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College Savings Plan -529

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

  1. DDream

    DDream Platinum IL'ite

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    I heard about this one only recently. Can you give me some idea about this plan ? What are the pluses and negatives.

    Is it a good idea to start college savings plan (529) for kids ?
    How much we have to contribute to it so that it will cover their university fees.
    Will financial aid or scholarships be affected by this account?
    To save my kids educational fund, should I invest in a 529 plan or just open a minor bank account?
    Will minor's bank savings account be considered while applying for scholarships or financial aid. Or is it better to save in parents name ? How to open an account for 529 or whom to contact? Is it good to consult a financial planner for getting better idea?
     
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  2. RetireFI

    RetireFI Senior IL'ite

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    These 2 links should answer most of your questions.
    Gist is 529(IRS code) allows you to save up to $15,000 per child per year. If you start when kids are infants, it will grow to be a substantial amount to pay for their college as Growth And withdrawal are not taxed. Another advantage is income of parents can exceed $199,000 unlike Roth IRA where contribution is limited if incomes grow. But 529 plans are state specific. So check you state plans.

    How to Open a 529 College Savings Plan for Your Kid
    Which is best: 529 college savings plan or Roth IRA?
     
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  3. Thyagarajan

    Thyagarajan IL Hall of Fame

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    :hello: Thanks and Regards.
    Happy holiday season & New Year.
    God saves. All others spend.
     
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  4. DDream

    DDream Platinum IL'ite

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    Thank you for your reply.

    My concern is will this affect scholarships or financial aid.. I have started minor savings account in their name. Will that affect the same?
     
  5. RetireFI

    RetireFI Senior IL'ite

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    Growth in savings account is taxed. Plus savings account in US banks do not give good % returns. Vast majority of the Indian couple exceed income required to qualify in non refundable scholarships and financial aids. But having a good amount in 529 account do not disqualify kids to be eligible for refundable aids and educational loans.
    Advantage of having a sizable amount in 529 accounts is its growth is not taxed when you withdraw. Plus there is no restriction that you should use only for children’s undergrad. You can use it for master degrees like MS/medical/law/ business school where tuition fees are higher and kids generally do not qualify for any aid for such degrees.
     
  6. nuss

    nuss Finest Post Winner

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    I 100% agree with @RetireFI!

    We started 529 plans for both kids right after birth (2-3-month-old). There are two major benefits of 529 plans (in my opinion)- 1. In most states, you will get a 20% refund on state tax, and 2) compound interest that is not taxable if used for education.


    Is it a good idea to start college savings plan (529) for kids ? In my opinion, Yes!

    To save my kids educational fund, should I invest in a 529 plan or just open a minor bank account?

    In saving accounts, growth is very very slow and money would just sit there. %29 is more like a retirement account that you can adjust for maximum growth when kids are younger and low-risk when they are close to the college. You can open 529 in your name instead of your child and can transfer in the child's name later. It is quite flexible- you can open for one child and move to another (if you have more than one kid) if the older child doesn't need the money. Grandparents, uncle/aunts can also deposit to the same account as a gift. You can even transfer the account in your name (if want to go back to school) or a niece/nephew's name.

    How to open: For our first child, we opened online by ourselves. For the second one, our financial advisor for retirement accounts opened it for us.

    How much to contribute: It's totally up to you. We started with a lump sum amount of 2500 per year per child and then switched to $250 per month (direct deposit) per child. Any money saved is better than none.


    Will financial aid or scholarships be affected by this account?

    I am not sure. I have heard from my financial advisor that it will not affect financial aid or scholarships. We are both professors and I don't think our kids will qualify for financial aids anyway. The scholarship is different and shouldn't be affected I would like to hear from parents who have college-age kids.
     
  7. hermitcrab

    hermitcrab Platinum IL'ite

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  8. Laks09

    Laks09 Moderator Staff Member IL Hall of Fame

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    While applying for need based aid and scholarships, the parents w-2 information is checked. Regardless of 529, the qualification criteria is gross family income. Academic scholarships are few and far between but they don’t depend on income levels. Don’t let financial aid be a deciding factor for college savings.
    I don’t like minor savings accounts because I don’t believe my 18 yrs old should be able to control that kind of money. I prefer IRA when the children are too young and families are not sure of their status in the US.
    I would think long and hard before starting a 529 plan for a very young child if the parents are undecided about living in the US. If living in the US is a given then research your state’s 529 plan and start putting some money away for college. I would still say don’t over do it. Money in a 529 isn’t easy to get for other things. If the child and sibling doesn’t end up using it, withdrawing is hard. Someone I know had a hard time taking money out of a 529 because their only child decided to not go to school in the country and the foreign school she chose wasn’t one of the schools in the 529 plan’s network.
     
  9. Caughtinbetween

    Caughtinbetween Gold IL'ite

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    My H and i started two 529 plans for nY state when kid was ~5 -6 months . In the past year I'd put $100 every month and H would put $450 each month . Then at the end of the year we both added lumpsum of 3000$ each to our accounts . Its for getting max tax benefit out of it . We dont have gc's , nor are we sure of settling down here but this money i add to the plan is keeping in mind that even if we were to go back , kid can still use it when she comes back for her higher studies . I am not sure , but besides NY there are few other states too that offer plans which let you use the money for edu institutions outside the U.S too. Considering that I went for this plan. But yes as Laks mentioned its not good to save a lot of money in it , for the only reason to me being you cant use it for anything else besides that purpose . I ended up saving 1200$ during the year which yielded growth of 600$ besides the lumpsum that i did at the end.
     
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  10. DDream

    DDream Platinum IL'ite

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    @RetireFI , @nuss , @Laks09 , @Caughtinbetween ,

    Thanks so much for your reply. It clarified my doubts to some extent. I think its tough for my kids to get any financial aid due to our salary levels . Its good to know that scholarships will not be affected. We are US citizens and dont have any plans to go back for the time being.

    We have minor accounts, but we manage them.. If we go for fixed account we can get up to 3% in interest in US banks. But I understand, the growth in 529 is higher than that.

    Can we open 529 in both of our names like joint account? May be opening one and later transferring that to second one may be a good idea as these funds cannot be used for other purposes. Look like its highly flexible in that way.
     

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