxes and 10% penalty on the earnings. Have you done any analysis to see how this compares to a taxable account?
KlangFool
Posts: 31527
Joined: Sat Oct 11, 2008 12:35 pm

Re: Is a 529 the right path?

Post by KlangFool »

Folks,

If someone can get tax-free growth without restriction versus tax-free growth with restriction like 529, why would a person choose 529?

At a long term capital gain tax rate of 0%, why would 529 makes sense?

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
KlangFool
Posts: 31527
Joined: Sat Oct 11, 2008 12:35 pm

Re: Is a 529 the right path?

Post by KlangFool »

Triple digit golfer wrote: Sat Dec 10, 2022 3:04 pm
KlangFool wrote: Sat Dec 10, 2022 3:00 pm
Triple digit golfer wrote: Sat Dec 10, 2022 2:58 pm
KlangFool wrote: Sat Dec 10, 2022 2:55 pm
Triple digit golfer wrote: Sat Dec 10, 2022 2:10 pm

Additional tax advantaged space. That's always the reason.
1) At a cost of flexibility.

There was a poster at the forum with 300K in 529 and 300K in other tax-advantaged accounts. Then, he was laid off right before the kids go to college. He had too much money in the 529 and too little elsewhere.

2) I moved my money from the taxable account to my tax-advantaged accounts when my kids go to college. Aka, more time to grow tax-free than the 529. And, at the taxable account, my long term capital gain tax rate was 0%. I enjoyed near tax-free growth at my taxable account too.

KlangFool
Money in a 529 can be accessed without the child going to college. It's not like it disappears.
Like used it to pay your bill when you are unemployed?

Or, contribute to your kids' Roth IRA and get even longer tax-free growth?

You lose flexibility when the money is inside 529.

KlangFool
Pay the taxes and 10% penalty on the earnings. Have you done any analysis to see how this compares to a taxable account?
Versus not having that problem and get tax-free growth too in the taxable account. Why would I put money into the 529 in the first place?

If you are at 15% long term capital gain tax rate, 529 may helps you. But, at 0%...

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
gavinsiu
Posts: 4543
Joined: Sun Nov 14, 2021 11:42 am

Re: Is a 529 the right path?

Post by gavinsiu »

KlangFool wrote: Sat Dec 10, 2022 2:59 pm gavinsiu,

That freedom of choice does not include using the 529 money for your kids' Roth IRA. Hence, even longer term tax-free growth than the 529s.

KlangFool
I wouldn't worry too much about underfunding my retirement, I currently have 3x more in Roth, and 27x more in retirement savings than what is save in college, so I am pretty sure I am not underfunding my retirement.

I can't fund Roth for my kids yet, they have to make an income first. If you know of a good way of making allowances as income :-)
Post Reply