My wife and I just welcomed our 2nd child to the world on Friday and I need to kickstart some college accounts. I didn't start with the first one because we were close to moving and saving for that.

What do I need to know about college accounts? It seems 529 plans are what most use. Do you have one account per kid or a family account that they can all pull from? Assuming I should go with a Texas plan but I don't really know what's different between states. I know their grandparents will periodically want to contribute some money to them, is that easy to set that up or would it be easier for them to write me a check and I add it? It seems far away but 16 years will be gone before I know it.

we did one account per kid Vanguard 529. Looks like we'll have enough for 4 years state and a couple of years post graduate.

You'll get lots of opinions but here are just a few basic points:

• Since Texas doesn't have a state income tax, the state the 529 is associated with doesn't matter
• You can have 1 or 2 accounts, really doesn't matter. There can only be one SSN associated with a 529 at a time, but you can change it once the oldest graduates
• It has been my experience (Sr. about to head off to college) that consistently contributing is much more important than the vehicle, however, I have been pleased with our 529 plan
• congrats

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There can only be one SSN associated with a 529 at a time, but you can change it once the oldest graduates

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Can I use it to spend money on two kids while they overlap in school? I would prefer to just have one account to keep up with but I'll for sure have 2 in school at a time and possibly 3 depending how it all shakes out.

Technically, no.

But I doubt you would get much IRS heartburn regarding "college expenses" and where the resources wound up.

Might have more trouble with tuition but things like books, computers, etc. wouldn't be a problem I wouldn't think.

congrats!

I used Vanguard 529's for all four of mine.

Just opened one last week for my first. Went with Utah 529. Simple process and no frills ui. A good chunk of their investments are vanguard funds as well.

I think my brother did Utah also, what's the benefit on picking an out of state plan?

I have three 529s, one for each kid at vanguard. Incredibly easy to set up.

Better performance, investments, fees, etc. I picked Utah specifically because they had several investment options to choose as well as one of the lower expense ratios. I'm not sure about other states, but they also make it really easy to gift into their 529s. We had grandparents wanting to do that and Utah provides a link that they can go to and easily gives to kids 529.

I think someone above mentioned this, but since Texas doesn't have state tax there are no incentives to use that over another states plans with better options.

There is no reason not to do a separate one for each. They will both be on the same platform, same online login, same investment choices, different account number, and different social security number. It will take you an extra 5 minutes to set up separate accounts for them.

Side thread

For those who used a 529 did you try to save a magic number per child or simply x per month until it was needed to be used?

wsjag said:

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Side thread

For those who used a 529 did you try to save a magic number per child or simply x per month until it was needed to be used?

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If you want to know a ballpark number, you can find the costs for in-state public universities. Take the total cost (if you wanna pay for the whole thing), inflate it by 6% per year for as many years as they have left till they go to school. That will give you a ballpark number.

I heard a radical opinion that it's best to buy a whole life insurance policy since it won't be included in your EFC and limit the opportunity for aid.

Huell Babineaux said:

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wsjag said:

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Side thread

For those who used a 529 did you try to save a magic number per child or simply x per month until it was needed to be used?

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If you want to know a ballpark number, you can find the costs for in-state public universities. Take the total cost (if you wanna pay for the whole thing), inflate it by 6% per year for as many years as they have left till they go to school. That will give you a ballpark number.

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This is what every FP will tell you. I have a hard time believing that 6% is a sustainable rate. Esp since salaries are stagnant. I think somethings going to have to give with tuition and student loans.

500,000ags said:

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I heard a radical opinion that it's best to buy a whole life insurance policy since it won't be included in your EFC and limit the opportunity for aid.

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Did you hear that from a life insurance salesman or somebody trying to justify their own recent purchase of such a policy?

So if I live in Colorado (which has a state income tax) do I have to use their 529 plan? Or can I still go with an out of state plan such as Utah?

SquareOne07 said:

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500,000ags said:

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I heard a radical opinion that it's best to buy a whole life insurance policy since it won't be included in your EFC and limit the opportunity for aid.

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Did you hear that from a life insurance salesman or somebody trying to justify their own recent purchase of such a policy?

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It was on a podcast, but it was a brief discussion similar to this article.

Saving for College: Life Insurance or 529?

Maybe eventually. But that's what parents said 18 years ago. It would never be my advice to try to fund that number, though. I don't think it's a great idea to have 200k in a 529 account

TexasAg21 said:

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So if I live in Colorado (which has a state income tax) do I have to use their 529 plan? Or can I still go with an out of state plan such as Utah?

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No, you do not have to use the 529 plan of the state in which you live, but you should investigate whether there are tax benefits for doing so. I live in SC and use the SC plan because of the state income tax benefits. If there were no benefits I would probably use Utah's plan since it is rated so highly.

I see. Thanks!

500,000ags said:

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I heard a radical opinion that it's best to buy a whole life insurance policy since it won't be included in your EFC and limit the opportunity for aid.

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Does the kid have to die in this scenario? Seems like a term policy would be cheaper.

From the article: "Another option is to take out permanent life insurance, which, unlike term coverage, has a tax-deferred savings component. If given time for the plan's cash-value segment to grow, parents can draw on these funds tax-free to pay tuition and related expenses."

There's always the option of a custodial account. I'm hedging and putting half and a 529 and half and a custodial.

There's always a scenario your child may choose some alternative education or need funds to live that may not apply to the 529 restrictions.

Edit: apparently at the end of 2017 Congress passed a bill to let you use 529 for private Elementary and high school tuition. This was the main purpose of our custodial accounts.

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The Bottom Line
Whole life insurance policies might be something to consider if you start saving early and are particularly risk-averse. But the simplicity and much lower fees associated with a 529 arguably make these plans a better option for most families.

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This is quoted directly from the article you linked.


There MIGHT be a scenario where cash value would make more sense for college, but I'm having trouble thinking of it. I would even remove the word "arguably" from that quote above and replace it with "definitely".


(and a disclaimer.....I have no problem with permanent life insurance and own quite a bit of it myself, but I would rank it pretty close to dead last on the list of ways I'd pay for my kid's college)

TexasAg21 said:

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So if I live in Colorado (which has a state income tax) do I have to use their 529 plan? Or can I still go with an out of state plan such as Utah?

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https://www.collegeinvest.org

Save on state income tax

My wife doesn't work and I have too many kids...should I fake my death for the insurance money?

Depends in your situation.

If I had 3 kids I would probably do a 529, but otherwise I'm going with nothing. College is one of the cheapest things to finance (and I can still pay for it instead of the child) and a 529 assumes the child wants college or some further education. Yes, gains aren't taxed for qualified expenses, but gains are also penalized at 20% for not using them on qualified expenses. It's too restrictive in my mind, but just my opinion.

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Just opened one last week for my first. Went with Utah 529. Simple process and no frills ui. A good chunk of their investments are vanguard funds as well.

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We opened up a Utah 529 (formerly uesp.com but now my529.com) 11 years ago when our first son was born. I had my 529 plans narrowed down to Iowa, New York and Utah...I used Clark Howard's research to help in my decision: https://clark.com/education/clarks-529-plan-guide/ Opened a second one when our other was born.

Additionally, my dad seemed to think "mormons are pretty good with their money", so there's that.

I also liked the ease of use of their website, the ability to give grandparents view access into the amount in the account and allow them to deposit easily. Their fee structure is good too. They also recently got highly rated by Morningstar:

https://www.morningstar.com/articles/889532/morningstar-names-the-best-529-college-savings-pla.html

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the end of 2017 Congress passed a bill to let you use 529 for private Elementary and high school tuition

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^ oh yeah, and there's that

Put the first $2,000 per year in a Coverdell ESA if you're not prohibited due to the income limitations.

https://www.savingforcollege.com/intro_to_esas/

What's the advantage over 529?

Not seeing it in that link.

Since 529's can now fund private K-12 tuition (up to $10k/year) I thought Coverdells are now obsolete, yes?

Diggity said:

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What's the advantage over 529?

Not seeing it in that link.

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You can invest in pretty much anything you could invest in with an IRA, whereas 529's typically don't give you that freedom.

Stocks, bonds, ETFs, mutual funds, etc... and all the earnings are tax free.

SnowboardAg said:

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Depends in your situation.

If I had 3 kids I would probably do a 529, but otherwise I'm going with nothing. College is one of the cheapest things to finance (and I can still pay for it instead of the child) and a 529 assumes the child wants college or some further education. Yes, gains aren't taxed for qualified expenses, but gains are also penalized at 20% for not using them on qualified expenses. It's too restrictive in my mind, but just my opinion.

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10%

What are any downsides of 529?