A 529 question

[ruger2506]

JD2005's question raised a question in my head.

Are 529s worth it? Aren't they required to be spent on higher education? What happens if your kid turns out to be less than smart enough for college, refuses to go to college, etc.

Are you then stuck with paying penalties on that money? Wouldn't it be better to plan ahead with a non-restricted savings plan?

I'm not even sure what we are going to do for our kid and college. In 18 years, who knows. It may cost 200k for a four year degree where they'll only make 30k/year.

[Savoir Faire-Demogague in NJ]

Each 529 plan is different, so you'll have to decide which state plan you are going to use.
529 money can be used for educational pursuits other than college. If your child desires to attend trade school(ie: plumbing, electrician, AC, barber school, etc) funds can be used for that purpose. You really have to check the plan documents.
Also, you, the parent will be the owner, and at least initially your child will be the beneficiary. You can change the beneifiary later on if you decide to yourself for example.
Contribution limits are typically very high and you can have family members such as doting grandparents contribution as well as adoring aunts and uncles.

[Deleted]

You can change the beneficiary at any time, so if your kids don't go, you can keep it around for grandkids, or even take classes yourself.

For me, I think the tax advantages I get now are worth the risk of paying the penalty which is only on the earnings anyhow.

[ruger2506]

Thanks. It still seems rather restrictive. The fiance and I both have degrees and high paying jobs and do not intend on going back to school.

In MN:
What if my child decides not to attend college?

If the beneficiary of an account does not attend college, the account owner may name another beneficiary for the account who must be a certain member of the family of the beneficiary that is being replaced. Effective November 1, 2007, transfers (including transfers when there is a change of the Beneficiary) from the Guaranteed Option to the Money Market Option will not be permitted. (If this restriction changes, investors will be notified prior to the effective date of any such change.) Otherwise, if the funds are withdrawn for a purpose other than to pay for qualified higher education expenses (except in the event of a beneficiary's death, disability, scholarship or attendance at a military academy), or they are treated as withdrawn (for example if an ineligible beneficiary is named) there will be a 10% additional federal regular income tax on the earnings of the account owner's tax rate.

For Minnesota tax purposes, a non-qualified withdrawal will result in income taxation on the earnings portion of the distribution.


What is a non-qualified withdrawal?
If the funds are withdrawn for a purpose other than to pay for qualified higher education expenses (except on account of a beneficiary's death or disability) or they are treated as withdrawn (for example if an ineligible beneficiary is named) there will be a 10% additional federal regular income tax on the earnings portion of the distribution, as well as federal income tax on the earnings at the account owner's tax rate.

For Minnesota tax purposes, a non-qualified withdrawal will result in income taxation on the earnings portion of the distribution.

You'll notice the govt' is right there with their filthy little hands out asking for 10%.

[ruger2506]

This message has been deleted.

[Deleted]

Savoir Faire made some pretty good points.

Also, you can use the 529 for more than one child, or yet grandchild. So if your kid or kids are not interested in higher education, you can leave it for your grandkids or you can use the funds yourself to go back to school.

As for us, we talked about it and we decided to open 529 accounts for our (yet to be born) kids to deposit:
-> birthday $$$
-> money from grandparents, aunts, uncles
-> etc.

But we will not make regular contributions with our own money since we would prefer to pay out of our own investments/savings accounts or if we can afford it pay for part of it as they go to college.

[jd2005]

May 9, 2011 8:33:39 GMT -5 ruger2506 said:

This message has been deleted.

This was my thinking...but wanted to get you guys' opinions.

[ruger2506]

I should add, I'm not sure If I'm willing to pay for my kids college. No question I'm not going to sacrifice my retirement or reduce my retirement saving to pay for their college. I'm not sure I want to give up my fun money either. Especially now that I'm spending around $100/weekend in gas for the boat/truck.

[Gardening Grandma]

Previous posters (esp SF) pretty much summed it up. I have a 529 for my grandsons. One is not headed for college, but the funds can be used for trade school or transferred to his brother who is showing strong scholarly abilities.

If there are funds left unused, I could withdraw them, pay a modest fee and tax on the gains and spend as I wish (would probably gift it to them upon marriage or the purchase of a first home)

You do need to read the particulars very carefully. Some plans are more flexible than others.

[telephus44]

My plan if my son doesn't use his to have my husband or myself use it for additional degrees. I am not funding it with the hopes of being able to cover an entire 4 year degree at a private institution - we only put in $150 a month. It's about $7500 right now. My biggest concern is that my son is autistic, and thus his college plans may be very different from other kids. That's part of the reason I'm not going crazy and dumping tons of money in it.

[Gardening Grandma]

May 9, 2011 8:37:04 GMT -5 ruger2506 said:

I should add, I'm not sure If I'm willing to pay for my kids college. Not question I'm not going to sacrifice my retirement or reduce my retirement saving to pay for their college. I'm not sure I want to give up my fun money either. Especially now that I'm spending around $100/weekend in gas for the boat/truck.

Well, I would never suggest that anyone sacrifice retirement savings in order to fund college, but a good education is not a luxury in the world our children and grandchildren will be living in. So I think a parent should do what they can, within reason. I'd certainly put college savings ahead of "fun" money - or at the very least, split them. And I'd never put a boat or vehicle ahead of my kids' (or grandkids') education.

[ruger2506]

May 9, 2011 8:53:00 GMT -5 Gardening Grandma said:

Well, I would never suggest that anyone sacrifice retirement savings in order to fund college, but a good education is not a luxury in the world our children and grandchildren will be living in. So I think a parent should do what they can, within reason. I'd certainly put college savings ahead of "fun" money - or at the very least, split them. And I'd never put a boat or vehicle ahead of my kids' (or grandkids') education.

That's a whole different conversation that could go many ways. I guess I'm not willing to sit at home all weekend in front of the TV just so my kid can go to college. I would rather be out making memories with my kid at the cabin, in the woods or on the water.

I'm paying off my student loans. I don't see why my kids shouldn't do the same. Of course I was savvy and my student loans (total) are significantly less than my yearly income.

Hopefully I can educate my kids and have them learn from my mistakes (apply for more scholarships, work more paying jobs in the summer, etc).

I don't see how throwing many thousands of dollars at them for college is helping them. I think that them earning it could be much more beneficial.

[Deleted]

The fiance and I both have degrees and high paying jobs


Good luck to your kids trying to get financial aid if you don't save for them.

[Gardening Grandma]

The fiance and I both have degrees and high paying jobs [/b]

Then you should have no problem paying off your loans, saving for your kids' college, AND having fun.

I don't think it's necessary to plan to pay for four years (unless you want to, of course), but even a couple of years' coverage can help a kid avoid crippling student debt. My own goal is to have 2 years' tuition/books/fees paid for for each kid.

[ruger2506]

The fiance and I both have degrees and high paying jobs

[/b]

Then you should have no problem paying off your loans, saving for your kids' college, AND having fun.

I don't think it's necessary to plan to pay for four years (unless you want to, of course), but even a couple of years' coverage can help a kid avoid crippling student debt. My own goal is to have 2 years' tuition/books/fees paid for for each kid.
[/quote]
My primary goal is to tell them that Post Secondary Option is NOT an option for them. They are going. 2 years of free college education is not worth passing up.

We are ambitious and want to retire early. 45-50 years old (10-15 years from now).

[ruger2506]

May 9, 2011 9:01:56 GMT -5 minnesotapaintlady said:

The fiance and I both have degrees and high paying jobs


Good luck to your kids trying to get financial aid if you don't save for them.

Scholarships and student loans. That's their only hope.

[Gardening Grandma]

May 9, 2011 9:10:14 GMT -5 ruger2506 said:

The fiance and I both have degrees and high paying jobs

[/b]

Then you should have no problem paying off your loans, saving for your kids' college, AND having fun.

I don't think it's necessary to plan to pay for four years (unless you want to, of course), but even a couple of years' coverage can help a kid avoid crippling student debt. My own goal is to have 2 years' tuition/books/fees paid for for each kid.
[/quote]
My primary goal is to tell them that Post Secondary Option is NOT an option for them. They are going. 2 years of free college education is not worth passing up.

We are ambitious and want to retire early. 45-50 years old (10-15 years from now).[/quote]

I'm going to go out on a limb here and assume that the kids have not yet been born??? (You simply do not sound like a parent)

[ruger2506]

not born yet. November is the big month.

Not sure if I'll be the typical parent who gives up living to be a parent. I see those parents all the time and they disgust me. Lost a lot of friends who became to busy to go live their life. God forbid they leave the kids with the grandparents or baby sitter once in a while and go live life.

That's why I ask the original question. I want what's best for both FF and I AND the kid financially. Not just one or the other.

[Deleted]

May 9, 2011 9:22:29 GMT -5 Gardening Grandma said:

I'm going to go out on a limb here and assume that the kids have not yet been born??? (You simply do not sound like a parent)

May 9, 2011 9:35:05 GMT -5 ruger2506 said:

not born yet. November is the big month.

Not sure if I'll be the typical parent who gives up living to be a parent. I see those parents all the time and they disgust me. Lost a lot of friends who became to busy to go live their life. God forbid they leave the kids with the grandparents or baby sitter once in a while and go live life.

That's why I ask the original question. I want what's best for both Nicole and I AND the kid financially. Not just one or the other.

[DVM gone riding]

LOL Cawaia I was thinking the same thing!! way to nail it GG I was going no way does she already have kids!!! I care more about my niece's education then she is saying for her kids. And lets face it if you make anything that resembles money your kids won't get any aid, my parents didn't and one year they made a little more and I lost 5k in aid that I had to beg for to get back.

[Deleted]

Lost a lot of friends who became to busy to go live their life.

Your priorities change when the kids come. Things that you thought were important may not seem so much so anymore. It has nothing to do with giving up on living your life.

But like you said, hard to say where you'll fall in that spectrum. Revisit this in a couple years.

[giramomma]

May 9, 2011 8:59:54 GMT -5 ruger2506 said:

That's a whole different conversation that could go many ways. I guess I'm not willing to sit at home all weekend in front of the TV just so my kid can go to college. I would rather be out making memories with my kid at the cabin, in the woods or on the water.

I'm paying off my student loans. I don't see why my kids shouldn't do the same. Of course I was savvy and my student loans (total) are significantly less than my yearly income.

Hopefully I can educate my kids and have them learn from my mistakes (apply for more scholarships, work more paying jobs in the summer, etc).

I don't see how throwing many thousands of dollars at them for college is helping them. I think that them earning it could be much more beneficial.

I think for normal folks, scholarships are going to be a thing of the past. I also think that working during the summers won't cover college costs either.

Starting to educate your kids about money starts way before college. My 6 year old has a piggy bank separated into three catagories: Savings, spending, and charity. We've already started the habit that a small amount of money MUST be saved. We also talk about budgeting and choices that we make to make our financial life work. My 6 yo knows money doesn't grow on trees and that there are limits to our finances.

I was raised to understand the value of a dollar. Got two degrees with NO college loans. I worked, I used savings, my parents contributed, and other relatives contributed. I didn't act like a drunken animal in college, even though I knew I was getting financial help.

Honestly, the two best gifts my parents gave me were helping to develop a work ethic and financial freedom in my adulthood.

Is your wife going to take care of a newborn 24/7 by herself or with a nanny while you go out on all of your adventures? If not, you might find out that you have a bit more money to put away somewhere..

And, maybe look into some found money. Rather than spending $100 at a garage sale for stuff the baby will use for 2-3 months and have no memory of, why not stash that money in a savings account, and figure out what to do with it later...That may be a way to save painlessly.

[NomoreDramaQ1015]

Iowa offers a tax break on whatever we put into the 529. I totally signed up for it because it decreases the amount I owe at tax time. I'm a bad person who avoids paying my proper share of taxes when the law allows me to. ;D

My grandmother paid for part of my college and I would like to return the favor for my DD. I am realistic enough to realize that if something does not change that there is no way in hell we could ever pay for a full 4 years even starting the account when I did, but if we can offest her costs by even a small amount I'll be happy with that.

My grandmother saved me about $12k in college expenses. Not near what it cost to get my degree, but that's still $12k less than I had to come up with myself.

If DD doesn't go to college then I'll do what my grandmother did and just keep the money for future grandchildren or nieces/nephews. My dad didn't go so the money she gave me has been sitting in an account for us since my dad was 18.

[ruger2506]

May 9, 2011 9:52:03 GMT -5 giramomma said:

I think for normal folks, scholarships are going to be a thing of the past. I also think that working during the summers won't cover college costs either.

Starting to educate your kids about money starts way before college. My 6 year old has a piggy bank separated into three catagories: Savings, spending, and charity. We've already started the habit that a small amount of money MUST be saved. We also talk about budgeting and choices that we make to make our financial life work. My 6 yo knows money doesn't grow on trees and that there are limits to our finances.

I was raised to understand the value of a dollar. Got two degrees with NO college loans. I worked, I used savings, my parents contributed, and other relatives contributed. I didn't act like a drunken animal in college, even though I knew I was getting financial help.

Honestly, the two best gifts my parents gave me were helping to develop a work ethic and financial freedom in my adulthood.

Is your wife going to take care of a newborn 24/7 by herself or with a nanny while you go out on all of your adventures? If not, you might find out that you have a bit more money to put away somewhere..

And, maybe look into some found money. Rather than spending $100 at a garage sale for stuff the baby will use for 2-3 months and have no memory of, why not stash that money in a savings account, and figure out what to do with it later...That may be a way to save painlessly.

All good comments. Thanks. We have a friend who does day care, so we'll be getting day care for a fraction of the price of what most people pay locally.

The grandparents are local as well and want as much time as possible with the grand babies. In fact they complain all the time the BIL and SIL don't give them the kids often enough. I make it a point to promise them they'll get all kinds of time with my kid.

My FF intends on being out there on the water with me. She's as avid an outdoors person as I am. We've discussed this and both agree that people who seemed to fall off the face of the earth because god forbid they spend more than 10 seconds away from their kid have a sad life and we want no part of it.

I do have friends who think and live life like I do WITH children. I see both sides of the spectrum and I know where I think I would like to fall on the spectrum.

[NomoreDramaQ1015]

The grandparents are local as well and want as much time as possible with the grand babies.

Mine are and do too, but when DD is screaming due to teething and a sinus infection, the bonus of being a grandparent is that they get to send her back home with me.

It's easy to say NOW where you want to fall on the spectrum but the kiddo hasn't been born yet. I've been dealing with a lot because the life I PLANNED with a kid isn't matching up with reality.

So don't get too cozy with your ideas of how you plan to live your life because it could do a complete 180 once the kid is born.

[ruger2506]

May 9, 2011 10:05:53 GMT -5 NomoreDramaQ1015 said:

The grandparents are local as well and want as much time as possible with the grand babies.

Mine are and do too, but when DD is screaming due to teething and a sinus infection, the bonus of being a grandparent is that they get to send her back home with me.

It's easy to say NOW where you want to fall on the spectrum but the kiddo hasn't been born yet. I've been dealing with a lot because the life I PLANNED with a kid isn't matching up with reality.

So don't get too cozy with your ideas of how you plan to live your life because it could do a complete 180 once the kid is born.

Dang it!. ;D

Yeah, I have plans like we all do. However I'm open minded as well. Here's to hoping.

[Gardening Grandma]

a question and a comment:
How does your FF feel about the 529? Is this something she wants to do and you aren't so sure?

Comment: Life can get complicated. My oldest grandchild was born with severe disabilities. Needless to say, THAT was not my my son's plans (nor his wife's). It simply happened. I am sure your baby will be healthy, but I'm just saying that life can, and does, throw curveballs at you.

And, speaking as a grandma, I loved having my g'kids, BUT, they wore me out and I learned to draw boundaries.

[ruger2506]

May 9, 2011 10:29:35 GMT -5 Gardening Grandma said:

a question and a comment:
How does your FF feel about the 529? Is this something she wants to do and you aren't so sure?
She agrees with me about making our retirement a priority. However after that, she is leaning towards helping. I'm leaning away from helping. Neither of us have concrete answers. That's where this site and others come in.


Comment: Life can get complicated. My oldest grandchild was born with severe disabilities. Needless to say, THAT was not my my son's plans (nor his wife's). It simply happened. I am sure your baby will be healthy, but I'm just saying that life can, and does, throw curveballs at you.
We are doing everything in our power to find this type of stuff out prior to delivery. We have some physically and mentally challenged family members and the FF and I want a "normal life" where you send the kid away at 18. I've seen many patients where the parents are their challenged child's care giver throughout life. It is not a life we want for our kid and ourselves.

[NomoreDramaQ1015]

You don't HAVE to do an actual 529. On here a lot of people suggest setting up an IRA and then the money can be used for retirement for yourselves or for college if you choose. There are a lot of ways to save for college that aren't a 529.

We only did one because it saves us on the taxes we owe the state every year, otherwise I probably would have done something different.

You also don't have to put in a ton, you can always increase the amount later. I only put in $25 a month which is peanuts, but she's also only 9 months old. I have it set up so it aggressively invests and gets more conservative the closer she gets to 18. So far the investments are giving nice returns. Hope it lasts! ;D

$25 is money we could easily piss away during the month on something else and doesn't interfere with retirement.

[Deleted]

We are doing everything in our power to find this type of stuff out prior to delivery. We have some physically and mentally challenged family members and the FF and I want a "normal life" where you send the kid away at 18. I've seen many patients where the parents are their challenged child's care giver throughout life. It is not a life we want for our kid and ourselves.

I'm assuming by this that you mean you would chose to discontinue the pregnancy if there was something wrong. But delivering a healthy child is just the first step. There are no guarantees in life, especially with kids.