College Savings Plan -529

Discussion in 'Money Matters' started by DDream, Dec 31, 2019.

  1. Thoughtful

    Thoughtful Gold IL'ite

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    Its my understanding that if the child doesn't need the money from 529, the investment can be withdrawn no issues. The earnings will be taxed and 10% penalty will be applied.

    Also, the growth on 529 is not higher just because its a 529. Its just a vehicle and its up to you on where to put the money ( high risk vs low risk vehicles ). The benefit is that the earnings are not taxed (works similar to Roth IRA).


    529 Plan Basics - Fidelity



    One question I have is how much is a good amount to have for a child. I know if your kid wants to go to med school the expenses at the end of the education maybe 300K or more. Is 150K a good amount to plan for?
     
    Last edited: Jan 2, 2020
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  2. nuss

    nuss Platinum IL'ite

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    You are right. 529 is just another way to save up and needs to be diversified in order to grow. If the kids don't end up using the money for education, all you need to do is pay taxes on interest since the principle is already taxed.

    How much to save is a question that we keep asking ourselves as well. We are planning to have no more than $75k principal amount in each account (a total of $150K). Hopefully, it will grow to provide enough cushion for kids' education. In our case, if our kids decide to go to the university we work it, tuition will be almost free.

    529 accounts can also be used for private schools and don't have to wait until college/ graduate school.

    OP- you or your husband can open an account in your names. If your company provides financial advisor service, you can ask your advisor to walk you through the enrollment process.
     
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  3. Caughtinbetween

    Caughtinbetween Gold IL'ite

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    sorry i miscalculated in my mind . iwas checking the account and the return was only $170 even though it is aggressive risk portfolio , i forgot i contributed more a few months besides the lumpsum.
     
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  4. Rihana

    Rihana Moderator Staff Member IL Hall of Fame

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    Interesting thread, DDream. I learnt some things I didn't know, such as the money can also be used for niece or nephew, and the beneficiary's spouse. I thought it can only be transferred to the beneficiary's sibling, parent, or child. The list of people it can be transferred to is long.

    From the little that I read, the account opened by parents falls under "Individual account" and one account can be in only one parent's name, for one beneficiary (child). Spouse can be named as successor. Like CaughtinBetween mentioned above, each parent can open an account (and name spouse as successor). Usually, there is no "per account" maintenance fee for a 529 account, so multiple accounts should not matter as the monthly fees are based on the month-end balance.

    Another scenario in which multiple 529 accounts for one child might make sense is to diversify the investment options. For example, let's say a state's 529 plan has these 4 main options: age-based, static, customized age-based, customized static. There are further choices in each of these four main options, such as age-based aggressive, age-based moderate, age-based conservative. The account owner has to choose one option for the entire amount in the plan. To choose two options (such as 60% age based, 40% static) would need two separate accounts.

    The simplest is to open one or two accounts per child, set up a regular automatic contribution, make some lump-sum contributions if one wants to, and forget about the account other than checking the balance each month or so. Most plans allow changing the investment option once or twice a year only.

    Couple of other things good to know are:
    - Superfunding a 529 account: The current annual limit of gift-tax free contribution to a 529 is $15000 from each parent or $30000 from both parents. Parents who are starting the 529 late (like child is in middle school already) or just have more money that can be put in the 529, they can "superfund" the 529 account with up to 5 years of contribution at one shot (up to $30,000 x 5 = $150,000). Due to the compound interest, this front-loading has a substantial impact on the gains. This article gives one easy to understand example with numbers.
    - Child goes to college near home, staying with parents: Parents can claim/withdraw room and board cost from the 529 plan like they would if paying for dorm or off-campus apartment.
     
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  5. DDream

    DDream Finest Post Winner

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    @Thoughtful , that was a good question.
    @nuss , I didn't know that it can be withdrawn for other purposes. I will explore EAP and check if financial adviser is covered. Thanks for this info.
    @Caughtinbetween , thats a great feedback. Thanks for sharing it.
    @Rihana , thanks for the detailed reply. Now, I got a good idea about this plan. One of my friend said, the 529 plan she selected was like aggressive in the beginning and then conservative. It almost covered all her kids undergrad expenses. Let me explore the link.

    Wish you all a great 2020!
     

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