529 Savings

[steph08]

I have had 529s for my kids since shortly after their birth, but I have not put a lot of money into them.

I got sucked into a rabbit hole of reading at 529 contributions today, and I feel so far behind. One site recommended at the very least $5k/year/kid. 

I had been putting in $100/month per kid but recently upped it to $200/month per kid. Oldest DD is 7 and youngest DD is 5. They have about $8k and $4k respectively in their accounts. If I keep going the way I am, I should have about $70k for each of them by the time they're 18. 

So my question is: What is a good target goal for 529s? 

If they live at home and commute to the local state university and pay full tuition with no grants or scholarships, it would be about $52k at the current rate. 

If they go to a private college, they would probably get more scholarships and grants, but I would have to add in room and board. Using my alma mater's financial aid calculator and upping our income by a lot, total parental responsibility for four years would be around $85k. When I went to college, my Mom always said that it cost less for them to send me to the private school rather than the local university that doesn't give out aid. 

Side notes: I feel good about retirement savings though I don't max my 401k (yet) and I need to start a Roth for after-tax savings. 

[thyme4change]

I didn't do 529s. I did regular investing. It probably cost me some in taxes - but is so much more flexible. I know why we have all of these tax advantaged accounts - but I am struggling with them. I have enough to retire early - but I would have to pay a penalty to get to my own money. And, as it turns out, it is way more likely I will pay more in taxes over the course of my lifetime.

Moral of the story - you should probably have some goals for college savings, but you aren't required to use a 529 - so you can tap into other savings if the need is different than you anticipated.

[minnesotapaintlady]

Your goal number is totally personal based on what you want to do to help out.  Have you been running the net price calculators on the schools pages?  Those are your best estimate of what you'd be expected to pay based on your financial situation right now.  I found all the ones I did to be pretty close to what they actually offered.  Of course since you're a long ways out yet, it's a guess on the inflation part.

My original goal was just to be able to cover tuition at any of the FIVE four year colleges within commuting distance of our house (12-45 miles away). I figured if I could do that they'd still have plenty of options and it would cost half as much if they lived at home.  My goal was 40K, which $100/month from birth got me to.  We lucked out and there was a lot of financial aid and he earned several scholarships, so he ended up going away to school anyhow (our flagship is actually tuition free for families with AGI under 50K)

[minnesotapaintlady]

Nov 4, 2021 11:25:09 GMT -5 thyme4change said:

I didn't do 529s. I did regular investing. It probably cost me some in taxes - but is so much more flexible. I know why we have all of these tax advantaged accounts - but I am struggling with them. I have enough to retire early - but I would have to pay a penalty to get to my own money. And, as it turns out, it is way more likely I will pay more in taxes over the course of my lifetime.

But have you ever figured how much MORE you have because you saved on the taxes?  I would not have been able to invest nearly as much had I gone the after tax route.  I figure I am able to invest nearly 30%/year more going the pre-tax route.

However, for 529s if you're in one of the lower tax brackets, it really doesn't make sense to use them because you don't pay taxes on capital gains anyhow. I only do because my state gives a matching grant on the first $1000 in contributions.

[ArchietheDragon]

Personally I would stop all 529 contributions and fully fund you and your husband's ROTH IRA instead.   ROTH IRAs are so much more flexible than a 529 and they are completely tax free.     But I do understand that  some people feel like they need to save for the kids college, specifically in a 529. 

[raeoflyte]

I just have brokerage accounts for the kids but was thinking about opening 529's if our investment property sells. We could use the tax savings this year, but I'm not sure about locking the money in those.

I know I'm behind in saving for them and I'm scared to do much looking into it to find out we're completely screwed.

[minnesotapaintlady]

I totally missed you weren't maxing the Roths.  I would do that before the 529s.  They don't count against you for financial aid like the 529s do and you can still use them for paying for college.

[thyme4change]

Nov 4, 2021 12:03:33 GMT -5 minnesotapaintlady said:

Nov 4, 2021 11:25:09 GMT -5 thyme4change said:

I didn't do 529s. I did regular investing. It probably cost me some in taxes - but is so much more flexible. I know why we have all of these tax advantaged accounts - but I am struggling with them. I have enough to retire early - but I would have to pay a penalty to get to my own money. And, as it turns out, it is way more likely I will pay more in taxes over the course of my lifetime.

But have you ever figured how much MORE you have because you saved on the taxes?  I would not have been able to invest nearly as much had I gone the after tax route.  I figure I am able to invest nearly 30%/year more going the pre-tax route.

However, for 529s if you're in one of the lower tax brackets, it really doesn't make sense to use them because you don't pay taxes on capital gains anyhow. I only do because my state gives a matching grant on the first $1000 in contributions.

That is the calculation I would need to do. Which would require me going back and figuring out my tax bracket for the past 30 years and how much I contributed each year, and how much that particular pot of money made. I also wonder if I would have taken taxes from elsewhere. Reduced my fun money, as I prioritized savings.

[giramomma]

We have 529s. How much they get funded is up to you. I think you also need to take into consideration whether or not any money saved in your kids name is yours or your kids.

I don't like mixing account purposes. For me, money for retirement and money for education are two different purposes. And can have two different investing needs. I'm 46. My oldest is 17. His 529 money investment strategy is low risk for the time being. However, given my age, my Roth strategy should not be low risk.

The Roth IRA is also my money. The 529 is also my kids' money. 

I would feel badly if I told the kids that I was putting their college money in my  Roth IRA, and then I end up needing their education money supplement my own retirement instead. (My husband already knows that if the cancer comes back, I'm jumping ship at work as soon as possible, to include retiring before I get my full pension). That seems like a pretty big bait and switch, considering I'll have a 19 and 13 year old, give or take, at that point.

Conversely, I would also be very upset/resentful if I wanted to stop working, but couldn't, because I had to keep remembering that my Roth IRA money was partially my kids, and we didn't want to spend down their money. My kids should have no input on my decision to retire.

But, I fully admit, I'm totally rigid when it comes to these things, and likely doesn't work for others.

(We have a mix of everything: traditional roth, taxable, and 529s. I wish could switch us and do HDHP and get money in a HSA..but that ship has sailed).

[Deleted]

I don't really have a goal for the 529s for my 3 grandchildren. DS says he'll encourage community college for the first 2 years but if one of them wants to set the world on fire and needs a high-power education at someplace prestigious or spend a year abroad (I would have killed for that) I want the $$ to be there. The kids are 2, 5 nd 7 so how much their educations will cost is a crapshoot right now. There's a god university near them so commuting is a possibility but I think going away to school is a good experience.

My state allows the first $6K as a deduction every year, which doesn't go far spread among 3 kids, so I'm putting in more. Having the investment income on $117K (so far) sheltered from taxes is a big benefit for me.

I agree that you need to be sure you're saving enough for retirement before you sink $$ into 529s.

[steph08]

I don't really like the idea of putting educational funds into Roths. I like to have the separate bucket for that. 

I'm pretty happy with our savings so far. I'm projected, if I keep going at my rate now and never upping it, to have $2 million by the time I'm 55 (19 years). That would probably be enough to live on (mortgage would be paid off by then), but it also doesn't include my DH's pension or SS in the equation. And if I work longer, then I have more money. 

I know that I need to fund our Roths, but the 401k has been a "set it and forget it" thing so that I don't even miss the money. I have a harder time clicking the buttons to move money over to an IRA. 

So, I guess my goal is to open up a Roth and start contributing and for now, staying the course on the 529s. 

I want to make sure that most of our kids' education is paid for (bachelor's). If they are any indication right now, one will get scholarships for academics and the other for sports (at least she's much more naturally gifted than her sister was at 5 ). 

And @athena53, I studied abroad for a semester in London and loved it. I worked all summer in a factory to fund it (made about $4k) and came home with just enough money to buy my books for the next semester and that was it. I was so broke then, haha!

[tcu2003]

We find enough to get the max deduction we can for each kid, which is $6k per kiddo for married filing jointly in my state. We haven’t always done that, so my advice is just do whatever you can.

[tcu2003]

Nov 4, 2021 19:11:40 GMT -5 @athena53 said:

My state allows the first $6K as a deduction every year, which doesn't go far spread among 3 kids, so I'm putting in more. Having the investment income on $117K (so far) sheltered from taxes is a big benefit for me.

You’re on the other side of the state line from me, correct? Because KS is $3k/year/beneficiary for an individual and $6k for married filing jointly.

From my MO side friends, I thought their limits were $8k total for an individual and $16k for MFJ, but I might not be remembering correctly.

[giramomma]

Nov 4, 2021 20:55:03 GMT -5 steph08 said:

I know that I need to fund our Roths, but the 401k has been a "set it and forget it" thing so that I don't even miss the money. I have a harder time clicking the buttons to move money over to an IRA. 

So, I guess my goal is to open up a Roth and start contributing and for now, staying the course on the 529s. 

Does your workplace offer a Roth 401K?

You'd have to figure out your tax situation and all of that, but if it seems to work out well enough, I might split contributions at the workplace.

ETA: I'm thinking about doing that for me for the next few years. I think Trump/Rubio's CTC changes expire in 2025.

We could start to be in for a shock, in terms of taxes, sooner than we think after I/we retire.

[Deleted]

Nov 5, 2021 14:55:06 GMT -5 tcu2003 said:

Nov 4, 2021 19:11:40 GMT -5 @athena53 said:

My state allows the first $6K as a deduction every year, which doesn't go far spread among 3 kids, so I'm putting in more. Having the investment income on $117K (so far) sheltered from taxes is a big benefit for me.

You’re on the other side of the state line from me, correct? Because KS is $3k/year/beneficiary for an individual and $6k for married filing jointly.

From my MO side friends, I thought their limits were $8k total for an individual and $16k for MFJ, but I might not be remembering correctly.

You're right- I just checked my return and it was $8,000. I use TurboTax so I never remember all the details.

[Rukh O'Rorke]

Nov 4, 2021 20:55:03 GMT -5 steph08 said:

I don't really like the idea of putting educational funds into Roths. I like to have the separate bucket for that. 

I'm pretty happy with our savings so far. I'm projected, if I keep going at my rate now and never upping it, to have $2 million by the time I'm 55 (19 years). That would probably be enough to live on (mortgage would be paid off by then), but it also doesn't include my DH's pension or SS in the equation. And if I work longer, then I have more money. 

I know that I need to fund our Roths, but the 401k has been a "set it and forget it" thing so that I don't even miss the money. I have a harder time clicking the buttons to move money over to an IRA. 

So, I guess my goal is to open up a Roth and start contributing and for now, staying the course on the 529s. 

I want to make sure that most of our kids' education is paid for (bachelor's). If they are any indication right now, one will get scholarships for academics and the other for sports (at least she's much more naturally gifted than her sister was at 5 ). 

And @athena53 , I studied abroad for a semester in London and loved it. I worked all summer in a factory to fund it (made about $4k) and came home with just enough money to buy my books for the next semester and that was it. I was so broke then, haha!

Yeah - that time to make decisions never comes.

Take your desired contribution, divide by 26, and set up an autopayment out of checking to occur on every payday. I have one auto going to vangaurd and another to tresury direct for i bonds.

Set and forget!

[lurkyloo]

So anything I post here needs to be labeled with the results not typical disclaimer...

We were in a position to front-load DS‘ 529.  So we threw about 30k in when he was born.  I think it’s up to about 65-69K now with 10 years left to grow.  We have since moved to a state that offers a prepaid tuition plan, so I also bought him 4 years of the university plan at about 11-12K per year current dollars. In our state that is transferable to out of state universities at an equivalent value. 

We will likely be in a position to cashflow his tuition unless we decide to retire early, so it’s partly about efficiency but more about tax savings.

High earners, only child, he’s not looking like the type to get a scholarship