529 Plan: Which State's Plan Did You Choose

MamatoJackson · February 2012

And what made you choose that one?

Stacyc625 · February 2012

In my financial opinion they are not a good educational investment.

MamatoJackson · February 2012

This is good info to have... We are not starting one yet but will be in about a year and am in the info-gathering stages... what do you recommend?

laney75 · February 2012

We have one for each child, I think they are from Alaska. Our financial advisor suggested this particular one. (that sounds awful)

AlabamaMamma224 · February 2012

I don't trust the government with money. Have you looked into ESA's?

WhitePicketFence · February 2012

We have the PA plan for the state tax benefits (we live in PA).

MamatoJackson · February 2012

Stacyc625:
In my financial opinion they are not a good educational investment.

Don't hold out on me.

lucylea · February 2012

We prefer to save in traditional savings accounts and well diversified investments. If our kids are lucky like me then we won't have to pay for college (I went on grants and scholarships) and I don't want to be penalized for using the money elsewhere.

toadstool · February 2012

MamatoJackson:

Stacyc625:
In my financial opinion they are not a good educational investment.

Don't hold out on me.

I wanna know too. We have a traditional savings right now, but we were planning on putting the money in a 529.

pinksweetpea2 · February 2012

Those plans are not very good because if your child decides not to go to college or delay college, you can't use the money for anything else.

We actually decided to go with life insurance instead. It is really neat...we can even choose to borrow against our plan (without deadlines or penalties) so we can keep building our retirement while we pay for college. I am probably not explaining it right, but it made a lot of sense when we met with our insurance guy. DH has a finance degree and he thinks it is a very good plan.

GL

Sharon21 · February 2012

Stacyc625:
In my financial opinion they are not a good educational investment.

I agree. My DH was a National Merit Scholar and got a full scholarship including room, board, and spending money. If his parents had had a 529 for him they would have gotten screwed. Obviously a scholarship is the best case scenario and we aren't counting on it. We will probably just pay out of our savings or possibly take an interest free loan from our 401K.

Stacyc625 · February 2012

Ok- here is a good article on the tax benefits/cons on 529s by state. And yes PA has a really nice tax benefit for residents-

https://online.wsj.com/article/SB10001424052970204903804577082221257535292.html

I say that they are not a good vehicle for investing for a couple of different reasons.

My BEST advice for ANYONE considering college savings for their children- is FIRST max your personal retirement plan (both you and DH) to the FULLEST extent to maximize on tax benefits. FIRST-- your kids can take out school loans to go to school- you can't take a loan out to life after retirement.

My beef with 529s are that there are just so many scenarios that could happen in the future that could totally make that investment completely worthless- -your kid could get a scholarship/full ride, your kid might not want to go to college (and everything in between). Putting it in a high yield savings account is just that much smarter and covers the bases- where if you run in to a snag down the road- Goodness forbid a SERIOUS financial emergency- you can withdraw the funds with no penalties (obv with a 529 it can only be used for tuition). Or say your child wants to skip college and go in to the military- (where the college will be paid for in full practically after commitment is done)- What do you do with money that sits in a 529. -?- It does exactly that. Sits. - To me it is a dangerous gamble to earmark hard earned $ for a specific cause that may or may not come to fruition.

If you put it in a high yield savings account- if your kids don't want to go to college- at least then you can pull your money out and buy a nice sports car for yourself. (or whatever).

meangene · February 2012

It's been a few years, but aren't 529s transferable to other kids, cousins, parents, children, etc.? I may be thinking about Coverdell ESAs.

MainelyFoolish · February 2012

We are putting some of DD's college money into our state's 529 plan. I chose our state plan because of the tax benefits and matching grants available to state residents.

I agree that it's a gamble whether your child goes to college or whether your child gets a full scholarship with tuition, room, board, and everything else. IMO, chances are good that DD will go to college and that she won't get a fully free ride so I'm putting some money into the 529. If DD doesn't use the money, we can transfer it to kid #2. If neither of them use the money, we can transfer it to another close relative or take the penalty.

Overall, I think it's worth the small risk for the potential payoff. We also have other investments intended to eventually pay for college, so all our eggs are not in one basket.

regenab · February 2012

Does your state have a prepaid college plan? Here in FL we are prepaying our girls college tuition. It is at a set amount (based on when we signed up) and they can choose to go to any state school in FL. If they don't use the money, either we can transfer it to another child or we get the money back. If they decide to go to a private school or an out of state school the plan send the money to that school and our girls will need to make up the difference in tuition costs. So for us it is a win win. We don't get any tax benefits so that is why we get the money back if they don't go to school or if they get full ride scholarships. Now we are locked into a set monthly cost for the next 15 years, so it is like a car payment, you can't just miss and month and make it up the next month. But for our 2 girls it cost us $350 a month and this covers all their tuition, fees and books. We will just need to handle living expenses and we didn't want to pre pay for that because they may decide to go to our local school (USF) and then they would live at home.

jetskreemr · February 2012

We went with a managed plan in our state of MN.

And sorry, I disagree that putting the money in a high-interest savings account is better than a 529. We max out our retirement plans, but any gift money that LO has received so far goes into her 529. The money in a 529 is earning WAY more interest than any savings account. And this is coming from a person who puts our savings in online banks to chase after high interest rates, so I see the huge difference there. Earning an average of 8% each year, vs only 1-2% each year (even my long-term CD ladder only gets around 2% right now), over 18 years is losing a significant amount of money, not to mention not even keeping up with inflation. You can go to Bankrate.com and check on one of their savings calculators to see the difference. So then even if you have to pay the 10% penalty if your LO doesn't go to college or gets scholarships, you would still be coming out ahead by having the money in a 529 account, no question there! Our other solution is to only have one 529 account, so if only one of our two kids needs the money, it can be transferred to either one.

That being said, if you don't have a ROTH account, you can get one and use that as the investment vehicle for your LOs college money. After 5 years, you can take out the principle with no penalties, so if you max it out each year until your LO is 18 you would have a significant amount of money saved up. Since we already max both of ours out, we can't open another one for her, so the 529 made the most sense for us.

529 Plan: Which State's Plan Did You Choose

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