Gyroscopic Investing

If you want less college savings, I guess it's good to target their tax savings....

http://www.wsj.com/articles/obama-propo ... 1421811117

http://www.forbes.com/sites/ryanellis/2 ... can-dream/

http://www.nytimes.com/2015/01/23/your- ... .html?_r=0

He went as far as saying that the proposal could be characterized as a broken promise. “People saved money in 529 plans because of the expectation that the favorable tax treatment would continue,”? he said. “Imagine the uproar if the federal government were to begin taxing Roth I.R.A.s.”?

Indeed.

MangoMan wrote:

WiseOne wrote:

He went as far as saying that the proposal could be characterized as a broken promise. “People saved money in 529 plans because of the expectation that the favorable tax treatment would continue,”? he said. “Imagine the uproar if when the federal government were to begins taxing Roth I.R.A.s.”?

Indeed.

Fixed that for you [him].

But, but, but! They would NEVER do anything like that! Why, that would be like taxing Social Security payments, which FDR swore they would never do!
(Note: )

I think existing 529 balances are exempt from taxes.  I'd be far more supportive of a massive uproar if they are not.  Though overall I don't like 529's anyway, so I don't see this as particularly shocking news.

Though after hearing his state of the union, I'm nausiated by his assertion that he's attempting to "simplify" the tax code.  Having credits/deductions, and especially phasing out credits/deductions by income, is one of the biggest reasons the tax code is such a mess (along with different rates on different types of income).

I'm quite sure when his slew of support for "working families" comes out, they'll be a bunch of credits/deductions phased out as income grows.

F'kin a just pass a citizens dividend already, and quit lending the massive amount of the support you do pass to people who $hit out too many kids.

moda0306 wrote: I think existing 529 balances are exempt from taxes.  I'd be far more supportive of a massive uproar if they are not.  Though overall I don't like 529's anyway, so I don't see this as particularly shocking news.

Though after hearing his state of the union, I'm nausiated by his assertion that he's attempting to "simplify" the tax code.  Having credits/deductions, and especially phasing out credits/deductions by income, is one of the biggest reasons the tax code is such a mess (along with different rates on different types of income).

I'm quite sure when his slew of support for "working families" comes out, they'll be a bunch of credits/deductions phased out as income grows.

F'kin a just pass a citizens dividend already, and quit lending the massive amount of the support you do pass to people who $hit out too many kids.

Yes, our tax system is broken almost beyond repair.

Simplifying things, is the only way to actually accomplish some effective wealth redistribution, IMO.

You got it, his idea is to replace 529s with a tax credit for families with incomes below a specified limit.  $2500 per kid.  Whoo hoo.  That'll be SUCH a big help to parents facing a $40K tuition bill!  Does Obama know what college tuitions are these days??

I have another idea:  Get rid of the student loan programs.  All these government subsidies are just propping up tuition costs.  What will happen when the applicant pool drops by >95%?  Presumably the colleges will have to lower tuition or offer lots of scholarships.  And people who shouldn't go to college in the first place will find something else to do.

WiseOne, you are exactly right.  Every program to make college more affordable simply lets the colleges raise their costs.  That was plainly obvious to me when our kids got into college.

You're smart - took me quite a while to figure that out.

It's also kind of amazing that the colleges aren't charging such high tuition because of costs.  Tuition is only a tiny portion of the budget.  They're doing it because they can...plain and simple!

I've never understood the point of a 529 in the first place. They are barely a deal at all and saving in the first place is a sucker's bet because college in the USA is mostly a big scam anyway. When you save money for it, they just take it. When you don't, your tuition costs are paid for by the chumps who did, if you were dumb enough to go to a place with really high tuition anyway. I recall a recent study showing basically no appreciable difference in outcomes across the entire spectrum of higher education institutions with their wildly variable prices, offerings, and name recognition. What a crock of bull. A major story of my generation is bitterness engendered by incurring a huge amount of debt to go through the U.S. higher education system only to wind up with a useless degree that opens no doors and discover that (*gasp*) all the promises made by the slick marketers about all the wonderful things you can do with a degree in Psychology or East Asian Studies were phony and there are really no jobs that legitimately require a degree except in tech and medicine, and medicine is so messed up right now that you'd almost have to be crazy to enter the professions at the moment.

Take a look at the fastest growing industries: http://www.acinet.org/indview1.asp?nodeid=45

How many really require college degrees? All those people helping the elderly take their pills? The masons and construction workers? The bus drivers? The booze salesmen? The garbage collectors?

Going to college is pushed relentlessly by the over 50 crowd because is has become a gigantic social signaling device. You went to college, you're a member of "middle class club" or "intellectual club"; you didn't, and you're an unwashed hick. Unless you happen to aspire to become an engineer or a doctor, that's all it'll ever be--your meal ticket to social acceptance among the intelligentsia, and that's what you should realize you're paying for.

A college degree is a box that needs to be checked, or a ticket that needs to be punched.  There are lots of ways to get that done, some more expensive than others.  Although having a degree may not provide much of an advantage, not having it can be an instant disqualifier in many cases.

[quote=Pointedstick]The booze salesmen?[/quote]

I, for one, prefer my booze salesmen to be well educated. 

Hillary's 2016 opponents are probably praying that the White House will seriously push this proposal

I thought initially that Obama must have imagined that no one ever saves money anyway (I mean, just look at retirement savings rates) so no one would miss 529s.  And you know what?  He might be right!!

You see, *we're* the nut cases who actually believe in savings.  For example, I once mentioned the idea of FI to some of my work colleagues who are scrambling for grants, RVUs etc in terror of losing income.  Let's just say that the phrase "lead balloon" applied.  Then there's my sister, who is happily planning to send kid #1 of 3 to a maximally expensive college despite a maxed-out HELOC, almost nothing in 529s, and not a lot of savings.  And they just built themselves $200K worth of lovely home improvements.  I'm quietly trying to suggest that the in-state school deserves a second look.

clacy wrote: http://www.nytimes.com/2015/01/23/your- ... .html?_r=0

I'd be more persuaded by Obama's argument if more than 47% of those using 529's were "rich".  It's almot a caricature by now that Democrats have ZERO economic sense.  So I'm not sure what the brain-dead economists in the Obama administration were thinking.

The implication was to use this 529 tax to fund that cockamamie free community college scheme, perahps?

Depends on your definition of "rich".  Initially they'd said families with income > $250K, which I guess is not too unreasonable, but the numbers quoted in the articles about the 529 accounts were > $150K.  In a lot of places, $150K is a good income but definitely not riches.

TennPaGa wrote: This is just stupid.

That seems nothing compared to what is in the rest of the document.  What a masterpiece of Newspeak!  Aren't you glad we now have Republicans controlling Congress?

Simonjester wrote:

As divulged by the Wall St. Journal blog: “Investors can currently contribute $14,000 per year per child into 529 plans without triggering gift tax or eating into their lifetime estate- and gift-tax exemption amount. They can also front-load five years’ worth of contributions to the plans.

The Obamas took advantage of this perk by contributing $240,000 in total for their two daughters to the plans, according to their 2008 tax returns. The move could have also helped them to lessen possible future taxes on their estate.”? Well isn’t that sweet! The Obama’s got their tax break before wanting to shut if off for the rest of us! http://blogs.wsj.com/totalreturn/2015/0 ... -by-obama/

My wife and I sort of split the difference on the 529s, putting money in them for a few years and then stopping a few years back. Our thinking was that, all things being equal, a school is going to want the kid with at least some money behind them. I don't know if it actually works that way in the real world but that was our approach. Much of our college savings is elsewhere.

Totally agree with WiseOne and Shrugged that "all these government subsidies are just propping up tuition costs." Not only that, but in an effort to score the subsidies, parents have to do a behind the scenes money dance that gets a bit absurd (move this money here, change the name of the beneficiary on that account, don't show too much income in your base year, etc.).

barrett wrote: My wife and I sort of split the difference on the 529s, putting money in them for a few years and then stopping a few years back. Our thinking was that, all things being equal, a school is going to want the kid with at least some money behind them. I don't know if it actually works that way in the real world but that was our approach. Much of our college savings is elsewhere.

Totally agree with WiseOne and Shrugged that "all these government subsidies are just propping up tuition costs." Not only that, but in an effort to score the subsidies, parents have to do a behind the scenes money dance that gets a bit absurd (move this money here, change the name of the beneficiary on that account, don't show too much income in your base year, etc.).

My experience with the system says that it depends on a few factors.

You have to know what the people running universities actually want. Here it is:
1. Reputation
2. Money
3. Diversity

They will attempt to maximize each one, focusing on reputation first, then money, then diversity. So you have to ask yourself how you fit into that.

To maximize reputation, schools most of all want excellent, high-performing students. So they decide on a minimum set of of test scores and academic performance they want for the student body according to what kind of place they're running. Everybody below this level is excluded from consideration, and everybody above it is offered heavy subsidies. In that respect, academic performance relative to school quality is the biggest determinant. This is why I advise applying to schools whose student body you are slightly superior to academically. They will want you and make it known. Even if your parents are rich, you can get a free ride this way. And you'll have a great time anyway as long as you're not too far above the average.

Above the minimum level of academic performance, the schools will seek to maximize their money and diversity by admitting students roughly according to the following preference scale, preferring money to non-white-ness:
1. Ethnic with enough money to pay full tuition (this is why there are so many rich foreign students)
2. White with enough money to pay full tuition
3. Ethnic and will receive a partial scholarship
4. White and will receive a partial scholarship
5. Ethnic and will receive a partial scholarship
6. White and will receive a full scholarship

Once this is done, they see if their diversity quotient is satisfied. If there are not enough blacks or hispanics (there are always enough whites and asians), they will look through the pile of applicants whose academics weren't up to snuff and replace the worst-performing students they were prepared to accept with ethnic substitutes until their desired level of "diversity" is achieved.

This is all generalized and there are a lot of exceptions. State schools will often not focus on diversity so much and admit more poor people, for example.

To me education is a lot like healthcare:

1) A word that can mean a MASSIVELY large span of things.

2) Two things that if applied correctly in some child's life into adulthood (vs not applied at all, or in very limited doses), can make a MASSIVE difference for their potential, IF they choose to use the opportunities afforded to them.

3) Not always fun to apply correctly in ones life, with a ton of informational assymetry, which is why they make for "odd" markets, to say the least.

4) Most countries have much more centralized government control of these markets, and have better aggregate results at a lower cost, IMO.

5) However, this means that people who WOULD have taken an individual strategic active role in their own healthcare and education will potentially suffer, while those who go on auto-pilot will benefit.

6) And the U.S., while certainly more free-market-based than other countries in these markets, are still much more government-controlled than other markets in the U.S. that we can point to with greater success and lower inflation of costs... which leads us to the big dilemma...

a) If government involvement is to blame for the lack of success of those markets, why do other countries have such good results with FAR more centralized government "markets" with far-less profit-motive built in?

b) If the "private sector" is to blame for these being such bad markets, why does the private sector do other things so much better (build cars, buildings, homes, etc) than it does in the markets where government meddles (healthcare & education)?

c) Is this an indicator of "too many cooks in the kitchen,"  Where either a state-run or fully private system would be better?  Or is this an indicator that there is something about these markets that make the profit motive work much less reliably than in other markets (or, conversely, that government bureaucracy & "public purpose" works particularly well-in, and we're not just giving them enough of the pie)?

l82start wrote: The Obamas took advantage of this perk by contributing $240,000 in total for their two daughters to the plans, according to their 2008 tax returns. The move could have also helped them to lessen possible future taxes on their estate.”?  Well isn’t that sweet!  The Obama’s got their tax break before wanting to shut if off for the rest of us!  http://blogs.wsj.com/totalreturn/2015/0 ... -by-obama/

Wow, that really chaffs my balls.  What a scumbag!

WiseOne wrote: You got it, his idea is to replace 529s with a tax credit for families with incomes below a specified limit.  $2500 per kid.  Whoo hoo.  That'll be SUCH a big help to parents facing a $40K tuition bill!  Does Obama know what college tuitions are these days??

I read a good point recently that the government should put off subsidizing year 14 and 15 of school until they figure out how to actually educate kids in the first 13 effectively.  If college is so necessary to get a job, what does that say about free public education in America?

moda0306 wrote: a) If government involvement is to blame for the lack of success of those markets, why do other countries have such good results with FAR more centralized government "markets" with far-less profit-motive built in?

I don't think its that hard to do much better than a completely dysfunctional, overregulated system merely by being less of a control freak.  I do take some issue with "such good results" though.  The devil is in the details.  We subsizide nearly the entire planet in terms of drug development, medical devices, etc..  Other country's health care systems get to benefit from this subsidy with price controls, lower transanction costs, less bureaucracy, etc..  On the other hand, in many countries where the quality of health care is top notch and free market based without the insurance baloney that blows away anything in the West, the locals cannot afford it.  Cuba could rank better than the US on some health indicators; does that mean their bottom of the barrel approach is worth emulating?

b) If the "private sector" is to blame for these being such bad markets, why does the private sector do other things so much better (build cars, buildings, homes, etc) than it does in the markets where government meddles (healthcare & education)?

Lack of government interference distorting incentives and inducing gaming.  Greed alone does not automatically guarantee optimal resource allocation.

c) Is this an indicator of "too many cooks in the kitchen,"  Where either a state-run or fully private system would be better?  Or is this an indicator that there is something about these markets that make the profit motive work much less reliably than in other markets (or, conversely, that government bureaucracy & "public purpose" works particularly well-in, and we're not just giving them enough of the pie)?

I'm not sure if greed works if the incentive is to prolong/treat sickness rather than promote/prevent health.  But who can tell for absolutely sure at this point if it is an innate problem of government interfernce or innate to greed?

Well...duh.  Did he really think no one would notice????

Also how's he now going to pay for those "expanded tuition credits"?  Sigh.  I hope we're not in for another government shutdown.

WiseOne wrote: Well...duh.  Did he really think no one would notice????

Also how's he now going to pay for those "expanded tuition credits"?  Sigh.  I hope we're not in for another government shutdown.

I wish we would have an actual government shutdown, which is something we haven't had since I've been alive (at least).
Not that there is much chance of that, unfortunately.