Diggity said:

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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.

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When my kids were born I asked family members not to give baby gifts, but rather, make contributions to a newly 529. I haven't looked at it recently, but my daughter (age 2, has ~$30K)

If you can get few grand parents to make some early contributions it can add up fast.

Sully Dog said:

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Diggity said:

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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.

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When my kids were born I asked family members not to give baby gifts, but rather, make contributions to a newly 529. I haven't looked at it recently, but my daughter (age 2, has ~$30K)

If you can get few grand parents to make some early contributions it can add up fast.

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If you're making regular contributions you'll be able to stop by the time she's about 7. That's a unique head start for a two year old.

Look at Coverdell ESA also. Similar to a 529 but with a $2000 yearly contribution limit. Same tax benefits. I think the rules on them changed at least once during my kids contribution years and I had to switch to 529.

Kids are 18 and 21. I had/have both 529 and Coverdell ESA for both kids. The Coverdell ESA is better in my opinion because the investment options aren't as limited as the 529. The ESA will also let me withdraw funds electronically, while the 529 has to be sent as a paper check. All of my accounts are with Vanguard FWIW.

I'm emptying out the last of the accounts for my oldest in January. With our savings and gifts from grandparents, he will be debt free when he graduates in May 2022 with an engineering degree from A&M.

I am able to withdraw funds electronically with my 529.

Coverdell's have pretty much become obsolete because of the 529…

Sandman98 said:

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Sully Dog said:

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Diggity said:

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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.

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When my kids were born I asked family members not to give baby gifts, but rather, make contributions to a newly 529. I haven't looked at it recently, but my daughter (age 2, has ~$30K)

If you can get few grand parents to make some early contributions it can add up fast.

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If you're making regular contributions you'll be able to stop by the time she's about 7. That's a unique head start for a two year old.

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This begs a question.

What is everyone's goal? I know it's different for everyone but is there a target for different ages.

You say they could stop at about age 7 but what amount at 7, or even 10 yrs, would be sufficient I guess is what I'm asking. (and to the point where you could realistically stop contributing).

I'm shooting for 60k per child by age 6.

Fully funded my daughter's and couldn't be happier. Vanguard out of Nevada. Easy. Simple. Low costs. Consistent returns over the last 15 years.

With regard to the concerns over expenses or what you can spend on…my CPA says he's never seen anyone audited for their 529. Maybe others In accounting world could chime in.

Our financial advisor is suggesting $50k-$60k/kid/year for in state (CA) and expenses. This will be starting in 2028 - 2034.

AzzTat said:

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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

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Thank you for this!

Jay@AgsReward.com said:

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

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It's actually not that complicated. The way I've seen it done is the family started an LLC and invested the down payment. The parents then figured out how much the 529 could pay and allowed their kid to rent out the second room such that it essentially was break even on the taxes. I think they rented it out for another year or two, but decided they didn't want to manage it long run and sold it for a profit.

I know a second family in Casper Wyoming who had four kids go to University of Wyoming. I don't know the details of their set up, but I know they owned that house for decade. All of the kids lived in it and paid rent back for the house.


Obviously, to pull this off you need enough disposable income to make a down payment.

Point is the rules have to be followed. I see a lot of people mishandle investment real estate. Simply posting info that the average person might not understand and have a tax issue because of if not done correctly.

ORAggieFan said:

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Our financial advisor is suggesting $50k-$60k/kid/year for in state (CA) and expenses. This will be starting in 2028 - 2034.

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This is good to know, thanks for sharing

Jay@AgsReward.com said:

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Point is the rules have to be followed. I see a lot of people mishandle investment real estate. Simply posting info that the average person might not understand and have a tax issue because of if not done correctly.

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Fair enough. And you are correct. If you are going to do something like this you have to go into it with:

• a well thought out plan,
• an understanding of the risks
• a kid that isn't going to knock up his girlfriend in year one and drop out.

ORAggieFan said:

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Our financial advisor is suggesting $50k-$60k/kid/year for in state (CA) and expenses. This will be starting in 2028 - 2034.

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Damn. Looks like for my 4 yo to attend A&M they are suggesting ~ $45k/yr so I can easily see shooting for 50-60.


https://vanguard.wealthmsi.com/csp.php#

Related to the 529 question; we've looked into college savings recently and compared the various options and for us it seems that using a Roth IRA (parents) provides the greatest flexibility in using the funds for either kids college or our retirement.

Has anyone looked into using a Roth for college expenses? Any drawbacks that I'm missing other than the contribution limits?

ea1060 said:

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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!

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Don't ask an advisor, just get on the IRS websites about 529's. I was an FA for 28 years told all of my client to set up 529's thru fidelity or Vanguard or someone similar BC my plans were too expensive.
Also, the target amount depends on where your kid goes to school. TCU costs more than A&M.
Real estate holdings inside IRA's have a lot of rules, get a real estate IRA administrator or you might be surprised. This is only slightly related but the WSJ had an article recently about a couple that moved their 410K into physical gold and silver coins and the transfer was disallowed, they got a tax bill, exceeding $300K. I got penalized one year for contributing to an IRA when my company offered a 401K. I wasn't participating in that 401K but it was offered so they told me I had illegally contributed. Cost me $500.

For my 4 kids I'll have 11 yrs of kids in college (assuming they all go to college for 4yrs right after HS). 5 of the 11 years I'll have two kids attending at same time.

Anyone want to tell me how much I should have saved? I have about $50K right now in 529 plans. Obviously won't be enough.

But - I'm not dead set on paying 100% of the way... Help as much as we can of course but not sacrifice retirement or fund bad decisions.

I'll continue to put some money into 529s, buy some crypto, invest in brokerage, and max 401k/ROTH & see where I am at when the time comes.

bhanacik said:

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Related to the 529 question; we've looked into college savings recently and compared the various options and for us it seems that using a Roth IRA (parents) provides the greatest flexibility in using the funds for either kids college or our retirement.

Has anyone looked into using a Roth for college expenses? Any drawbacks that I'm missing other than the contribution limits?

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I think you're on the right track there if you already aren't maxing out a Roth. Other considerations are income limits to contribute to the IRA in the first place as well as the desire to fund both retirement and college.

yes - we do not qualify for contributions to a Roth. Thank you to everyone for your replies and advice, lots of good information here!

I have 3 kids and we opened 529 plans for each of them within the first year they were born. We only contibute $100/mo into each of their accounts. My oldest is a college freshman and his 529 had about $35k in it. My other 2 are projected to have about the same amount when they graduate HS. They should cover a little less than 1/2 the cost of a 4-year public university in TX at today's rates.

We only contribute $100 / mo each because we never really intended for the 529 to pay for 100% of their college costs. My wife and I firmly believe in the value of college students helping to contribute to their college expenses. We ask them to earn scholarships or get a job to cover the difference.

I see lots of discussion about "What if they don't go to college?". The funds are transferrable to other family members and, as of a few years ago, 529's can now be used to pay for private grade schools and high schools up to $10k per year (I think). My kids have always attended private schools, so using the 529 could be beneficial in that regard.

What's really crazy - The cost of my son's freshman year at a TX Public University (including tuition, fees, room & board) is going to cost less than what a year cost at his Houston area private high school.

We had the Texas Tomorrow 529 and I was pretty disappointed with it's performance. They was not much growth.

Drop $30k into it today and be done, reasonable to expect it to be over $100k in 18+ years, and you can cash flow any shortfall easily enough it appears). Tax sheltered compounding growth for all those years is significant reading between them lines of your tax situation. If the rules change, probably wouldn't retroactively hurt that. If it does, probably less painful than other tax law changes you might face.

Kind of comical that FAFSA issues are brought up with someone who can easily pay cash for college.

Only reason I'd say you shouldn't do this would be if you were philosophically against investing ANY of your money in either mutual funds or index funds (ishares has a 529). Assuming you don't have that issue, it's just one of the few tax sheltered opportunities most average people have access to.

I put this in the don't overthink it category. Yes, ordinary income taxes on earnings if your kids gets a scholarship/disability/death, tax+penalty (on earnings only) if they don't get any type of education and no one else to pay for. If that happens, you didn't have to pay for college and you were basically refunding the tax benefit you received throughout the years.

Very insightful and I agree with your points. Will probably go this route.

I'm in a similar boat to OP but wondering if it would better to try and DCA that 30K over a year or similar timeframe? Or just drop it in one swoop?

AgsMyDude said:

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I'm in a similar boat to OP but wondering if it would better to try and DCA that 30K over a year or similar timeframe? Or just drop it in one swoop?

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Statistically speaking, DCA is a really bad strategy (market goes up much more frequently than down, and DCA only wins if market is going down). It is nothing more than a psychological lifeboat.

And in 18 years when the S&P is sitting at 15000, are you really going to care if you bough at 4500/5000/4000?