OT: Question on 529 college funds

[JerseyNoles]

We started one for my daughter when she was born. Couple buddies I know who work in finance swear not to contribute to them b/c when it comes time for college scholarships, you're less likely to get one if they see you have X amount in savings already for it. Conversely, they say to stash it away in other avenues / investments not classified technically as a 529, so it doesn't appear that we have money set aside for college.

Any thoughts / experiences with this?

 

[T2Kplus20]

We started one for my daughter when she was born. Couple buddies I know who work in finance swear not to contribute to them b/c when it comes time for college scholarships, you're less likely to get one if they see you have X amount in savings already for it. Conversely, they say to stash it away in other avenues / investments not classified technically as a 529, so it doesn't appear that we have money set aside for college.

Any thoughts / experiences with this?

Overall, a 529 is a great idea and has meaningful benefits. I assume you are aware of these features (tax-deferred growth, tax-free spending on qualified items). However, just like anything, you shouldn't go overboard since you never know how much your child's education will cost. Be balanced. Take a best guess at future costs and perhaps try to cover 50% of this with a 529.

Thankfully, 529s are becoming more and more flexible. Honestly, we over contributed for our daughter, but have been using $10k a year for K-12 private school tuition. You can also now transfer up to $35k to the child's Roth IRA account if you don't use it all. So, the risk of getting hit with the 10% penalty isn't that big any more.

 

[jreinsdorf]

Overall, a 529 is a great idea and has meaningful benefits. I assume you are aware of these features (tax-deferred growth, tax-free spending on qualified items). However, just like anything, you shouldn't go overboard since you never know how much your child's education will cost. Be balanced. Take a best guess at future costs and perhaps try to cover 50% of this with a 529.

And FYI - 529 money does not have to be reported on financial aid forms or college applications (for grants).

Thankfully, 529s are becoming more and more flexible. Honestly, we over contributed for our daughter, but have been using $10k a year for K-12 private school tuition. You can also now transfer up to $35k to the child's Roth IRA account if you don't use it all. So, the risk of getting hit with the 10% penalty isn't that big any more.

You don’t have to report a college Iowa fund on financial aid forms or applications?

 

[bethlehemfan]

I thought a parents 529 counts but a grand parents does not for aid purposes

 

[T2Kplus20]

I thought a parents 529 counts but a grand parents does not for aid purposes

Yes, you are right, sorry:

https://www.savingforcollege.com/article/yes-your-529-plan-will-affect-financial-aid

However, the relationship between 529 plans and financial aid depends on a few things, like who owns the plan, when withdrawals are taken and what type of aid you’re applying for. In most cases, your 529 plan will have a minimal effect on the amount of aid you receive and will end up helping you more than hurting you.

 

[T2Kplus20]

You don’t have to report a college Iowa fund on financial aid forms or applications?

FYI - see above. Parent accounts have to be reported, but it shouldn't have a big impact on aid. Updated my post!

 

[bethlehemfan]

FYI - see above. Parent accounts have to be reported, but it shouldn't have a big impact on aid. Updated my post!

Of course the rule will probably change a few times before jays daughter is in college. Haha.

 

[JayDogSmooth]

Of course the rule will probably change a few times before jays daughter is in college. Haha.

Hopefully college prices will come down as well!

 

[Rutgers Chris]

Hopefully college prices will come down as well!

I’ve got 7 years to go before my first starts. I keep telling myself the same thing, that at some point this bubble has to burst

 

[tom1944]

I’ve got 7 years to go before my first starts. I keep telling myself the same thing, that at some point this bubble has to burst

Most likely mediocre and poor private schools will close. Some States will cut back on their below average small State colleges.

 

[Knight Shift]

The reality for us was since we had fully saved for tuition for 4 years at a private college and due to other factors, very few schools offered "financial aid." Rutgers was fabulous giving a lot of merit scholarships. Quinnipiac did something similar with "merit" scholarships, but they were probably trying to attract a high-achieving student, and it worked. For the higher end schools such as Ivies, NESCAC and schools like BC, Notre Dame, etc., if you have maxed on a 529K, financial aid will be low to nonexistent. Of course there are exceptions.

 

[T2Kplus20]

Most likely mediocre and poor private schools will close. Some States will cut back on their below average small State colleges.

It would be healthy for the higher ed system to have such closings. Need to rebalance supply and costs.

 

[T2Kplus20]

The reality for us was since we had fully saved for tuition for 4 years at a private college and due to other factors, very few schools offered "financial aid." Rutger was fabulous giving a lot of merit scholarships. Quinnipiac did something similar with "merit" scholarships, but they were probably trying to attract a high-achieving student, and it worked. For the higher end schools such as Ivies, NESCAC and schools like BC, Notre Dame, etc., if you have maxed on a 529K, financial aid will be low to nonexistent. Of course there are exceptions.

Did you have leftover funds? What did you do with it as of now?

 

[Knight Shift]

Did you have leftover funds? What did you do with it as of now?

That's a thorny issue for us. We have a LOT of leftover funds, and RU cost about $25-30K for 4 years. We had budgeted $300K for each child. We have to figure that out. The Roth thing is an option. First world problems.

EDIT- just checked with the CEO/CFO of Knight Shift, Inc. Years ago, a financial advisor warned us about maxing out 529s. The guy otherwise sucked as an advisor and we fired him. Anyway, that number was more like $100K each. We are moving the remainder if our oldest kid's account to the younger kid's account, which will surely be liquidated by the end of year 6 of his program. All good. In hindsight, wish we put more away in the 529, but we will do OK with what we did.

 

[Knight Shift]

Most likely mediocre and poor private schools will close. Some States will cut back on their below average small State colleges.

Yes, likely.

It would be healthy for the higher ed system to have such closings. Need to rebalance supply and costs.

Agree. Mike Rowe from Dirty Jobs has been beating the drum to invest more in training for skilled trades such as electricians, plumbing, welding, etc. Know some people who went into trades who are making multiples of what college graduates make. Was just having a discussion with my barber about this. I sometimes think I should have gone that route. I have not regrets, but sitting at at desk staring at a screen (or screens) 8-10 hours a day gets boring fast.

 

[Rutgers8086_rivals]

Tax act passed at the end of last year (SECURE 2.0) allows for some transition of extra 529 funds to Roth IRA's for the beneficiaries beginning next year. See your advisor for details.

 

[bethlehemfan]

In our case we weren’t getting financial aid regardless so 529 worked out really well although we didn’t max it out.

 

[tom1944]

In our case we weren’t getting financial aid regardless so 529 worked out really well although we didn’t max it out.

Not saving in a 529 because you feel it might hurt your kids chance at financial aid is a bad decision

It is about the same as not investing in a 401 and receiving an employer match because you need the money for lottery tickets to fund a better retirement

 

[RUb-it-in]

Limited to $6500 per year at current roth contribution limit (might increase?). So 35,000 has to be spread out over 5-6 years. Starts 1/1/24.

Tax act passed at the end of last year (SECURE 2.0) allows for some transition of extra 529 funds to Roth IRA's for the beneficiaries beginning next year. See your advisor for detai

 

[JayDogSmooth]

Not saving in a 529 because you feel it might hurt your kids chance at financial aid is a bad decision

It is about the same as not investing in a 401 and receiving an employer match because you need the money for lottery tickets to fund a better retirement

Thought process was investing in other avenues in place of 529 with proceeds going towards college

Essentially hiding money from schools to get financial aid that normally wouldn’t be given out had the schools had access to what we’ve saved under the guise of “they already have the $, Wel give it to another student”

 

[Jtung230]

Yes, likely.

Agree. Mike Rowe from Dirty Jobs has been beating the drum to invest more in training for skilled trades such as electricians, plumbing, welding, etc. Know some people who went into trades who are making multiples of what college graduates make. Was just having a discussion with my barber about this. I sometimes think I should have gone that route. I have not regrets, but sitting at at desk staring at a screen (or screens) 8-10 hours a day gets boring fast.

That grass is so green on the other side

 

[T2Kplus20]

Thought process was investing in other avenues in place of 529 with proceeds going towards college

Essentially hiding money from schools to get financial aid that normally wouldn’t be given out had the schools had access to what we’ve saved under the guise of “they already have the $, Wel give it to another student”

It would be hard to match the tax benefits of a 529 with using other avenues (likely taxable accounts).

 

[tom1944]

Thought process was investing in other avenues in place of 529 with proceeds going towards college

Essentially hiding money from schools to get financial aid that normally wouldn’t be given out had the schools had access to what we’ve saved under the guise of “they already have the $, Wel give it to another student”

The parent’s financial accounts are counted. Unless you plan to commit fraud while completing the FAFSA those accounts are considered in your ability to pay

 

[Knight Shift]

The parent’s financial accounts are counted. Unless you plan to commit fraud while completing the FAFSA those accounts are considered in your ability to pay

Do they still count the parent's main home as an asset? IIRC, when I applied for aid, they counted my parent's home as an asset, and there was an implicit or explicit suggestion that a second mortgage or home equity loan could be had to pay for college?

 

[hoquat63]

I thought a parents 529 counts but a grand parents does not for aid purposes

I believe that is correct

 

[JMORC2003]

Good thread. Any specific plans that you would recommend? I have 3 kids, all 2 years apart so I'm looking at a hefty college tuition bill for a handful of years.

 

[JayDogSmooth]

The parent’s financial accounts are counted. Unless you plan to commit fraud while completing the FAFSA those accounts are considered in your ability to pay

That’s why I’m looking to move it in my wife’s parents name

Thanks to this board for the advice!

 

[tom1944]

That’s why I’m looking to move it in my wife’s parents name

Thanks to this board for the advice!

So gift it to your in-laws which is fine and trust that they will not use it or lose it somehow.

Lot of work and chances to take for very little upside. I think the amount of financial aid you will get is negligible based on your income alone. Figuring if you have enough income to move large chunks to other people than salary alone is going to keep you from getting huge amounts of aid.

Better hope nothing happens to grandma or grandpa that causes problems getting the funds.

 

[Jtung230]

That’s why I’m looking to move it in my wife’s parents name

Thanks to this board for the advice!

Wait until grandpa rolls up in a G wagon

 

[T2Kplus20]

Good thread. Any specific plans that you would recommend? I have 3 kids, all 2 years apart so I'm looking at a hefty college tuition bill for a handful of years.

Deep dive on 529 plans:

https://www.morningstar.com/article...529-ratings-the-top-plans-and-what-they-offer

 

[phs73rc77gsm83]

This is worth a read.

https://www.forbes.com/sites/chrisc...o-a-middle-class-millionaire/?sh=2975373924f9

 

[scarletrat]

Opened 529s for each of my 3 kids. Had auto monthly deposit, used NYSaves as NY state allowed me to deduct contributions from state income tax when I worked in NYC and Kept them there as fund mgr had low fees. Oldest now a frosh in 6-year PharmD program at RU. Paying out of state tuition. Saved 150K, returns were quite good, using now to pay tuition, no taxes on returns. Will use all, and same for 2nd one who will begin college in fall 24.

 

[vkj91]

If you are smart enough and successful enough to have planned a 529 your probably have other investments, equity in your home, and a salary that will disqualify you from meaningful aid anyway.

 

[vkj91]

Also, I don’t understand the negative idea of over investing 529’s that a few people mentioned. Government actually changed rules at one time limiting how much you could put in because wealthy people were just loading them up. I have way more in my kids 529’s than I could ever use. I’ll probably just use it to pay for grandkids school but even if I don’t, by the time I take it out I’ll be retired and even with the penalty it would still be cheaper than paying taxes on it now at top bracket rates.

 

[Jtung230]

Also, I don’t understand the negative idea of over investing 529’s that a few people mentioned. Government actually changed rules at one time limiting how much you could put in because wealthy people were just loading them up. I have way more in my kids 529’s than I could ever use. I’ll probably just use it to pay for grandkids school but even if I don’t, by the time I take it out I’ll be retired and even with the penalty it would still be cheaper than paying taxes on it now at top bracket rates.

Only the gains are tax deferred. It should all be long term capital gains. Top bracket is 20%. But the 10% penalty will make it expensive.

 

[vkj91]

Only the gains are tax deferred. It should all be long term capital gains. Top bracket is 20%. But the 10% penalty will make it expensive.

Gains over 40 years is a lot of money.
And what’s top bracket fed plus NJ today

 

[Jtung230]

Gains over 40 years is a lot of money.
And what’s top bracket fed plus NJ today

If you use it for its purpos, it’s a homerun. But if you don’t, it doesn’t make sense. This is after tax money. most advisors will tell you to do both.

 

[Beancounter88]

Saved a lot in 529 - was worth it. I ended up oversaving because my daughter did us a solid and graduated in 3.5 years. But, I’ll be able to contribute the leftover to my grandkids one day, so all good.

 

[T2Kplus20]

Saved a lot in 529 - was worth it. I ended up oversaving because my daughter did us a solid and graduated in 3.5 years. But, I’ll be able to contribute the leftover to my grandkids one day, so all good.

Being able to move leftover money to the grandkids is an awesome feature, especially with all those years of growth!