529 accounts - for fun

[woowoo]

Can I jump in and ask a general question?

We have a 12 month old and have yet to start a 529. While my husband and I are both college educated, we aren't sitting firmly in the "my child will be required to get a college education" camp. I'm concerned about putting so much into a 529 and the kid deciding not to go to college, or go right away (we would love to encourage a gap year or three).

I'm extremely unclear as to what type of account would be best, in this instance. Anyone in a similar place?

[Poppy]

woowoo, what state are you in?

I think there are two good options.

1) A 529 account, where you could pay the penalty for non-qualified expenses if it came to that (10% of GAINS on the account plus income taxes on the gains and potentially paying back the state tax break if applicable). The benefit is the tax savings if you have qualified expenses.

2) An account (savings or brokerage) in your name where you mentally designate that as money to give your child at some later point in time.

You can do a combo, too. For us, we think it's pretty likely at least one kid will have qualified expenses and the savings from the 529 tax breaks are worth the risk of the potential penalties. But that's something you need to evaluate for yourself. We have general savings in our names that may end up partially gifted to the kids but don't have dedicated accounts or specific goals for that for now.


Note: there are other options for actually putting the money in the child's name, but I haven't seen compelling arguments for those outside of some exceptional cases.

[woowoo]

Jun 1, 2020 12:12:53 GMT -5 Poppy said:

woowoo , what state are you in?

I think there are two good options.

1) A 529 account, where you could pay the penalty for non-qualified expenses if it came to that (10% of GAINS on the account plus income taxes on the gains and potentially paying back the state tax break if applicable). The benefit is the tax savings if you have qualified expenses.

2) An account (savings or brokerage) in your name where you mentally designate that as money to give your child at some later point in time.

You can do a combo, too. For us, we think it's pretty likely at least one kid will have qualified expenses and the savings from the 529 tax breaks are worth the risk of the potential penalties. But that's something you need to evaluate for yourself. We have general savings in our names that may end up partially gifted to the kids but don't have dedicated accounts or specific goals for that for now.


Note: there are other options for actually putting the money in the child's name, but I haven't seen compelling arguments for those outside of some exceptional cases.

This is helpful, thank you.  I'm in Florida, but there are no guarantees we will stay here for the next 17 years. 

[coffee]

Jun 1, 2020 9:14:54 GMT -5 Poppy said:

coffee the FAFSA includes all parent assets.

A 529 is owned by YOU and you designate a beneficiary. Worst case, you can always change the beneficiary to another of your children or withdraw the money and pay the (actually not that huge, 10%) penalty on just the gains on the account.

But no matter where the money is saved (529 or not), it will be reported on the FAFSA. A 529 owned by you will "count" the same as a brokerage account.

www.forbes.com/sites/financialfinesse/2016/05/29/will-your-529-plan-hurt-your-childs-eligibility-for-financial-aid/

Good to know! Thanks for the info!

[Poppy]

woowoo, a search tells me that Florida does not offer tax breaks for contributions. That's a bummer, here we get a state income tax break which saves ~5% of each contribution.

There are still tax breaks on the account earnings, though. Namely that you don't owe taxes on the gains (if used for qualified expenses).

It may not be worth the gamble in your case. A brokerage account is an ok option especially at current capital gains rates. Something you need to weigh.

[statgirl]

woowoo In Florida, I recommend Florida prepaid (they lowered the buy-in this year making it a better deal than the last 10 years when it was way overpriced) or doing a 529 from another state. I think New York and Utah’s met our requirements for direct sold, low fees, and no-load when we set ours up. We use Utah’s plan. I don’t recommend the Florida 529—it was not set up well.

You just missed the open enrollment for the Prepaid Plan, but it starts again next winter (you can sign up but you won’t know the prices until they are set next year). A benefit to Florida prepaid is that if you go to a Florida institution, you are in-state with prepaid even if you move away. Florida costs are low and the 2+2 system for public institutions works together well. I had FL Prepaid (2+2 plan) and it paid for all the costs that Bright Futures did not. I was able to get my AA, BS, and MS between the two and come out of college with no debt. My husband went to a private Florida school and they matched funds with Prepaid and Bright Futures so he finished with no debt also. My brother made money with the two and an internship/commitment program in STEM.

[woowoo]

Thanks again Poppy,

[larzhope]

1) How many accounts do you have?
1

2) How many children do you have and what are their ages?
1, 2 years old

3) How much do you contribute monthly (or how often?)?
we don't. we superfunded it late last year and will check in on progress closer to her college age

4) When did you started contributing?
9 months ago

5) What were your goals regarding 529 when you opened the account?
Fund most of college. Given how much the college landscape has changed and the restrictions on a 529, we will likely cash flow a lot of college/use another type of account so we don't lock ourselves into the 529 too much.

6) Are you on track? Or What are your goals now down the road?
we have put in what we intend to. We will evaluate as she starts high school and determine whether we want to start setting more aside in a brokerage for her to use on college. While she likely won't qualify for any aid, we are hopeful she will receive scholarships.

[noodleoo]

Thanks to this thread I finally opened a 529 for DD2. This board has been one of the major forces that motivates me to make positive financial changes, especially regarding investing which I am terrible at. So thank you for that!