Scruit Posted March 26, 2013 Report Share Posted March 26, 2013 My son is 9 and I want to make sure we can afford to send him to college in 10 years. We've been saving for about 5 years and had 20k saved for him but up to now that's been in a regular bank account as a rain day fund in case of job loss - we didn't want to tie it up. Well, we've reached a point where we can afford to lock it into a college savings account.Anyone else have a 529? Any experiences, good or bad? We've gone through the calculators and figured out we're gonna need nearly $90k to send him to college for 4 years in 2023. With the money was have now and a moderate risk investment choice we're on target at just $300/mo contributions for 10 years. The contributions are after-tax but there's no tax on the interest, which compounds. If he doesn't got to college we still get the money back but have to pay back the taxes we skipped. Quote Link to comment Share on other sites More sharing options...
Tpoppa Posted March 26, 2013 Report Share Posted March 26, 2013 My accountant tried to steer me away from the 529. All the money is assumed available for college and will probably prevent any chance of getting any financial aid. Quote Link to comment Share on other sites More sharing options...
Scruit Posted March 26, 2013 Author Report Share Posted March 26, 2013 My accountant tried to steer me away from the 529. All the money is assumed available for college and will probably prevent any chance of getting any financial aid.I can understand that concern, but hiding his college fund in another type of account in order to get financial aid is not my style. My income is too high for financial aid anyway. Quote Link to comment Share on other sites More sharing options...
bshultz0930 Posted March 26, 2013 Report Share Posted March 26, 2013 hell, i wish my parents paid for ANY of my college. i did it all, my insurance, gas, paid my mom rent the day i turned 18, sounds like your a good dad! Quote Link to comment Share on other sites More sharing options...
Tpoppa Posted March 26, 2013 Report Share Posted March 26, 2013 Its not hiding. Putting money in another type of account loses some tax advantages which could be offset in other ways. Quote Link to comment Share on other sites More sharing options...
Gump Posted March 26, 2013 Report Share Posted March 26, 2013 (edited) I have it for my daughters and opened accounts for my nieces and nephews which only gets deposits on birthdays or christmas for them. It's ok. Just like playing the stock market. Not really impressed with the returns thus far though. Buy guns or palladium. Jewler was talking about this and saying it's all that.O and the 529 website sucks. Edited March 26, 2013 by Gump Quote Link to comment Share on other sites More sharing options...
jester3681 Posted March 26, 2013 Report Share Posted March 26, 2013 If you want my honest opinion, take the $20k, buy a rental property and gradually put your son in charge of it - upkeep and renter relations. The experience he gets there will be better business training than a four year degree and probably a better income stream as well.And I'm only half kidding - I'm pretty disenchanted with the modern take on higher education. And this comes from a person with multiple degrees... Quote Link to comment Share on other sites More sharing options...
Uncle Punk Posted March 26, 2013 Report Share Posted March 26, 2013 Consult accountant. Start transferring large multi-year maximum contributions out of the current account while continuing to contributing to it until you have it emptied and you are down to a maximum one year contribution. This grows the money it makes in the 529 faster and leaves you with the nest egg longer for emergencies. Consult accountant, they have saved me more money than they cost. Quote Link to comment Share on other sites More sharing options...
smccrory Posted March 26, 2013 Report Share Posted March 26, 2013 Ditto on the accountant. 529 holdings count against you for needs based funding. Quote Link to comment Share on other sites More sharing options...
Scruit Posted March 26, 2013 Author Report Share Posted March 26, 2013 (edited) Consult accountant.Start transferring large multi-year maximum contributions out of the current account while continuing to contributing to it until you have it emptied and you are down to a maximum one year contribution. This grows the money it makes in the 529 faster and leaves you with the nest egg longer for emergencies. Consult accountant, they have saved me more money than they cost.I didn't know there was a limitation on annual contributions to a 529... 401k or 403b, yeah, but not a 529.Ok, 26k max per year due to gift tax (married). no big. Edited March 26, 2013 by Scruit Quote Link to comment Share on other sites More sharing options...
AWW$HEEET Posted March 26, 2013 Report Share Posted March 26, 2013 kids lol Quote Link to comment Share on other sites More sharing options...
Scruit Posted March 26, 2013 Author Report Share Posted March 26, 2013 I spent the first years of my son's life changing his diaper and wiping his ass and I fully expect him to return the favor in the last few years of mine. Quote Link to comment Share on other sites More sharing options...
Big Chief201 Posted March 26, 2013 Report Share Posted March 26, 2013 Look into an Roth IRA for him, you get higher gains (if the market produces) and theres no penalty for using for higher education. The math of a 529 just doesnt add up you gain minimal tax advantage for low returns. Its a government money making machine. Quote Link to comment Share on other sites More sharing options...
Gump Posted March 26, 2013 Report Share Posted March 26, 2013 This/\. Something always seemed shady in the numbers with the 529. Quote Link to comment Share on other sites More sharing options...
Scruit Posted March 27, 2013 Author Report Share Posted March 27, 2013 You can invest your 529 money in the same way as a ira or 401k - picking your own fund allocations from a list of about 30 based upon results etc. The fund I'm using saw 9% returns each of the last 3 years. Quote Link to comment Share on other sites More sharing options...
Tpoppa Posted March 27, 2013 Report Share Posted March 27, 2013 9% over the last 3 years market rebound is not very good. Quote Link to comment Share on other sites More sharing options...
fuelit Posted March 27, 2013 Report Share Posted March 27, 2013 If they dont go to college or get a full ride somewhwer you will be penalized plus pay taxes on what you deducted and interest earned. Can only be used for college education and nothing else. Quote Link to comment Share on other sites More sharing options...
Mary#17 Posted March 27, 2013 Report Share Posted March 27, 2013 If they dont go to college or get a full ride somewhwer you will be penalized plus pay taxes on what you deducted and interest earned. Can only be used for college education and nothing else.You will pay taxes if you don't use it for education but you can still use it for other things if they don't go to college. While you were saving it - you got tax deferred benefits. You get some tax benefits with the state. Sounds like you are already financially stable and have assets so you may not qualify for much of the aid that is available anyway. And, regardless, unless you store this money in mattress, it will still count as an asset for financial aid qualification purposes. I just don't see a better option right now. As far as I understand it, setting up an account in their name is actually worse for financial aid.Mary Quote Link to comment Share on other sites More sharing options...
Scruit Posted March 27, 2013 Author Report Share Posted March 27, 2013 If they dont go to college or get a full ride somewhwer you will be penalized plus pay taxes on what you deducted and interest earned. Can only be used for college education and nothing else.If not used for a qualifying expense then tax would be owed on the interest only. Contributions are after-tax and the only tax deductions are with the state, so I'm sure I'd have to settle up with them. Our deal is if he goes to college this fund pays for it, and he keeps the remaining balance as a graduation gift. If he changes majors and runs out of money he's on his own. If he does not graduate I take the balance back. If he does not go to college then I take it back and buy myself a corvette. If he gets a job or full ride scholarship and graduates then he still gets to keep the remaining balance. Job + scholarship + graduates = he gets every penny as a gift, over $80k. That's his incentive to work hard in school and earn a scholarship. I have already written the money off and given him the incentive to study hard and preserve the money as much as possible. He's on the right path already - getting good grades, identified gifted and recently scored 91st percentile in math for 5 graders. And he's in 3rd grade. Quote Link to comment Share on other sites More sharing options...
owndjoo Posted March 27, 2013 Report Share Posted March 27, 2013 as a financial planner, myself, I'm not a big fan of the 529 plans. I can't give advice over a forum, but if you would like to talk about some options shoot me a PM and we can chat Quote Link to comment Share on other sites More sharing options...
mojocho Posted March 27, 2013 Report Share Posted March 27, 2013 I have a 529 started for each of my kids. As far as I see it, my goal is to be able to save enough so they don't have to get financial aid. I had of $30k when I was done. My parents could pay for most of my expenses. I want to be able to have my kids be debt free coming out of college.Pros: Tax Deferred, earns interest like a mutual fund, I'm pretty sure there is no yearly cap, and you CAN use them in any state. (this is not a prepaid tuition for a state school we are talking about), balance can be transferred to another child.Cons: Used for college or else pay a penalty, will affect financial aid, watch out for high fees (but you should be doing that with your other investments as well).I've not heard anything that says it is a TERRIBLE investment vehicle. I treat it as a forced savings for the kids that I hope will allow them to be debt free when they done with college and move back in with me... Quote Link to comment Share on other sites More sharing options...
Tpoppa Posted March 27, 2013 Report Share Posted March 27, 2013 Good page for high level 529 pros and cons.http://www.petersons.com/college-search/529-plan-pros-cons.aspxThe limited investment choices is the part that will push me towards a normal investment account (in my name).Sure the 529 has tax advantages, but we're talking capital gains tax (15% on earnings) not income tax. I'm pretty certain, with wide open investment choices my earnings will be more than 15% higher than the limited choices in a 529.ex. If the 529 returned 9%, I would just have to earn 10.35% (9 * 1.15=10.35) in a standard investment account to offset the tax advantage of the 529. If I do nothing more than pick mutual funds rated 4 or 5 star by Morningstar, it's easy to find funds that have returned over 20% for the last 3 years.If Obama blows up the capital gains tax that could change. YMMV. 1 Quote Link to comment Share on other sites More sharing options...
fuelit Posted March 28, 2013 Report Share Posted March 28, 2013 Put the money in motorcycles!!! Quote Link to comment Share on other sites More sharing options...
owndjoo Posted March 28, 2013 Report Share Posted March 28, 2013 Good page for high level 529 pros and cons.http://www.petersons.com/college-search/529-plan-pros-cons.aspxThe limited investment choices is the part that will push me towards a normal investment account (in my name).Sure the 529 has tax advantages, but we're talking capital gains tax (15% on earnings) not income tax. I'm pretty certain, with wide open investment choices my earnings will be more than 15% higher than the limited choices in a 529.ex. If the 529 returned 9%, I would just have to earn 10.35% (9 * 1.15=10.35) in a standard investment account to offset the tax advantage of the 529. If I do nothing more than pick mutual funds rated 4 or 5 star by Morningstar, it's easy to find funds that have returned over 20% for the last 3 years.If Obama blows up the capital gains tax that could change. YMMV.That's a great way to look at it. These plans were great back when my parents were doing it, but the "recent" changes don't make them nearly as attractive as before. You're going to want something that is going to protect principal, make decent gains, have very low fees, and will still be relatively liquid/shorter term for easy use when the time comes. There are more options than most think of, you'd be pretty surprised what can be setup to take care of college planning. Quote Link to comment Share on other sites More sharing options...
Gump Posted March 28, 2013 Report Share Posted March 28, 2013 You will pay taxes if you don't use it for education but you can still use it for other things if they don't go to college. While you were saving it - you got tax deferred benefits. You get some tax benefits with the state. Sounds like you are already financially stable and have assets so you may not qualify for much of the aid that is available anyway. And, regardless, unless you store this money in mattress, it will still count as an asset for financial aid qualification purposes. I just don't see a better option right now. As far as I understand it, setting up an account in their name is actually worse for financial aid.MaryI thought you can also use it to buy school supplies, pay rent, transportation, if let's say they did get a full ride. Quote Link to comment Share on other sites More sharing options...
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