Using a 529 Plan to Save For College

[MULTIZ321]

Using a 529 Plan to Save For College
By Walid Petiri, RFC/ Advisor Insights/ Investopedia/ investopedia.com

"One way to help manage the expenses associated with raising children is to start saving for college early. A 529 college plan is one way to accumulate a large amount of savings over time to help defray the cost of qualified education expenses. These costs include tuition for both full- and part-time students, and room and board if the student is attending college at least half-time.

529 plans earn more than standard savings accounts because they’re tied to investment portfolios (similar to defined benefit pension plans). You can use 529 plans as prepaid tuition plans or as college savings plans. If you use the plan as a prepaid tuition plan, you can lock in an interest rate in exchange for paying a portion of tuition in advance. (The terms for this strategy vary greatly.)...."

Richard


Read more: Using a 529 Plan to Save for College | Investopedia https://www.investopedia.com/advisor-network/articles/using-529-plan-save-college/#ixzz5Lpk3Vphn
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[TUGBrian]

as i understand it now with new/recent law changes, you can also use 529 funds for most all educational expenses for k-12...vs just college/post high school education?

much like an ESA provides, just with a higher annual limit?

 

[mdurette]

We started a 529 when my daughter was born. I had a plan to fund $XX into it by the time she was 5 and then let it ride. I accomplished that, she is now 12 and the account has grown nicely. BUT, now that she is 12 we can start to see what she may become as a young adult. I have concern this nice fund may be too much and not get fully used by her secondary education.

The new tax code allows the withdrawal of $10,000 for private K-12 education. For us, this change works out well. DD is in a private school so my plan is to withdraw the $10,000 annually as allowed and start up a new non 529 account to put that money in. If she needs it for college - great its there. But if she doesn't....then I'm not getting slammed with the penalty for taking it out after her education is complete.

In a way, tax loophole. I won't paying gains in any of these $10,000 withdrawals per year.

 

[bogey21]

I started 529 plans for my Daughter's kids years ago with contributions of $35 per month to each. I have increased the amount of the monthly contributions every year since. The balance in the plans is now over $40,000 and the oldest kid is still years away from starting college. The moral of my story is start early and contribute as much as you can. Over time it really adds up...

George

 

[HitchHiker71]

We started a 529 when my daughter was born. I had a plan to fund $XX into it by the time she was 5 and then let it ride. I accomplished that, she is now 12 and the account has grown nicely. BUT, now that she is 12 we can start to see what she may become as a young adult. I have concern this nice fund may be too much and not get fully used by her secondary education.

The new tax code allows the withdrawal of $10,000 for private K-12 education. For us, this change works out well. DD is in a private school so my plan is to withdraw the $10,000 annually as allowed and start up a new non 529 account to put that money in. If she needs it for college - great its there. But if she doesn't....then I'm not getting slammed with the penalty for taking it out after her education is complete.

In a way, tax loophole. I won't paying gains in any of these $10,000 withdrawals per year.

Don’t quote me on this as I’m not up to speed on current 529 regs but IIRC you can always withdraw the principal amount originally contributed without penalty. It’s only the earnings that are subject to withdrawal penalties when the withdrawals are not used for qualified education payments. Might help in your situation.

We used a 529 plan to fund about 90% of our daughters college bachelor degree expenses. She is now 23 and has been out of college for two years. We are paying out of current income for our son, age 21, who is a rising senior in college, and our youngest who just graduated from high school at age 18 is taking a gap year to save money to help fund pilot school starting next year. We have a 529 for our youngest son that will cover about a years worth of normal college expenses as well.

College expenses are killer for sure, so my advice is to take good advantage of compound interest and start 529 plans for each child when they are young. Grandparents this includes you too! The biggest gift apart from your time is to help fund their education in the future IMHO. The beneficiary for the 529 can always be changed at any time if plans change. For instance if you have a 529 and your child ends up not using it for any reason (full scholarship is one of many examples), you can use it to go back to school yourself or you could keep the fund around until you have grandchildren and change it into their names at that time. Just a few examples to consider. As always, check with your financial planner specific to your situation.


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[TUGBrian]

do you guys use your own states 529? or other better rated ones?

https://clark.com/education/clarks-529-plan-guide/


i am baffled at all the options, some appear FDIC insured...some not?

 

[DAman]

do you guys use your own states 529? or other better rated ones?

https://clark.com/education/clarks-529-plan-guide/


i am baffled at all the options, some appear FDIC insured...some not?

For me in CA there is no reason to use the state plan unless it is rated highly.

I use the Nevada Plan through Vanguard and the CA Scholarshare Plans.

When using the 529 money for K-12 expenses watch out for state tax law. It may be a qualified withdrawal for federal tax purposes but not under state tax law.

It pays to have a plan both to invest for your child's college education and to have a plan how to withdraw the money. I was lucky and started investing for my children's college education shortly after their births.

We put money in a ESA so we could withdraw it to pay for private high school. We withdrew the money but we plan to use it for college expenses.

Accounting for this stuff can be a real pain. Save your receipts especially if your child lives off campus.

 

[HitchHiker71]

do you guys use your own states 529? or other better rated ones?

https://clark.com/education/clarks-529-plan-guide/


i am baffled at all the options, some appear FDIC insured...some not?

I did not use my state plan as there was no tax or investment advantage in doing so. It wasn’t particularly well rated either. I’m currently using the uPromise 529 plan as we use the uPromise credit card and other programs to boost our college savings.


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[TUGBrian]

yea, florida has no state income tax...and the state 529 is not rated very high at all. (I did use their prepaid college system though, as my parents did for me).

ive just been researching the 529s and some seem "too good to be true" compared to the run of the mill stuff I expected from a 529 or esa...

was trying to figure out what the catch was for some of these!

 

[bogey21]

do you guys use your own states 529? or other better rated ones?

I use the one offered in the State in which I live (Texas), not because I think it is better but rather because I never thought to check out ones offered in other States...

George

 

[bnoble]

We live in MI and used the MI plan. It has a good rating, and has tax advantages for state residents. We've put away enough to fully cover both kids' U-M room/board for four years, plus leave them a little bit to use towards graduate school if they want.

 

[TUGBrian]

yea, i'd no idea you could use other ones (or that there were different features) until I read that above clark howard article.

 

[DAman]

yea, i'd no idea you could use other ones (or that there were different features) until I read that above clark howard article.

I recommend the Vanguard Group 529's. The whole college game and paying for it has gotten complicated. My second child is on his way to college next month and my first starts grad school in September. Save early and often....One more to go to college in a couple years....

 

[WinniWoman]

We used NYS one for our son's NH college tuition. Grandparents also contributed. Best thing we ever did. He graduated without a dime in debt. The leftover money we gave to him as savings for an emergency fund after he graduated.

 

[VegasBella]

I set one up for my nephew when he was born. Ten years later my son was born. I set up another one for my son.

When my nephew turned 18 (this year) he didn't sign up for college right away, so we took a look at the amount in the fund and made him an offer. We decided to roll the fund over to my son and gift the amount that was in the fund to my nephew as an annuity. We basically said, "You can have all the money now if you go to college. Or you can get $100/month til it runs out if you don't go to college. We support either decision and want to help you learn how to manage money." He chose the annuity idea and we rolled the money over to my son's account.

That's one of the nice things about these 529 accounts - you can roll them over from one family member to another. Let's say I wanted to go back and finish my law degree. I could steal my kid's 529 money for that, just roll it over to my name. Not that I would, just saying I could. Or if we adopted another child, we could split the fund between them. Or make a rule about it - this money is for college and only the kids who choose college get to use it. Until it gets used, it's always in your name as the account holder so you decide where and how it gets used.

 

[TUGBrian]

one more question, do other members (ie grandparents) get to contribute to the same 529 you setup, or is it more beneficial for them to setup their own in the name of the child?

cant imagine it would matter, but better safe than sorry and I cant seem to find the answer anywhere.

sofar the plan is to open up both an ESA and a 529 for TUGBABY and let grandparents and relatives just contribute to it as they see fit etc.

 

[WinniWoman]

one more question, do other members (ie grandparents) get to contribute to the same 529 you setup, or is it more beneficial for them to setup their own in the name of the child?

cant imagine it would matter, but better safe than sorry and I cant seem to find the answer anywhere.

sofar the plan is to open up both an ESA and a 529 for TUGBABY and let grandparents and relatives just contribute to it as they see fit etc.

Take a look at this article:
https://money.usnews.com/money/pers.../08/grandparents-dont-make-a-529-plan-mistake

 

[PigsDad]

one more question, do other members (ie grandparents) get to contribute to the same 529 you setup, or is it more beneficial for them to setup their own in the name of the child?

cant imagine it would matter, but better safe than sorry and I cant seem to find the answer anywhere.

sofar the plan is to open up both an ESA and a 529 for TUGBABY and let grandparents and relatives just contribute to it as they see fit etc.

I think the only time it would matter is if the grandparents lived in a state where their contributions would give them a tax incentive.

Kurt

 

[PigsDad]

do you guys use your own states 529? or other better rated ones?

In Colorado, all 529 contributions are deductible on our state taxes, so it was pretty much a no-brainer to use the in-state plan for a 4.7% bonus (our state income tax rate) on everything we put in the account. Plus, our state plan is run by Vanguard and it is rated pretty well.

We started ours for our daughter soon after she was born, and when we had funded it to our target amount we stopped adding additional funds (about age 12). Now that she is about a year out from heading off to college, she is being recruited by an Ivy school for athletics. Since the Ivy schools don't offer athletic scholarships / funds, it looks like our costs may end up being more that we projected. If she does end up in the Ivy school, our plan is to run the additional funds through the 529 for the state income deduction, even though the funds will not be in the 529 for long. Every penny counts!

Kurt

 

[TUGBrian]

yea, there is no florida income tax...so i was only wondering if there were a difference between the tax deduction on federal income taxes between grandparents contributing to a 529 I setup...vs one they setup themselves.

 

[bnoble]

I don't believe any of the contributions are deductible federally; instead the earnings are tax-advantaged.

 

[MULTIZ321]

Attention Retirement Savers: College 529 Plans Aren't Just for Kids
By Gail Marks Javis/ Retirement News/ Reuters/ reuters.com

"CHICAGO (Reuters) - As a financial planner, Ray Loewe watched clients who had retired struggle with too much leisure time.

“Playing golf six days a week gets boring,” Loewe said.

He vowed that when he retired he and his wife would travel and take college classes. To put his plan into action, Loewe took advantage of a savings tool typically used by parents and grandparents to stash money away for college for children - the 529 college savings plan. He opened one for himself.

When he retired from his planning business in his 60s, Loewe and his wife, Sandy, studied ecology and leather back turtles through a New Jersey community college course taught completely on the ground in Costa Rica. They tapped $25,000 in 529 savings to pay the bill.

Loewe, whose financial planning business in New Jersey focused on paying for college, was ahead of his time. A decade later, more financial planners are directing retirement-focused clients into 529 plans, experts say...."

Richard