August 2013 Moms
Creedon778
member
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529 plans
Creedon778
member
This isn't so much a question post as it is a recommendation for everyone
to take some time to think about setting up a 529 for your little one to
be. I was pretty ignorant about 529 plans before DS came along, but
after reading Family Guide to College Savings which also has this
website with much of the same info (without having to buy the book).
The website is www.savingforcollege.com
I'll post some myths below about 529 plans because I hear them a lot (and no I'm not a financial advisor or anything like that - just trying to be helpful). After a lot of research we ended up going with the Utah plan even though we live in Massachusetts. The fees were low and the performance has been good.
Myth 1: If my child doesn't go to college, I lose all the money in my account. Reality: A 529 plan has more flexibility than you might imagine, says Russell Dunkin, certified financial planner at McKinley Carter Wealth Services in Wheeling, W.V. "First, 529 plans can be used for almost any post-high school education, like trade or technical schools -- even PGA golf professional schools. Don't get trapped into thinking it's only for the traditional undergraduate experience," he says. "Furthermore, you can transfer the assets to a sibling or even yourself," Dunkin says. If you don't like either of those options, you can pull out the money with a nonqualified withdrawal, but you will have to pay taxes on the earnings as well as a 10 percent penalty. Myth 2: If my brilliant or athletic kid gets a full ride, I lose the money in my account.Reality: As with the previous example, you can transfer the money to another beneficiary. But if your kid's so talented that colleges are willing to pay to get him or her in the door, you won't be heavily penalized, says Mary McConnell, director of college savings products for Charles Schwab in San Francisco. "If a child gets a scholarship, the penalty for making nonqualified withdrawals is waived, and there will be income tax only on the account's earnings." Myth 3: I can only invest in my state's plan.Reality: You can invest in any 529 plan from any state, but there's a good reason that most people choose to go with a plan offered by their state, says Dan Danford, chief executive officer of Family Investment Center, an investment management firm in St. Joseph, Mo. "Many states give you a state income tax break if you use the plan offered by your home state," he says. "If you don't like the plan your state offers, you may not get the state income tax breaks, but you still get all the benefits of tax-free accumulation and withdrawals." A few states, including Arizona, Kansas, Maine, Pennsylvania and Missouri, will even give you a state income tax deduction if you choose a 529 plan not offered by your home state. Myth 4: My child can only go to college in the state where the plan has been set up.Reality: You are free to use the 529 savings almost anywhere -- inside and outside your state, says McConnell. "There is no restriction or requirement to use 529 assets for a school (in a state) in which the taxpayer or beneficiary resides," she says. "People can use that money for qualified expenses for any school that's been accredited for financial aid, and that includes many international programs." Myth 5: Only young people can have 529 plans.Reality: Anybody can have a 529 plan, whether they're 8 years old or 80 years old. Savvy people can use this information to save on their own continuing education, says Danford. "If I know I'm going to spend $5,000 on tuition this year for a doctoral program, I can deposit the money in a 529 plan, take my state?s tax deduction and then withdraw the money soon after," says Danford. "There's nothing wrong with that. The whole idea is to encourage people to put money aside to go to school, and if people are going to school, the plan is serving its purpose." Myth 6: I won't get financial aid if my child has a 529 account.Reality: A 529 plan is calculated into the financial aid equation but has a smaller impact than most people realize, says Dunkin. "The assets within a 529 plan are considered parents' assets, which are factored in the financial aid calculation at a much lower percentage than a child's assets," he says. Up to 5.6 percent of these assets may be used to pay for college costs, but compared to other popular college savings tools like custodial accounts or UGMAs, also known as the Uniform Gifts to Minors Act, 529 plans are a very good option. Because UGMA custodial accounts are considered student assets and not parental assets, they are assessed at a rate of 20 percent. Myth 7: My income is too high to contribute to a 529 plan.Reality: Many people assume that the same rules that dictate income limits for IRA accounts or other savings vehicles also apply to 529 plans. This simply isn't true, says McConnell.
"There are no
income limits that regulate how much you can contribute," she says. In
fact, high-income earners may have an advantage. Thanks to special gift-tax exclusions, a married couple can contribute up to $130,000 to a child's 529 account in a single year without incurring any gift tax.
Baby Q born on 7/20/2017
This discussion has been closed.
Re: 529 plans
Seeing this article on Yahoo Finance today made me think about this topic. I was surprised that it said over 2/3's of Americans don't know what 529 plans are. I think of it like a 401K for your kid's college.
https://finance.yahoo.com/news/college-saving-plan-still-eludes-121035902.html
Like to OP said though, check to see if your state has a tax benefit and if it doesn't there are other states that have better plans for you.
Www.clarkhoward.com has a great article on 529 plans as well.
DD2 8.22.13
MMC 1.4.17 at 16w
Expecting #3, EDD 1.29.18
529's aren't right for everyone (not saying the info you gave is bad in anyway). There are several different types of "custodial" accounts besides 529's (UGMA/UTMA depending on your state) and depending on your tax bracket they might be better suited for some people.
For tax/ income and financial aid purposes one is considers the parents money, and the other account is considered the child's money, so if you are going to be looking for financial aid in the future, that is something to consider.
The one thing I don't like is that is it downplays the loss of money if you do not use it for educational expenses. Paying taxes can be around 25% of the money, PLUS a 10% penalty is a good chunk of your money, it is something to consider heavily.
(yes, I do work for an RIA)
Haha...ya. I was like "seriously?"
Baby C - 08.23.13
Oh. Since you work with this stuff, I have a question!
We have a 529 set up with our first. I know you cAn use the money for any of your kids or even yourself if you choose to return to school. So I don't have to open another 529 do I? I can just funnel money into the one right?
That's the one part I never understand.
I was going to post something similar.
It was recommended by one of my girlfriend's financial advisor that she put the money in a retirement savings plan. Retirement savings aren't considered an asset from a financial aide standpoint and the fee to withdraw the money earlier would trump the FA lost.
They really had to sit and play the numbers to make sure it worked, so if it's something you consider make sure you know what you're doing.
DD2 8.22.13
MMC 1.4.17 at 16w
Expecting #3, EDD 1.29.18
The savingsforcollege website also talks about UGMA/UTMAs. We're not eligible in our tax bracket.
While there are tax penalties to not using the money for educational expenses if you don't use it all for your child, you can change the name on it (to a grandchild or niece/nephew). Obviously that's not for everyone, but just something to consider.
You also pay taxes on things like a 401K account once you use the money, but it doesn't mean it's a bad idea.
You can funnel money into one account if you want to and transfer it down the line. But there are yearly limits on how much you can contribute to "each child" every year. So if the limit is 10K per child, you can only put 10K in that account, if you have an account for each child, you can put 10K in each account. Does that make sense?
the point in a 401(k) is that you will withdraw the money at a later time in life (when you are retired) which means you will have a much lower income than you do now (I'm assuming main income would be SS benefits, and any pensions if you have any) translating to lower tax bracket and paying less taxes on it in general, so yes, this is a good idea. Unless you are talking about a ROTH IRA which is post tax dollars and are not taxed when you withdraw.
Putting money in an educational account that might be taxed/penalized 35% if not used for what is intended for isn't a really good idea. As I said, I'm not knocking 529's. many of our clients have them, but you might not want to fully fund your child's 4 year ivy league tuition all in the 529, just my two cents.
Gotcha! I think I will just keep one! Sadly I don't think I will ever have the "problem" of putting 10k in each year! So we are good!