Considering starting a 529 for our child who was born this year. If he was in college today we have the means to pay cash and I suspect and hope the same would be true when he enters college at 18. So my question is should I continue to invest as we do now or should we start a 529? We could max it out if needed and recommended. Can anyone more knowledgeable offer some pros and cons?

Pros: it's tax advantaged.
Cons: Your kid isn't going to college so it doesn't matter anyway.

pros:

growth is tax free if used for qualified expenses
if you overfund it, assuming you have more kids you could always transfer beneficiaries to them

cons:

gubmint could be funding tuition fully in 18 yrs, not likely but given the current administration and the agenda on the left i wouldnt be surprised.

will reduce fafsa aid if kids qualify for any

if you overfund it and your kid doesnt go to college youre gonna owe a 10% and tax on the gains

Considering trajectory of college in this country I would be tempted to stay the course of what you are doing if you already have the money for it and won't spend it simply because it gives you the most flexibility:

- no overfunding penalty plus the entire racket could collapse in next 18 years dropping the price of college
- good chance college is going to be subsidized and/or free especially if you are a minority
- if your kid decides on an alternate path than college it still might be something you want to help with and you won't be tied to the 529


Just throwing out a counter viewpoint.

You can use the 529 to pay a mortgage for the 4-5 years they are in college. Sell the house when they graduate or keep it for income retirement property.

It works really well if you have multiple kids going to the same college.

YouBet said:

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Considering trajectory of college in this country I would be tempted to stay the course of what you are doing if you already have the money for it and won't spend it simply because it gives you the most flexibility:

- no overfunding penalty plus the entire racket could collapse in next 18 years dropping the price of college
- good chance college is going to be subsidized and/or free especially if you are a minority
- if your kid decides on an alternate path than college it still might be something you want to help with and you won't be tied to the 529

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You aren't wrong, but a 529 can have more than one recipient. So if the price drops and you have a ton of money left over you can use it for your own eduation or even just roll it over for your grandkids to keep them out of public school..

They keep adding qualified expenses, and private school is definitely an option. So is trade school.

Sully Dog said:

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You can use the 529 to pay a mortgage for the 4-5 years they are in college. Sell the house when they graduate or keep it for income retirement property.

It works really well if you have multiple kids going to the same college.

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That's nifty.

PearlJammin said:

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You can also pay for vehicles, just need to be prepared to justify they'll be used for education.

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I don't think 529 can be used for education related transportation. Double check.

https://www.savingforcollege.com/article/what-you-can-pay-for-with-a-529-plan

I started 529 for my daughter when she was 1 with $300 per month. When she started college in 2017, she had $105k in her account. She went to UC-Davis, $25-30k per year. When she graduated in March this year, she had $30k remaining in her account as the fund kept growing while I wrote checks every quarter.

Now she's using the remaining fund to pay her living expenses at Cornell Law School.

AggieDruggist89 said:

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PearlJammin said:

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You can also pay for vehicles, just need to be prepared to justify they'll be used for education.

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I don't think 529 can be used for education related transportation. Double check.

https://www.savingforcollege.com/article/what-you-can-pay-for-with-a-529-plan

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Thanks! I'm just going off of info my neighbor provided as he's in the financial industry, but I'll look into this some more.

Thoughts here, not advice.

Definitely don't buy a car expecting it to be a qualified educational expense.

Can pay for education required transportation expenses once they're in college town, but not to get to the town. For example, say they go to NYU - could pay for a NYC Subway pass, but not for the flight to get to NYC.

Buying a rent house (inside of an entity) and then paying rent from the 529 to pay the mortgage off? Consult with your CPA.

A lot of people on this board like to overthink/over analyze things. One could look at what 18 years of tax deferred growth (dividends, cap gains distributions, rebalancing gains) reinvested, with a 10% penalty & income tax on the growth on back end. Could come out ahead even if it's never used for education expenses.

There are a lot of "qualified educational" institutions out there. Think sailing semesters in the Caribbean or language immersion semesters in Mexico attached to real universities. Music, dance, other fine arts. Don't use one for this reason, but a backup option should Jr. not need the 529.

I like to look at 529s like a lot of things (taking capital gains on a concentrated position, buying LTC insurance, etc.). If you like the idea but are having trouble deciding all or nothing because you over analyze things, do half and reevaluate in a year or two.

Find one and just fully find it as early as you can. My kids are 9 and 11 and theirs are fully funded for what we expect full in state tuition in CA with living expenses will be.

Sully Dog said:

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You can use the 529 to pay a mortgage for the 4-5 years they are in college. Sell the house when they graduate or keep it for income retirement property.

It works really well if you have multiple kids going to the same college.

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What a genius idea. We have a rental in Bryan our kids will use (assuming they get into A&M).

Didn't think about being able to pay the mortgage when they are there using their 529.

Thanks.

It is complicated: https://www.savingforcollege.com/article/can-i-pay-my-mortgage-with-529-plan-money

doesn't seem that complicated if the parents are used to having rental properties. If not, I totally agree.

Bigger question in my mind is how often people have a large enough excess of cash in their kids 529's to necessitate these financial calisthenics. Clearly it can/does happen, but I would assume 529's are underfunded much more often than the opposite.

Think it is less necessitate and more ability to invest and use tax free. Any time I can grow my money over 10-20 years without taxes I will take it.

It's only a problem if your kid never goes to college. Sure you can change beneficiaries but what if you don't want to. I had a client with a $2mm rollover IRA and decent income from a pension. He funded his grandkids college with the annual RMD's.

OldArmyCT said:

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It's only a problem if your kid never goes to college. Sure you can change beneficiaries but what if you don't want to. I had a client with a $2mm rollover IRA and decent income from a pension. He funded his grandkids college with the annual RMD's.

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This is actually an evolving concern if you have sons. 60% of admissions are now female. Males are abandoning college in droves at this point because the ROI and hassle factor is perceived too not be worth it, right or wrong.

I hear what you're saying. Makes sense for high earners to take advantage wherever they can.

I was not a high earner in 2000 when I started the 529. In fact, I really didn't know much other than my golf buddy in Oregon (financial planner) in his drunken stupor called me and said "AD89" bring a blank check with you for the golf outing. I said why? He said...it will cost you $133,000 for your daughter to go to a state university by the time she goes and $260,000 for a private. He said...write me a check for $300.

And that was it. Every month $300 ....of course I started another one in 2005 for my son and now $600 is going into his account. He's account is fully funded.

The running joke in the family is for my son to go to college on a full ride and use his account to pay off my daughter's law school. So he can tell his sister, I put you through law school. Daughter just smirks.

It's been nice to just write checks for my daughter while I see my buddies painfully paying for their kids college. One of my buddies has a daughter at USC and another daughter at Northwestern. Ouch....

I assumed it wouldn't be cut and dry.

Funny that $300/month has been mentioned twice already. That's what I'm currently putting into each daughter's account.

Good thread.

double aught said:

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Funny that $300/month has been mentioned twice already. That's what I'm currently putting into each daughter's account.

Good thread.

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Crazy to think about it, but I'd guess that gets you about half what is needed if started at birth and continued for 18 years.

BTW, we did the Virginia plan - not to be confused with guaranteed tuition plan.

Also, I used the funds from my son's account for my Masters degree.

No shame.

ORAggieFan said:

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double aught said:

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Funny that $300/month has been mentioned twice already. That's what I'm currently putting into each daughter's account.

Good thread.

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Crazy to think about it, but I'd guess that gets you about half what is needed if started at birth and continued for 18 years.

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That's a little deflating.

ORAggieFan said:

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double aught said:

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Funny that $300/month has been mentioned twice already. That's what I'm currently putting into each daughter's account.

Good thread.

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Crazy to think about it, but I'd guess that gets you about half what is needed if started at birth and continued for 18 years.

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This is exactly my logic. $300/m is my starting ask on 529s and we adjust from there.

ETA. The funds inside of the plan matter just as much as yes or no on doing one. Fees matter, but don't get hung up on the lowest cost. I like a plan that has multiple fund managers available (i.e. not all vanguard or all American Funds. Some are better than others in different market cycles or size/style slots) and also ones that have active & passive options. I'm a firm believer in a little bit of both makes sense.

This is a genius idea, can't believe I never thought of this

For Op. I started 529b's for my kids when they were 2 &4. Glad I did. It made things so much easier to have the money set aside and not have to figure it in to cash flow during their college yrs which are finally coming to an end this week! I recommend it.

if you start to get nostalgic for setting aside several hundred dollars per month, I have a couple freeloaders that will need all the help they can get.

Sorry to derail the thread but I have a related question. I started a 529 for my little niece and have been funding it for a few years. My brothers income is pretty low and its likely my niece will qualify for financial aid when she is applying for colleges (12 years from now) based on her parents income.

Will her 529 money from me get in the way of her qualifying for financial aid? Should I just stop contributing to the 529 and maybe open up a brokerage or savings account for her that she can use for college expenses? The 529 money from me probably wont be a large sum, maybe enough to cover 1 year of college tuition at current prices (20-30k).

Ask your advisor.

He should tell you that when owned by the student/parent, the value is considered year 0 application, but at a reduced %.

When the account is owned by another party (friend, uncle, grandparent) the value isn't considered, but at years 1+ the amount contributed is considered at 100%.

There's a strategy available that can maximize financial aid via FAFSA yet allow the 529 to also be fully available. This is part of your advisors job.

mosdefn14 said:

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Ask your advisor.

He should tell you that when owned by the student/parent, the value is considered year 0 application, but at a reduced %.

When the account is owned by another party (friend, uncle, grandparent) the value isn't considered, but at years 1+ the amount contributed is considered at 100%.

There's a strategy available that can maximize financial aid via FAFSA yet allow the 529 to also be fully available. This is part of your advisors job.

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I dont have an advisor lol. I set up a 529 plan for her with Fidelity and just manage it myself. But sounds like I need to get a professionals advice. Thanks!

The funds in the 529 owned by you need to be used in years 3 and 4 of her college. For FAFSA there is a 2 year look back for assets and the expected family contribution.
529 assets distributed to the student from a parent owned account won't count as income to the student, but 529 money distributed from an account owned by someone other than the parents will, and thus will likely reduce the amount of financial aid available in years 3 and 4 if that money was used in years 1 and 2

Hope that helps