How to choose a 529 savings plan

Other discussions not related to the Permanent Portfolio

Moderator: Global Moderator

User avatar
Tortoise
Executive Member
Executive Member
Posts: 2751
Joined: Sat Nov 06, 2010 2:35 am

How to choose a 529 savings plan

Post by Tortoise » Mon Aug 10, 2020 7:15 pm

I plan to study this topic in more detail soon, but in the meantime I've taken a brief initial look and wanted to see what some of you financially savvy folks think.

Since I now have a baby daughter, I'd like to start an educational investment account for her future college (and also possibly graduate/professional school) expenses. I've heard that such investment accounts can reduce a child's eligibility for certain types of government aid, but I figure she'd probably receive minimal government aid anyways due to my high income bracket. Plus, I'm very financially conservative and prefer to assume zero government aid in my calculations since the conditions surrounding such aid could change at any point in the future for political reasons.

My understanding is that there are a few different tax-advantaged ways to save for a child's education: 529 plans, Coverdell ESAs, and U.S. savings bonds. It looks like my income is too high to reap the tax benefits of U.S. savings bonds, so I'm scratching that off my list. One benefit of Coverdell ESAs is that the investments are self-directed (e.g., I could set up a PP), but contributions are capped at a paltry $2k per year. The 529 plan allows much larger contributions, but it looks like the investments are generally very limited (e.g., target date funds only). Of the three options, it looks like 529 plans are the most popular.

There appear to be two main types of 529 plans: Prepaid plans and savings plans. Prepaid plans are based on "credits" that you purchase based on today's tuition rates, and the value of those credits is indexed to the rate of tuition inflation. Sounds a bit complicated and includes number-fudging risk, so I'm leaning away from it. Savings plans, by contrast, grow based on market performance just like IRAs and 401(k)s -- simple to understand.

Assuming I go with a 529 savings plan, these are the main questions I currently have:
  • How should I compare 529 plans and select one? (Looks like each state has its own plan, each with its own unique tax benefits, and I can invest in any of them even if I don't live in that state.)
  • Are any 529 savings plans self-directed (meaning I could set up a PP), or do they all have very limited investment options?
  • Are there any situations in which it makes more sense to use a regular taxable investment account instead of trying to reap the tax benefits of a 529 savings plan?
  • Any "gotchas" or subtle points to consider when choosing a 529 savings plan?
Looking forward to hearing your thoughts.
whatchamacallit
Executive Member
Executive Member
Posts: 750
Joined: Mon Oct 01, 2012 7:32 pm

Re: How to choose a 529 savings plan

Post by whatchamacallit » Mon Aug 10, 2020 8:32 pm

I am sure I am in a lower tax bracket than you but here were my conclusions when I was thinking of starting 529 plans:

Any ROTH space is much more valuable due to its versatility. ROTH IRA's can be used for education without penalty for education but you do pay tax on the earnings.

I decided to not even think about 529 until all my ROTH space is completely full. I hope to have that problem but I am not there yet.



Some other thoughts:

The future of college education feels very unknown to me. Expenses and what jobs will be like in 15 years.

The biggest advantage of my state's 529 plan is state income tax deduction up to a limit for the contribution year. Check your states 529 plans to see what deductions they have for contributing now and not just future tax benefits.

May be I am missing something on my 529 plan but it seems like I could wash the money through the 529 the same year my child is going to college to get the tax deduction for that year.

The disadvantage would be if you are in a low enough tax bracket at the time to get the tax credits available. You can't double dip with 529 withdrawals and tax credits:

https://www.savingforcollege.com/articl ... tax-credit
Taxpayers may claim the Lifetime Learning Tax Credit in the same year a tax-free distribution is made from a 529 plan or Coverdell Education Savings Account as long as there is no double-dipping. Different expenses must be used to justify the Lifetime Learning Tax Credit and a tax-free distribution from a 529 plan. For example, families who claim the maximum Lifetime Learning Tax Credit and have $16,000 in qualified education expenses in a given tax year may withdraw $6,000 tax-free from a 529 plan.

$16,000 – $10,000 (used to generate the LLTC) = $6,000 tax-free 529 plan distribution
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: How to choose a 529 savings plan

Post by Xan » Mon Aug 10, 2020 8:54 pm

whatchamacallit wrote:
Mon Aug 10, 2020 8:32 pm
May be I am missing something on my 529 plan but it seems like I could wash the money through the 529 the same year my child is going to college to get the tax deduction for that year.
This doesn't work. Unlike an IRA, you don't get a deduction when you put the money in. The only part where there are tax savings in a 529 is on the growth. The tax advantage of a 529 is only that you don't have to pay capital gains taxes on the growth of your savings. So washing through doesn't do you any good.

This is why 529s leave me pretty unexcited. I would say it isn't necessarily clear that they're better than just having taxable savings.

529s now can also be used to pay for tuition for private schools for K-12. But this seems largely pointless, given that only the growth is tax-free, because you need the money to be sitting in there a long time to have much of an advantage.
whatchamacallit
Executive Member
Executive Member
Posts: 750
Joined: Mon Oct 01, 2012 7:32 pm

Re: How to choose a 529 savings plan

Post by whatchamacallit » Mon Aug 10, 2020 9:30 pm

Xan wrote:
Mon Aug 10, 2020 8:54 pm
whatchamacallit wrote:
Mon Aug 10, 2020 8:32 pm
May be I am missing something on my 529 plan but it seems like I could wash the money through the 529 the same year my child is going to college to get the tax deduction for that year.
This doesn't work. Unlike an IRA, you don't get a deduction when you put the money in. The only part where there are tax savings in a 529 is on the growth. The tax advantage of a 529 is only that you don't have to pay capital gains taxes on the growth of your savings. So washing through doesn't do you any good.

This is why 529s leave me pretty unexcited. I would say it isn't necessarily clear that they're better than just having taxable savings.

529s now can also be used to pay for tuition for private schools for K-12. But this seems largely pointless, given that only the growth is tax-free, because you need the money to be sitting in there a long time to have much of an advantage.
Some states do give you deduction for putting money in but it is only for state income taxes. I know Georgia and Colorado have deduction:

https://www.path2college529.com/plan/de ... details-10
State Income Tax Information
In addition to federal tax benefits, there are state tax benefits as well. For the Path2College 529 Plan, tax treatment is as follows:

Contributions are deductible up to $8,000 per year per Beneficiary for joint filers, and $4,000 per year per Beneficiary for all others. Incoming rollovers from other 529 plans do not qualify as contributions eligible for the state income tax deduction.
https://www.collegeinvest.org/529-savin ... dvantages/
If you are a Colorado taxpayer, every dollar you contribute to a CollegeInvest 529 can be deducted from your Colorado state income tax return. When you file your taxes, you also have the option to direct deposit your refund to your CollegeInvest account. More information can be found here.
User avatar
vnatale
Executive Member
Executive Member
Posts: 9423
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: How to choose a 529 savings plan

Post by vnatale » Mon Aug 10, 2020 9:43 pm

Both mathjak and myself are major fans of Michael Kitces.

I'd advise heading over to his site and see what he has that can answer your questions. He has PLENTY!

https://www.kitces.com/?s=529&submit=

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: How to choose a 529 savings plan

Post by Xan » Mon Aug 10, 2020 10:28 pm

whatchamacallit wrote:
Mon Aug 10, 2020 9:30 pm
Xan wrote:
Mon Aug 10, 2020 8:54 pm
whatchamacallit wrote:
Mon Aug 10, 2020 8:32 pm
May be I am missing something on my 529 plan but it seems like I could wash the money through the 529 the same year my child is going to college to get the tax deduction for that year.
This doesn't work. Unlike an IRA, you don't get a deduction when you put the money in. The only part where there are tax savings in a 529 is on the growth. The tax advantage of a 529 is only that you don't have to pay capital gains taxes on the growth of your savings. So washing through doesn't do you any good.

This is why 529s leave me pretty unexcited. I would say it isn't necessarily clear that they're better than just having taxable savings.

529s now can also be used to pay for tuition for private schools for K-12. But this seems largely pointless, given that only the growth is tax-free, because you need the money to be sitting in there a long time to have much of an advantage.
Some states do give you deduction for putting money in but it is only for state income taxes. I know Georgia and Colorado have deduction:

https://www.path2college529.com/plan/de ... details-10
State Income Tax Information
In addition to federal tax benefits, there are state tax benefits as well. For the Path2College 529 Plan, tax treatment is as follows:

Contributions are deductible up to $8,000 per year per Beneficiary for joint filers, and $4,000 per year per Beneficiary for all others. Incoming rollovers from other 529 plans do not qualify as contributions eligible for the state income tax deduction.
https://www.collegeinvest.org/529-savin ... dvantages/
If you are a Colorado taxpayer, every dollar you contribute to a CollegeInvest 529 can be deducted from your Colorado state income tax return. When you file your taxes, you also have the option to direct deposit your refund to your CollegeInvest account. More information can be found here.
Ah, good point. I'm not used to thinking about state income taxes.
flyingpylon
Executive Member
Executive Member
Posts: 1102
Joined: Fri Jan 06, 2012 9:04 am

Re: How to choose a 529 savings plan

Post by flyingpylon » Tue Aug 11, 2020 5:04 am

whatchamacallit wrote:
Mon Aug 10, 2020 8:32 pm
The future of college education feels very unknown to me. Expenses and what jobs will be like in 15 years.
Exactly how I felt 18 years ago when my son was born. Thought for sure the higher education bubble would burst by now, but here we are. In some ways it seems like not all that much has changed, especially the trajectory of college costs. Markets can remain irrational for a very long time.
User avatar
Kriegsspiel
Executive Member
Executive Member
Posts: 4052
Joined: Sun Sep 16, 2012 5:28 pm

Re: How to choose a 529 savings plan

Post by Kriegsspiel » Tue Aug 11, 2020 6:23 am

If any children of mine don't get a full ride scholarship, they should plan on working out of high school.

>:D
You there, Ephialtes. May you live forever.
User avatar
vnatale
Executive Member
Executive Member
Posts: 9423
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: How to choose a 529 savings plan

Post by vnatale » Tue Aug 11, 2020 8:10 pm

Also,, keep this in mind. Read it in one sitting while attempting to help a senior high school student in making choices for colleges. An extremely solid book.

Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents

https://smile.amazon.com/Debt-Free-U-Ho ... l_huc_item

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
snedgar
Full Member
Full Member
Posts: 53
Joined: Fri Sep 20, 2019 1:52 pm

Re: How to choose a 529 savings plan

Post by snedgar » Wed Aug 12, 2020 9:27 am

Another angle that's easily overlooked is to not "oversave" in a 529 account.

For example, what happens if you sacrifice and save the full projected cost of a private college, but your child ends up barely graduating high school and wants nothing to do with post-secondary education?

Maybe a good approach is "savings vehicle diversification", similar to how we diversify across different types of accounts for tax treatment purposes?
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: How to choose a 529 savings plan

Post by Xan » Wed Aug 12, 2020 9:39 am

vnatale wrote:
Mon Aug 10, 2020 9:43 pm
Both mathjak and myself are major fans of Michael Kitces.

I'd advise heading over to his site and see what he has that can answer your questions. He has PLENTY!

https://www.kitces.com/?s=529&submit=

Vinny
That "dynasty" 529 plan is a really clever idea. Basically it's for somebody with a whole lot of money to max out a 529 plan that can grow forever, kicking out college educations for descendants every once in a while, all completely tax-free (apart from the post-tax dollars that went into it).
User avatar
Tortoise
Executive Member
Executive Member
Posts: 2751
Joined: Sat Nov 06, 2010 2:35 am

Re: How to choose a 529 savings plan

Post by Tortoise » Wed Aug 12, 2020 12:22 pm

MangoMan wrote:
Wed Aug 12, 2020 12:09 pm
I have 3 grandkids under the age of 5. I have been contributing to each of their 529 accounts, but I am concerned that college as we know it will not exist in 15 years. If everything moves online and at a greatly reduced cost, what will become of this $?
My understanding is that 529 plan funds can be withdrawn for any reason, but if it’s not for qualified educational expenses the earnings (not the contributions) are taxed as regular income plus a 10% federal penalty.
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: How to choose a 529 savings plan

Post by Xan » Tue Sep 08, 2020 10:17 am

Tortoise (or anyone else),

What is your latest thinking? It looks to me like the best option is Utah, where you can choose your own asset allocation, and the fees seem to be very low.

Unfortunately the only asset options are listed below, which means no LTTs and no gold. There seems to be no satisfactory way to get either of those in any 529.

They also of course have age-based plans, where they automatically adjust the asset allocation into more cash as the beneficiary gets closer to college age.

It seems that the options are:
* Forget the PP in the 529 and go with some mix of cash, bonds (where "bonds" means some kind of "total bond" fund, not Treasuries), and stocks. Honestly I wouldn't really know how to allocate that.
* Have a college PP which is only partially in a 529 -- have gold and LTTs outside the 529, and stocks and cash in it. But would I want a lot of cash in a vehicle that has tax advantages for growth?
* Forget the 529, just have my PP growing in taxable. This has the advantage of having less money in the child's name, which is good for FAFSA. But will we be eligible for financial aid at all? Perhaps not. See the horror story from MeDebtFree a while back: viewtopic.php?f=1&t=103#p3764
* Figure out how to get more tax-sheltered retirement space: eg, see if it's possible to switch to SEP from SIMPLE. This is probably the first thing to do because the contribution limits are so much higher. It's only Roths where you can take money out to pay for college, right? I suppose a backdoor conversion is an option. Would I even want to take money out of a retirement account to pay for college?


The available funds for the Utah 529:
Institutional Total Stock Market Index Fund VITPX
Institutional Index Fund VIIIX
Value Index Fund1 VIVIX
Growth Index Fund1 VIGIX
Mid-Cap Index Fund VMCPX
Small-Cap Index Fund VSCPX
Small-Cap Value Index Fund1, 2 VSIIX
Small-Cap Growth Index Fund1, 2 VSGIX
FTSE Social Index Fund1 VFTAX
Total International Stock Index Fund VTPSX
Developed Markets Index Fund VDIPX
International Value Fund2, 3 VTRIX
International Growth Fund1, 2 VWILX
Emerging Markets Stock Index Fund2 VEMRX
Short-Term Investment-Grade Fund VFSIX
Short-Term Bond Index Fund VBIPX
Short-Term Inflation-Protected Securities Index Fund1 VTSPX
Total Bond Market Index Fund VBMPX
High-Yield Corporate Fund1, 2 VWEAX
Total International Bond Index Fund VTIFX

Global Allocation 60/40 Portfolio1, 4 DGSIX
Global Allocation 25/75 Portfolio1, 4 DGTSX
U.S. Large Cap Value Portfolio1, 5 DFLVX
U.S. Small Cap Value Portfolio1, 2 DFSVX
Real Estate Securities Portfolio1, 2, 4 DFREX
U.S. Sustainability Core 1 Portfolio1, 4 DFSIX
International Value Portfolio1, 2, 5 DFIVX
Global Equity Portfolio1, 4 DGEIX
One-Year Fixed Income Portfolio1 DFIHX
Five-Year Global Fixed Income Portfolio1 DFGBX
User avatar
Hal
Executive Member
Executive Member
Posts: 1349
Joined: Tue May 03, 2011 1:50 am

Re: How to choose a 529 savings plan

Post by Hal » Tue Sep 08, 2020 10:50 am

How about Global Allocation 25/75 Portfolio1, 4 DGTSX in the 529 plan with the equivalent share percentage in Gold outside?

https://us.dimensional.com/funds/global ... tion-25-75
Attachments
Screen Shot 2020-09-09 at 2.00.05 am.png
Screen Shot 2020-09-09 at 2.00.05 am.png (163.72 KiB) Viewed 4971 times
Last edited by Hal on Tue Sep 08, 2020 11:02 am, edited 1 time in total.
Aussie GoldSmithPP - 25% PMGOLD, 75% VDCO
User avatar
vnatale
Executive Member
Executive Member
Posts: 9423
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: How to choose a 529 savings plan

Post by vnatale » Tue Sep 08, 2020 11:00 am

You've been here? https://www.savingforcollege.com/

And, it's striking that when I last looked at this -- about 20 years ago -- that the best option then was Utah, which according to you still is the same to this day.

I'm the middle of working right now so this is as much as I can offer right now.

Vinny
Xan wrote:
Tue Sep 08, 2020 10:17 am
Tortoise (or anyone else),

What is your latest thinking? It looks to me like the best option is Utah, where you can choose your own asset allocation, and the fees seem to be very low.

Unfortunately the only asset options are listed below, which means no LTTs and no gold. There seems to be no satisfactory way to get either of those in any 529.

They also of course have age-based plans, where they automatically adjust the asset allocation into more cash as the beneficiary gets closer to college age.

It seems that the options are:
* Forget the PP in the 529 and go with some mix of cash, bonds (where "bonds" means some kind of "total bond" fund, not Treasuries), and stocks. Honestly I wouldn't really know how to allocate that.
* Have a college PP which is only partially in a 529 -- have gold and LTTs outside the 529, and stocks and cash in it. But would I want a lot of cash in a vehicle that has tax advantages for growth?
* Forget the 529, just have my PP growing in taxable. This has the advantage of having less money in the child's name, which is good for FAFSA. But will we be eligible for financial aid at all? Perhaps not. See the horror story from MeDebtFree a while back: viewtopic.php?f=1&t=103#p3764
* Figure out how to get more tax-sheltered retirement space: eg, see if it's possible to switch to SEP from SIMPLE. This is probably the first thing to do because the contribution limits are so much higher. It's only Roths where you can take money out to pay for college, right? I suppose a backdoor conversion is an option. Would I even want to take money out of a retirement account to pay for college?


The available funds for the Utah 529:
Institutional Total Stock Market Index Fund VITPX
Institutional Index Fund VIIIX
Value Index Fund1 VIVIX
Growth Index Fund1 VIGIX
Mid-Cap Index Fund VMCPX
Small-Cap Index Fund VSCPX
Small-Cap Value Index Fund1, 2 VSIIX
Small-Cap Growth Index Fund1, 2 VSGIX
FTSE Social Index Fund1 VFTAX
Total International Stock Index Fund VTPSX
Developed Markets Index Fund VDIPX
International Value Fund2, 3 VTRIX
International Growth Fund1, 2 VWILX
Emerging Markets Stock Index Fund2 VEMRX
Short-Term Investment-Grade Fund VFSIX
Short-Term Bond Index Fund VBIPX
Short-Term Inflation-Protected Securities Index Fund1 VTSPX
Total Bond Market Index Fund VBMPX
High-Yield Corporate Fund1, 2 VWEAX
Total International Bond Index Fund VTIFX

Global Allocation 60/40 Portfolio1, 4 DGSIX
Global Allocation 25/75 Portfolio1, 4 DGTSX
U.S. Large Cap Value Portfolio1, 5 DFLVX
U.S. Small Cap Value Portfolio1, 2 DFSVX
Real Estate Securities Portfolio1, 2, 4 DFREX
U.S. Sustainability Core 1 Portfolio1, 4 DFSIX
International Value Portfolio1, 2, 5 DFIVX
Global Equity Portfolio1, 4 DGEIX
One-Year Fixed Income Portfolio1 DFIHX
Five-Year Global Fixed Income Portfolio1 DFGBX
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: How to choose a 529 savings plan

Post by Xan » Tue Sep 08, 2020 11:07 am

Hal wrote:
Tue Sep 08, 2020 10:50 am
How about Global Allocation 25/75 Portfolio1, 4 DGTSX in the 529 plan with the equivalent share percentage in Gold outside?

https://us.dimensional.com/funds/global ... tion-25-75
That could be a reasonable option.

Some issues:
* The 75% that the fund holds in "bonds" are considered "fixed income", and are short-term largely corporate bonds. That isn't much like a PP's bonds. If the 75% were intermediate-term US government Treasuries then we'd be in pretty good shape.
* Adding some gold to a 25/75 portfolio doesn't get you to 25/25/50, unfortunately. Maybe close enough.
* Looks like it's a .24% expense ratio for this fund, and then some .1% gets added by Utah. Not terrible, certainly historically, but pretty high compared to the Vanguard options.
User avatar
Hal
Executive Member
Executive Member
Posts: 1349
Joined: Tue May 03, 2011 1:50 am

Re: How to choose a 529 savings plan

Post by Hal » Tue Sep 08, 2020 11:47 am

Xan wrote:
Tue Sep 08, 2020 11:07 am
Hal wrote:
Tue Sep 08, 2020 10:50 am
How about Global Allocation 25/75 Portfolio1, 4 DGTSX in the 529 plan with the equivalent share percentage in Gold outside?

https://us.dimensional.com/funds/global ... tion-25-75
That could be a reasonable option.

Some issues:
* The 75% that the fund holds in "bonds" are considered "fixed income", and are short-term largely corporate bonds. That isn't much like a PP's bonds. If the 75% were intermediate-term US government Treasuries then we'd be in pretty good shape.
* Adding some gold to a 25/75 portfolio doesn't get you to 25/25/50, unfortunately. Maybe close enough.
* Looks like it's a .24% expense ratio for this fund, and then some .1% gets added by Utah. Not terrible, certainly historically, but pretty high compared to the Vanguard options.
Agree with you totally. You would take an approx 20% loss if you wanted the funds in a 2008-9 environment :P
Attachments
Approx DGTSX Gold Blue and PP Red.png
Approx DGTSX Gold Blue and PP Red.png (122.24 KiB) Viewed 4963 times
Aussie GoldSmithPP - 25% PMGOLD, 75% VDCO
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: How to choose a 529 savings plan

Post by Xan » Tue Sep 08, 2020 12:07 pm

Wow, apart from that 2008 blip, that's pretty good tracking between the PP and this fund. Thanks for the chart.

That blue line does not include the gold held "on the side", correct?
User avatar
Hal
Executive Member
Executive Member
Posts: 1349
Joined: Tue May 03, 2011 1:50 am

Re: How to choose a 529 savings plan

Post by Hal » Tue Sep 08, 2020 12:22 pm

Xan wrote:
Tue Sep 08, 2020 12:07 pm
Wow, apart from that 2008 blip, that's pretty good tracking between the PP and this fund. Thanks for the chart.

That blue line does not include the gold held "on the side", correct?
The blue line is 20% Gold 80% Approximated DGTSX. The red line is the PP. ;)
Aussie GoldSmithPP - 25% PMGOLD, 75% VDCO
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: How to choose a 529 savings plan

Post by Xan » Tue Sep 08, 2020 12:37 pm

Hal wrote:
Tue Sep 08, 2020 12:22 pm
Xan wrote:
Tue Sep 08, 2020 12:07 pm
Wow, apart from that 2008 blip, that's pretty good tracking between the PP and this fund. Thanks for the chart.

That blue line does not include the gold held "on the side", correct?
The blue line is 20% Gold 80% Approximated DGTSX. The red line is the PP. ;)
I should have known; otherwise it wouldn't track so well. It really does track nicely. That may be a good solution. Or potentially I could "roll my own" DGTSX by combining some of the Vanguard funds; that might have lower expenses. My understanding is I don't have to pick just one fund: I can set percentages for each, rebalanced annually on the beneficiary's birthday.
flyingpylon
Executive Member
Executive Member
Posts: 1102
Joined: Fri Jan 06, 2012 9:04 am

Re: How to choose a 529 savings plan

Post by flyingpylon » Tue Sep 08, 2020 2:50 pm

Xan wrote:
Tue Sep 08, 2020 10:17 am
* Forget the 529, just have my PP growing in taxable. This has the advantage of having less money in the child's name, which is good for FAFSA. But will we be eligible for financial aid at all? Perhaps not.
Check your income against the estimated EFC. Depending on your income and the school your child plans to attend, rearranging things for FAFSA may be a pointless exercise.

For example, say your kid wants to go to a "reasonably" priced state school. If your EFC based on income alone is higher than the cost, nothing that you do on the asset side will matter.
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: How to choose a 529 savings plan

Post by Xan » Tue Sep 08, 2020 3:13 pm

flyingpylon wrote:
Tue Sep 08, 2020 2:50 pm
Xan wrote:
Tue Sep 08, 2020 10:17 am
* Forget the 529, just have my PP growing in taxable. This has the advantage of having less money in the child's name, which is good for FAFSA. But will we be eligible for financial aid at all? Perhaps not.
Check your income against the estimated EFC. Depending on your income and the school your child plans to attend, rearranging things for FAFSA may be a pointless exercise.

For example, say your kid wants to go to a "reasonably" priced state school. If your EFC based on income alone is higher than the cost, nothing that you do on the asset side will matter.
Those are great things to figure out, but they're pretty hard to do a decade or two in advance.
User avatar
Tortoise
Executive Member
Executive Member
Posts: 2751
Joined: Sat Nov 06, 2010 2:35 am

Re: How to choose a 529 savings plan

Post by Tortoise » Tue Sep 08, 2020 4:18 pm

Xan wrote:
Tue Sep 08, 2020 10:17 am
Tortoise (or anyone else),

What is your latest thinking? It looks to me like the best option is Utah, where you can choose your own asset allocation, and the fees seem to be very low.
Thanks for looking into the different states' 529 plans. Good reference info.

My latest thinking hasn't changed much. I've read several articles and online discussion threads (e.g., on the Knuckleheads forum), and the consensus seems to be that the benefit (or lack thereof) of a 529 plan depends on many different variables: Your income, your assets, your goals, your kid's future goals, your future financial situation, the future of higher education, etc.

Since I live in CA, I wouldn't get any state tax benefits from a 529 plan. So that removes a lot of the 529 benefit for me. My only benefit would be the federal tax-free growth, and the risk would be extra taxes and penalties if my daughter doesn't go to college and I end up using the 529 funds for non-qualified expenses.

The benefit might outweigh the risk for me, but before I decide whether the pull the trigger on starting a 529 plan, I'll need to run the numbers and probably read one or two books that go into depth on the subject (comparing the benefits/risks based on income, assets, and state of residence, for example).

I suppose there's also always the hedging option: Save roughly half of the anticipated college expenses in a 529 plan and put the rest in taxable savings. Similar to how some people unsure of their future tax situation hedge by putting half of their retirement contributions in Roth and half in traditional.
flyingpylon
Executive Member
Executive Member
Posts: 1102
Joined: Fri Jan 06, 2012 9:04 am

Re: How to choose a 529 savings plan

Post by flyingpylon » Tue Sep 08, 2020 7:13 pm

Xan wrote:
Tue Sep 08, 2020 3:13 pm
flyingpylon wrote:
Tue Sep 08, 2020 2:50 pm
Xan wrote:
Tue Sep 08, 2020 10:17 am
* Forget the 529, just have my PP growing in taxable. This has the advantage of having less money in the child's name, which is good for FAFSA. But will we be eligible for financial aid at all? Perhaps not.
Check your income against the estimated EFC. Depending on your income and the school your child plans to attend, rearranging things for FAFSA may be a pointless exercise.

For example, say your kid wants to go to a "reasonably" priced state school. If your EFC based on income alone is higher than the cost, nothing that you do on the asset side will matter.
Those are great things to figure out, but they're pretty hard to do a decade or two in advance.
That’s true, but there are a variety of tools for estimating EFC out there. Here’s a link to the official one: https://studentaid.gov/understand-aid/estimate/

The only issue with that tool is that (unless I missed it) it doesn’t make you enter your tax-deferred retirement contributions, which the real FAFSA does. So you can just add it to your AGI.

Of course there is no way of knowing what changes will be made by the time your child goes to college. Not to mention what college they will choose, but at least there are ways to influence that.
User avatar
vnatale
Executive Member
Executive Member
Posts: 9423
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: How to choose a 529 savings plan

Post by vnatale » Tue Sep 08, 2020 8:06 pm

Tangentially related...

VInny

The College Quandary Today

https://www.fa-mag.com/news/the-college ... 57554.html

"First came Covid. Then came online college. Then came the lawsuits.

There’s a firm in South Carolina, the Anastopoulo Law Firm, that says it’s suing some 30 higher learning institutions for tuition and board payback (including Columbia, Cornell, Purdue, UMass and UPenn) arguing breach of contract—saying in effect that these institutions charged students for a certain type of college campus experience this year and instead gave them virtual college lite. The lawsuits challenge the notion that Zoom learning lives up to the value of an actual classroom—learning in a community, with your peers, enjoying personal development.


Still, as the coronavirus pandemic continues to test the United States’ anxiety for reopening society, the question of reopening colleges arises, too, and asks—at what cost in people’s health and safety?

For many clients of financial advisors, college education is the single biggest funding need they face after saving for retirement. The questions advisors are asking include: Is your child’s college fully reopening or doing hybrid classes? If the college is reopening, do you really want it to? In one survey of more than 1,800 freshmen and returning students performed by research firm Simpson Scarborough, 43% of students didn’t feel safe returning to a socially distanced classroom.

Professors don’t like the idea either. One CFP licensee and lecturer at Texas A&M with professor clients says many of them flatly refuse to go back. Older people are more at risk, after all.

The confusing messages universities have sent to families about what’s happening have not helped, says Beth V. Walker, creator of the Center for College Solutions, which guides families through college planning."
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
Post Reply