Parenting after a Loss

529 Plans? alternatives? need input.

Hey ladies. DH suggested we coinsider doing a 529 plan to save for college for DD.  I don't know much about them and am hoping some of you might have some input on the pros/cons of 529's. 

https://www.collegesavings.org/whatIs529.aspx

Is there a better alternative out there you can recommend?

TIA!

~ Katie

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Re: 529 Plans? alternatives? need input.

  • We are doing a 529 for Avery... it is definitely the best thing (i think) to save for college.  It's similar to a 401K for retirement... you pick the funds you want to invest in.  You get a tax break if you use the $ for education.  Only downfall would be if your child doesn't go to college...
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  • imagell3414:
    We are doing a 529 for Avery... it is definitely the best thing (i think) to save for college.  It's similar to a 401K for retirement... you pick the funds you want to invest in.  You get a tax break if you use the $ for education.  Only downfall would be if your child doesn't go to college...

     Laura - did you already start one? Do you have to commit to putting in a certain amount every year? Who do you go thru to set it up? your personal financial planner? your accountant? (we have both). sorry, i just don't know anything.

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  • We are in the process of picking which one to go with.  We've been working with our financial advisor to figure it all out... but I imagine you can purchase them yourself online through one of the investment sites.  We are planning on automatically adding a set amount to it each month... that way we don't have to even think about it.  I think you can do it either way... add $ a couple times a year or have it done automatically each month.

     It's confusing stuff... there are just so many out there.

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  • We're doing one for DD. We chose how much to contribute each month and it's automatically removed from our account on a date we specify. Our plan is an age based plan (they differ in their risk based on how old the kid is when you start it). Our plan is more aggressive since she's younger, which means right now it's not worth what we've put into it so far. With ours, you can transfer it to anyone else at anytime without a penalty-so say, you decide to go back to school you can transfer it to you and use it, etc. Or, you can take the tax hit and buy a boat or something (if your kid gets a full ride).

    Ours is through Putnam, but I've heard Vanguard's is really good. 

  • We've looked into this a bit - 529 details vary by state.  In our state, you can sign up online very easily (https://missourimost.s.upromise.com/).  Like the pp said, it can only be used for college.  We're considering using funds in our Roth then withdrawing as needed instead, but we haven't looked into the details of this yet.   Vanguard has some great info on their website and even a tool that lets you take a quiz to determine the best option for you (https://personal.vanguard.com/us/accounttypes/college?Entry=Homeoffer04).

  • I just sent the money away today to open DS's 529.  I am going with our state's plan (PA--it's called NowU), but DD has the UPromise one which is Nevada's state plan.

    529's are pretty much like your 401(k)--you put money in and it is invested in a mix of stocks/bonds/money market funds of your chosing.  Most plans have an age-based option that automatically changes it's distribution as the child ages--you pretty much have to do nothing after you open it.  When they are babies, these plans hold mostly stocks, but by the time they are 17 the holdings are much more conservative.  Both of our kids' 529s are of this option.

    Or, you can pick your own distribution, just like you can with your 401(k).  But just to warn you, either way you go, they are going to lose money right now if they are in stocks (again, just like your retirement account is).  So don't get scared off by seeing the value drop.  The money that you put in purchases "units" and the value of the units is based on the stock market.  Just try to focus on how many units you own--their value should increase over time.

    Pretty much any other alternative will not have the tax advantages of a 529.  Some people just put money into a mutal fund, but you are going to pay taxes on those earnings--a 529 you don't.  When it is time to file for financial aid other accounts will count against you as assets and make you less eligible.  529's are not counted as assets in the same way and usually don't count against you on the FAFSA.  And if your DC doesn't go to college, you can transfer the money to another relative, anyone from another child to a step-family member to a first cousin.

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