siralynn
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Post by siralynn on Jan 1, 2015 17:59:43 GMT -5
What is the collective opinion on 529 plans, particularly in states (CA in this case) that don't offer any tax breaks on contributions?
Our DD is currently 19 mon old and we've got a second on the way in May. We have not yet started any specific college savings because there's no obvious benefit in our state. Should we start a 529 anyway? Or is it sufficient to save in standard investments and/or cash-flow expenses when the time comes? (Current house would be paid off about two years before ODD goes to college. But it's a big assumption that we won't move sometime in the next sixteen years.)
Other relevant background: - retirement accounts healthy and on-track (contributions maxed each year), so question at this time is just 529 plan vs taxable investing - maternal grandparents have some savings bonds and a 529 plan for ODD (and have indicated that they plan to continue saving in the 529 because they get a nice tax break in their state) - I know there's a federal tax break on the withdrawals from 529 plans, but DH is skittish about tying up the money "only for educational expenses". I think it's unlikely that our offspring won't attend college (given that we're an over-educated, double-PhD household), but anything is possible.
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Deleted
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Post by Deleted on Jan 1, 2015 18:34:49 GMT -5
You don't have to open your own state's 529. I'm in PA. The kids 529 are Virginia (I'm pretty sure).
There are pros and cons. Its nice to have some in there, but I'm not advocating trying to 'fully fund' through it.
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happytraveler
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Post by happytraveler on Jan 1, 2015 19:32:11 GMT -5
If you plan to save for college, I think a 529 plan (state tax deduction or not) is the way to go. If you have multiple kids and one does not go to college, you can change beneficiaries and direct the funds to those who do, so that mitigates your risk somewhat. If neither goes, maybe your grand kids will. Good luck with whatever you decide.
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HoneyBBQ
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Post by HoneyBBQ on Jan 1, 2015 21:00:07 GMT -5
I'm doing about 50/50 in terms of 529 and just in after tax investments.
You can't beat the deal that the earnings in a 529 grow tax free. Since your LO is young, that can make for a pretty good chunk of change in 16+ years. The drawback I've seen is limited options for allocation within 529 plans. Or none at all. I live in WA and we have the GET program, which just buys credits and they manage all the funds.
You can always get the money out of of a 529 for a fee.
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Deleted
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Post by Deleted on Jan 1, 2015 21:08:45 GMT -5
I don't get any state tax breaks for the 529 either, but I still have had one for each of my kids since they were born. I'm also of the opinion that college savings should be a lot like retirement savings in that you don't want all your eggs in one basket because it's hard to know 18 years ahead of time what is the most advantageous route to take. The 529 is pretty flexible though and I like that I maintain ownership, can change the beneficiary, and that I can withdraw penalty free if they get a scholarship or GI bill. Even if I do have to make an unqualified withdrawal, the penalty is only 10% of the earnings. 18 years of tax-free growth makes up for that. I plan on having a mix of 529, UGMA, Roth, cash flowing, and my kids having a part-time job to cover the expenses.
UT, NY and NV have very good plans since you don't have to worry about going with the CA plan.
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gooddecisions
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Post by gooddecisions on Jan 1, 2015 21:54:53 GMT -5
Phil would probably tell you that you're better off putting as much as possible in an SP500 low fee brokerage account, letting it grow at 11% and keeping your options open. That's a good plan assuming capital gains tax stays at reasonable 15% and you don't raid the fund for things you'd otherwise be able to figure out without it- like home improvement projects.
That said, we set up 529's for both kids as soon as we had their SSNs. Worse case scenario we overfund it and pay the 10% penalty and normal income tax rate on the earnings (assuming that tax structure doesn't change).
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siralynn
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Post by siralynn on Jan 2, 2015 18:47:59 GMT -5
Thanks for the opinions everyone. I went ahead and opened a 529 at Vanguard (the Nevada plan) with $3000. It's a start anyway! A couple of other plans (including California's) got slightly higher "5-Cap" ratings on savingforcollege.com, but I decided to stick with Vanguard since the majority of our other holdings are there as well.
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Hypersion
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Post by Hypersion on Jan 2, 2015 23:06:51 GMT -5
Max out your 401K and IRA first before you put anything in a 529.
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siralynn
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Post by siralynn on Jan 2, 2015 23:51:01 GMT -5
Max out your 401K and IRA first before you put anything in a 529. All retirement accounts are maxed every year.
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cronewitch
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Post by cronewitch on Jan 3, 2015 1:23:53 GMT -5
I didn't use a 529 because I only had one child I was interested in helping with college. My little brother's only grandson, his sister is special needs so if he didn't use the money I wouldn't want it for another child. So now I just transfer money to his college account from regular money. Doesn't look like we will have another generation, he has bad genes so won't want to take the risks besides by the time he married and had grown kids I would be very old.
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moneymom
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Post by moneymom on Jan 3, 2015 1:43:37 GMT -5
random question here.. does the 529 monies have to go to a relative? I have a former foster child I would like to help fund college for. Is this possible? I have a 529 already for DD but would love it if it could be used for either (or both) kids.
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lurkyloo
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Post by lurkyloo on Jan 3, 2015 3:00:37 GMT -5
529 funds can go to any beneficiary of your choice, as long as they are a US citizen--note however that at a certain age the funds become the property of the named beneficiary rather than the account owner.
We have a 529 plan for DS because we're in an insane tax bracket and want the tax-free growth (currently in CA, no upfront state tax break). Last I checked I believe you can withdraw contributions tax-free at any time; earnings are taxed and penalized unless withdrawn for approved educational purposes. It wouldn't surprise me if they changed that at some point but I imagine there'd be enough notice to do something about it if you wanted to
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siralynn
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Post by siralynn on Jan 3, 2015 11:13:26 GMT -5
I didn't use a 529 because I only had one child I was interested in helping with college. My little brother's only grandson, his sister is special needs so if he didn't use the money I wouldn't want it for another child. So now I just transfer money to his college account from regular money. Doesn't look like we will have another generation, he has bad genes so won't want to take the risks besides by the time he married and had grown kids I would be very old. Definitely part of the reason that I'm finally deciding to open an account now is that we're now having a second kid, which helps hedge the bets a little bit.
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Deleted
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Post by Deleted on Jan 3, 2015 11:51:36 GMT -5
529 funds can go to any beneficiary of your choice, as long as they are a US citizen-- note however that at a certain age the funds become the property of the named beneficiary rather than the account owner.We have a 529 plan for DS because we're in an insane tax bracket and want the tax-free growth (currently in CA, no upfront state tax break). Last I checked I believe you can withdraw contributions tax-free at any time; earnings are taxed and penalized unless withdrawn for approved educational purposes. It wouldn't surprise me if they changed that at some point but I imagine there'd be enough notice to do something about it if you wanted to I think you're thinking of ESA accounts which have to be handed over at age 30. 529s are never turned over to the beneficiary unless the account owner dies.
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lurkyloo
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“Time means nothing now,” said Toad. “It is just the thing that happens between snacks.”
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Post by lurkyloo on Jan 3, 2015 12:47:45 GMT -5
529 funds can go to any beneficiary of your choice, as long as they are a US citizen-- note however that at a certain age the funds become the property of the named beneficiary rather than the account owner.We have a 529 plan for DS because we're in an insane tax bracket and want the tax-free growth (currently in CA, no upfront state tax break). Last I checked I believe you can withdraw contributions tax-free at any time; earnings are taxed and penalized unless withdrawn for approved educational purposes. It wouldn't surprise me if they changed that at some point but I imagine there'd be enough notice to do something about it if you wanted to I think you're thinking of ESA accounts which have to be handed over at age 30. 529s are never turned over to the beneficiary unless the account owner dies. Huh, thanks for the correction. I was pretty sure it was 529s but I can't find my source or any others supporting that assertion with a quick google...guess I should know better than to post past my bedtime ![](http://images.proboards.com/new/smiley.png)
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