Any worry with opening a 529?

[wanderingback]

I keep meaning to open one, especially since I can deduct $5,000 on my taxes, but then I 2nd guess myself.
What if your child doesn’t go to a college? What happens to the money? I know up to $35,000 can be rolled over in to an IRA in their name, but what if you have more than that in the account? Do you just withdraw it with penalties or something? (Google wasn’t helping me!)

[mccallister84]

We haven’t because we wanted the flexibility with the money. That was more important to us than the tax deduction. We have an investment account that is ear marked for their colleges but obviously we could use it for whatever we wanted if the need arose.

But, my children do not get money gift outside of religious milestones (baptism, first communion and confirmation). I would guess that total they will receive less than $1500 in cash throughout their childhoods. If our family was more likely to contribute to a 529 we would have started one. We just stick the little money they do receive in to their bank account.

[thebreakfastclub]

The penalty is 10% of the earnings of the account. I figure the tax savings each year plus the ability to roll into the IRA are well worth it. I can't imagine my kid not pursuing some type of post secondary education or trade school.

I can live with paying 10% penalty on the earnings if it works out that way.

[wanderingback]

Sept 29, 2024 14:02:18 GMT -5 thebreakfastclub said:

The penalty is 10% of the earnings of the account. I figure the tax savings each year plus the ability to roll into the IRA are well worth it. I can't imagine my kid not pursuing some type of post secondary education or trade school.

I can live with paying 10% penalty on the earnings if it works out that way.

Ahh ok I couldn’t find the info about the 10%. Thank you!
I saw that it can be used for apprenticeships but they have to be registered with the department of labor.

My partner is a musician/composer/producer who did go to college (in another country so it was cheaper) and is def book smarter than me but has tons of successful friends in the business who didn’t go to college. They studied under other well accomplished musicians instead of college. College is so expensive these days that I think there are plenty of arguments against it depending on someone’s skills and goals.

Also, our daughter will soon also have dual citizenship and Google is also making it unclear to me if the money can be used specifically at a university outside of the U.S. because I don’t know what the definitely of qualified is.

So yes overall I think I’ll encourage college if that’s what they want to do but am definitely open to all options and didn’t want to lose too much money if she did pursue another option. But 10% doesn’t seem so bad so the risk is likely worth it. Thanks!

[polarbearfans]

It seemed pretty low risk to me since the penalty is only on earnings.

[wanderingback]

Sept 29, 2024 16:06:12 GMT -5 polarbearfans said:

It seemed pretty low risk to me since the penalty is only on earnings.

Ohh, the 10% is on the earnings and not how much money is in there?

[waverly]

Our situation is a bit different with 2 kids. If one doesn’t go to college then I can transfer it to the other one. Mine are both in middle school now so I have a better idea, and I think they both will end up going/ using some of the money. If you don’t want it tied up you can do some in 529 and some in another savings vehicle.

[Poppy]

Sept 29, 2024 17:15:20 GMT -5 wanderingback said:

Sept 29, 2024 16:06:12 GMT -5 polarbearfans said:

It seemed pretty low risk to me since the penalty is only on earnings.

Ohh, the 10% is on the earnings and not how much money is in there?

Yes.

[wanderingback]

Sept 29, 2024 19:31:03 GMT -5 Poppy said:

Sept 29, 2024 17:15:20 GMT -5 wanderingback said:

Ohh, the 10% is on the earnings and not how much money is in there?

Yes.

Ok this is super helpful!
Going to go ahead and open up account tonight

[lo]

Sept 29, 2024 15:32:37 GMT -5 wanderingback said:

Sept 29, 2024 14:02:18 GMT -5 thebreakfastclub said:

The penalty is 10% of the earnings of the account. I figure the tax savings each year plus the ability to roll into the IRA are well worth it. I can't imagine my kid not pursuing some type of post secondary education or trade school.

I can live with paying 10% penalty on the earnings if it works out that way.

Ahh ok I couldn’t find the info about the 10%. Thank you!
I saw that it can be used for apprenticeships but they have to be registered with the department of labor.

My partner is a musician/composer/producer who did go to college (in another country so it was cheaper) and is def book smarter than me but has tons of successful friends in the business who didn’t go to college. They studied under other well accomplished musicians instead of college. College is so expensive these days that I think there are plenty of arguments against it depending on someone’s skills and goals.

Also, our daughter will soon also have dual citizenship and Google is also making it unclear to me if the money can be used specifically at a university outside of the U.S. because I don’t know what the definitely of qualified is.

So yes overall I think I’ll encourage college if that’s what they want to do but am definitely open to all options and didn’t want to lose too much money if she did pursue another option. But 10% doesn’t seem so bad so the risk is likely worth it. Thanks!

Oh damn, I’m doom scrolling before bed but I really need to look into the dual citizenship/non US college thing tomorrow. My daughters have 529s but eventually we will get them their UK citizenship and I know my husband is really hoping at least one wants to study in the UK.

[ssmjlm]

My FA said the uses for 529 funds are pretty relaxed, no one is really checking what you're using it on. It's just for college expenses, including tuition, but can cover room and board, transportation, etc.

$5k a year for the tax break I think would be worth more than possible penalities.

[formerlyak]

Also note that you can change the beneficiary. Check with a tax person to see they don’t go to college and you need to take continuing ed at a college, you may be able to change the beneficiary to you so you can use that money.

I’d suggest saving enough for a state university in a 529 and then put anything else in a custodial savings. DS just started college this year. There are school-related costs that can’t be paid out of the 529, so having both accounts has been helpful. These non-qualified expenses include things like travel to and from campus and the required health insurance through the school. For us, those amount to about $5000-6000 per year.

[Susie]

We have 529s for both kids.  I feel pretty confident they'll need it for some kind of post-secondary school education.  We don't go wild with contributions, but we're looking to max out the state income tax deduction annually.  Between that and the growth, we could withstand the penalties if we had to, and the odds of having to are quite low.

[wanderingback]

Opened an account last night Thanks all!
I’m wildly behind on my retirement so won’t be contributing a ton right now but will balance adding at least a little bit especially for the tax deduction.

[Jalapeñomel]

Sept 30, 2024 9:32:10 GMT -5 wanderingback said:

Opened an account last night Thanks all!
I’m wildly behind on my retirement so won’t be contributing a ton right now but will balance adding at least a little bit especially for the tax deduction.

When people what my kids want for birthday/christmas/whatever, I send them the gift link to the 529, because that's way more valuable to them then some random toy!

[wanderingback]

Oct 2, 2024 9:15:44 GMT -5 Jalapeñomel said:

Sept 30, 2024 9:32:10 GMT -5 wanderingback said:

Opened an account last night Thanks all!
I’m wildly behind on my retirement so won’t be contributing a ton right now but will balance adding at least a little bit especially for the tax deduction.

When people what my kids want for birthday/christmas/whatever, I send them the gift link to the 529, because that's way more valuable to them then some random toy!

Yep already did that cause my aunt asked what to get her for her upcoming bday and Christmas. I sent her the link and then she said "that’s great you’re starting to save early but I want to get her an actual gift." So then I sent a link to children’s museum
Membership lol. She didn’t say anything after that

[Jalapeñomel]

Oct 2, 2024 10:11:29 GMT -5 wanderingback said:

Oct 2, 2024 9:15:44 GMT -5 Jalapeñomel said:

When people what my kids want for birthday/christmas/whatever, I send them the gift link to the 529, because that's way more valuable to them then some random toy!

Yep already did that cause my aunt asked what to get her for her upcoming bday and Christmas. I sent her the link and then she said "that’s great you’re starting to save early but I want to get her an actual gift." So then I sent a link to children’s museum
Membership lol. She didn’t say anything after that

LOLOLOL! 

[redheadbaker]

I have one for DS. The company I work for does the administration for them, so they contribute money if I opened one that they administer.

Even if he gets a full ride, there's so much that qualifies as a qualified expense:
- room and board (on- or off-campus housing) and meal plans
- a new computer for school
- textbooks & other supplies
- fees not covered by scholarship

And if he really ends up not needing any of that, you can roll up to $35,000 from a 529 plan into a Roth IRA in the name of the beneficiary.

ETA: And this is all for any accredited school -- traditional 4-year university, community college, even trade schools. 

[wise_rita]

Sorry I'm late to the party but I have some information on colleges abroad (regardless of citizenship):

Yes it can be used IF the school is US government approved to receive American financial aid. Not all of them are, because the administrative burden is hefty on them.

[sandandsea]

Sept 29, 2024 14:02:18 GMT -5 thebreakfastclub said:

The penalty is 10% of the earnings of the account. I figure the tax savings each year plus the ability to roll into the IRA are well worth it. I can't imagine my kid not pursuing some type of post secondary education or trade school.

I can live with paying 10% penalty on the earnings if it works out that way.

This. We have been heavily contributing since birth. If the child gets scholarships you can take out that amount without penalty too.

[klee23]

wanderingback

I know you've mentioned going between 2 homes but I don't pay enough attention to know where they are or what you consider your primary residence. BUT if one of them is in Pennsylvania, look in to this as well: www.pa529.com/keystone The PA treasury will fund $100 to be held in an investment account if there is a corresponding 529 (I'm not sure if it has to be a PA 529 though)

[mrshandy]

Definitely contribute and feel free to shop around to different states and do your homework. It will go by fast! We started one for DS and DD years ago. There's $61K now. Now's he a freshman in high school and we're a few years away from using it. DD is in 6th and has less so we probably need to up her contributions. Not sure where DS wants to go to school and it likely won't pay for all of it, but starting early is the best way for compounding returns.