529 vs traditional savings

rosalyian · June 2011

I can't choose. what helped you decide between the two options?

wtiger9 · June 2011

Right now we have all of DS's money in a traditional savings account, but we will probably try to move it to something that would earn more interest.

We chose not to do the 529 just in case he gets some sort of full ride scholarship.

Ciconrad · June 2011

We did 529 because the rate of return far exceeds the interest rate on savings right now. You'll be lucky to get 1% on a savings account right now but our 529 earned about 12% last year. It's more risky but since it's a long term investment and our kids are very young, we are ok with the risk compared to just putting it in savings.

kcisthebombdotcom · June 2011

We do roth ira/mutual funds for our investments. If you're market saavy (or know someone that is), you can make a lot more. Plus, there's a lot of rules on 529s-what happens if your child doest choose college or gets a full paid scholorship?

If you choose a roth, financial aid doesnt take that into account when making their determination as well.

Shayna0182 · June 2011

I work in this field, and the only thing I'll say about the 529, is that it must be used for qualified education expenses. So if you're child opts not to go to college, you wouldn't be able to use like a savings account. We went the savings account route.

Reagan1010 · June 2011

We chose Roth IRAs instead of a 529. I like that if DS would happen to get a full ride somewhere that he could use that money for something like a house, starting a business....anything really.

rainlily · June 2011

Shayna0182:
I work in this field, and the only thing I'll say about the 529, is that it must be used for qualified education expenses. So if you're child opts not to go to college, you wouldn't be able to use like a savings account. We went the savings account route.

So what happens to the money in the account if your child decides not to go to college?

Ciconrad · June 2011

rainlily:

Shayna0182:
I work in this field, and the only thing I'll say about the 529, is that it must be used for qualified education expenses. So if you're child opts not to go to college, you wouldn't be able to use like a savings account. We went the savings account route.

So what happens to the money in the account if your child decides not to go to college?

You can pull it, you just pay a penalty (usually 10%) and taxes on the earnings income. You can also roll it over between children with no penalty (so if one child didn't go to college or got a scholarship, you could still use it for another) For us, it still makes sense over a roth IRA. We make too much to qualify for the tax benefits that a Roth IRA offers. However, we can take advantage of the tax free earnings on a 529 and are able to take the deduction for our contrubutions each year. We are planning on having 3 children and full-ride scholarships are pretty rare, so whether its for undergrad or grad school, I am sure the money will get used between the 3 children. I believe some states also allow you to draw the money with limited penalties if your child does get a full scholarship.

It's not the right option for everyone but for us it's absolutely the best choice. We are also investing in mutual funds/iras and 401k, so it's just adding to our diversified investments and very tax advantageous for us.

HSartteach · June 2011

We chose because of the interest rate, and a few other things...I think it's "tax-free". We like that it can be used for college, community college, trade school, school supplies, and the like. I would rather have to take the penalty in the (hopefully) rare case that my LO or LOs don't do some sort of post-high school higher education. I don't want to be caught without anything. And, as tuition prices increase, I don't think we would have enough if we put what we are putting into the 529 into a traditional savings account instead.

I know there is a lot of money out there in scholarships, but in reality, I think those of you banking on a "full-ride" are being ignorant. I am a high school teacher, and I have yet to see any of our grads receive a full-ride.

HSartteach · June 2011

duplicate post

lil_rhody · June 2011

We have a 529 up to an account where it gives us a tax advantage. Everything else he gets as gifts and things goes into a regular savings account.

rainlily · June 2011

Ciconrad:
rainlily:

Shayna0182:
I work in this field, and the only thing I'll say about the 529, is that it must be used for qualified education expenses. So if you're child opts not to go to college, you wouldn't be able to use like a savings account. We went the savings account route.

So what happens to the money in the account if your child decides not to go to college?

You can pull it, you just pay a penalty (usually 10%) and taxes on the earnings income. You can also roll it over between children with no penalty (so if one child didn't go to college or got a scholarship, you could still use it for another) For us, it still makes sense over a roth IRA. We make too much to qualify for the tax benefits that a Roth IRA offers. However, we can take advantage of the tax free earnings on a 529 and are able to take the deduction for our contrubutions each year. We are planning on having 3 children and full-ride scholarships are pretty rare, so whether its for undergrad or grad school, I am sure the money will get used between the 3 children. I believe some states also allow you to draw the money with limited penalties if your child does get a full scholarship.

It's not the right option for everyone but for us it's absolutely the best choice. We are also investing in mutual funds/iras and 401k, so it's just adding to our diversified investments and very tax advantageous for us.

Thanks. We also have a 529 account and thought that it was the best option for us. My husband and I both have doctorate degrees and we assume that our children will also go to college and graduate school. I am not counting on a full-ride scholarship for either child.

bride2be79 · June 2011

wtiger9:

Right now we have all of DS's money in a traditional savings account, but we will probably try to move it to something that would earn more interest.

We chose not to do the 529 just in case he gets some sort of full ride scholarship.

Please talk to a financial planner!!! If your child gets a scholarship, the amount of money equal to the scholarship can be taken out of the 529 without penalty. Any excess can also be used for siblings or even parents (i.e. you). At current interest rates you would have to put almost the entire cost of college (estimated to be $250k at a state school by the time our kids go) into a savings account. If you start now, you will have to put far less than that into a 529 plan because the interest is so much higher.

You can also withdraw money from the 529 for "qualifying" expenses like medical expenses or a down payment on a house. You do have to pay a small penalty (not on medical I don't think) but you are still usually ahead of what you would have been if it were just a savings account because of the higher interest rates on a 529.

kirkette · June 2011

lil_rhody:
We have a 529 up to an account where it gives us a tax advantage. Everything else he gets as gifts and things goes into a regular savings account.

We have a 529 and a traditional savings account set up for LO too.

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