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How much is too much to fully fund 529 for 2 y.o. and infant?
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Anonymous
Conservative-funding PP here. Believe you can use it for most approved education related costs. Books, fees, housing (on or off campus, actually) etc. |
Anonymous
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http://www.savingforcollege.com/eligible_institutions/
your institution has to be on this list to be eligible, it's a federal registry |
Anonymous
| You can't use 529 funds for private school. Only college. That's the crux of the problem. |
Anonymous
You can use it for any DOE accredited institution. These are all post-secondary. http://www.ope.ed.gov/accreditation/ It does include trade schools, graduate schools, cost of books, room, board, and tuition at these schools. Most 529s also have a list of relatives who can spend the money, including usually nieces, nephews, and yourself, if you want to go back to school. While very very unlikely, our first cousin's only child did did in a car accident. She used the money to get a graduate MBA. But this is obviously not a likely scenario... just a very sad instance to keep in mind. |
Anonymous
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Lots of misunderstanding here.. Best advice was from a PP who did multiple accounts (prepaid, 529 and retirement). - Funding a 529 does not result in gift tax. VA gives a 5% deduction from state tax uptp $ 4000 per person per year. You can put in more but can only claim $ 4K/yr in state tax deduction. Other states allow more. - 529 grows tax free but you can change funds only twice a year. Fund choice is also limited. - Best advice is to pay for 2 years of pre-paid college tuition and fund what you think you will need for one more year in a 529. All of these funds can be used for education at any college (private or public) but I believe the school needs to be accredited or be on some sort of list. Of course, the best bang for the buck would be a pre=paid account where your child goes to school in-state. - Roth IRA (if you are eligible) is the best way to go. You can use the money for anything you feel like after 5 years. College expenses qualifies too. - If you make too much money for a Roth, open a traditional (non-deductible IRA) and convert to Roth immediately (same day/week). You can add up to 5K this way and it grows tax-deferred, no penalty on withdrawal and infinite investment options. - For kids that need money in the short-term where there is no possibility of a scholarship or education loans (e.g. Private elementary school, etc) fund a coverdell account. It can be opened in the child's name and money can be withdrawn to pay for any school-related expense. 529 cannot be used for non-college expenses. Here's a good link http://www.finweb.com/financial-planning/coverdell-vs-529-understanding-the-differences-1.html There's also an Independent 529 plan that's meant for a network of private schools. If you have a lot of money, and your child will go to Private college, this is something to consider - https://www.privatecollege529.com/ |
Anonymous
| I think 22:18 is incorrect about several items. Two in particular that jump out at me are (1) the incorrect claim that 529 contributions cannot result in gift tax, and (2) the suggestion to use a retirement savings vehicle (IRA) instead of available college payment options. Also, the Coverdell IRA is about to be seriously limited in 2011. Please check carefully before relying on that advice. |
Anonymous
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I've also been thinking about starting a 529 for my kids. I was waiting for the preschool costs to end first. I can't vouch for any of the tax advice but I like that 22:18 and others have recommended a blend of strategies. I've always been torn between the no risk guarantee of prepaid and hearing that is better to have a 529 with more flexibility - but that would require me to really make sure the investment is growing like it should. I also wanted to take advantage of some of the MD tax break if I had a MD plan versus the advice that some of the other state 529 plans may offer better investment options or lower fees. Having a blended strategy would help me deal with the "what-if" scenarios.
As for the tax advice - I went to the MD 529 plan website and only briefly glanced thru the enrollment info (http://www.collegesavingsmd.org/plan-comparison-chart.aspx?page=plan-comparison). I'm not really in the plan to contribute more than 65K in 5 years boat, but here is what it said for people that are interested. "Federal Gift/Estate Tax. This section only discusses federal gift and estate taxes. The state law treatment of gift and estate taxes varies so you should check with your tax advisor. The federal limits provided are for the 2010 tax year. Note: In future years, the IRS may increase (as a cost-of-living adjustment) the annual amount that can be excluded from federal gift taxes, so you should check with your tax advisor for details. Generally, if the amounts contributed by you on behalf of the Beneficiary together with any other gifts to that person (over and above those made to your Account) do not exceed $13,000 per year ($26,000 for married couples making a proper election), no gift tax will be imposed for that year. Gifts of up to $65,000 can be made in a single year ($130,000 for married couples making a proper election) for a Beneficiary and averaged out over five years for the gift tax exclusion. This allows you to move assets into tax-deferred investments and out of your estate more quickly. Generally, assets in an Account are not included in your estate, unless you elect the five-year averaging and die before the end of the fifth year. In general, if you die with assets still remaining in your Account, the Account’s value will not be included in your estate for federal estate tax purposes. If your Beneficiary dies, the value of the Account may be included in the Beneficiary’s estate for federal tax purposes. Further rules regarding gifts and the generation-skipping transfer tax may apply in the case of distributions, changes of Beneficiaries, and other situations. You should consult with a tax advisor when considering a change of Beneficiary or transfers to another Account or the specific effect of the gift tax and generation-skipping transfer tax on your situation." |
Anonymous
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I'm boggled at the notion of having $200K laying around to put in a 529 account.
Our kids are 12 and 9, and we have about $190K saved towards college for them (combination of 529s and mutual funds) - and I thought that was pretty good, until reading this thread. LOL |
Anonymous
PP, you are in great shape. Lots of oddly incorrect advice being thrown around here by people who are flying just as blind as we are. |
Anonymous
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This is a very useful thread that I will bookmark!
Said the expecting parent of a 2 year old who has yet to set up any college savings at all, and may not be able to until the years of $38,000/year in daycAre expenses is over. |
Anonymous
| We met w/ our financial adviser in 2007 to start a 529 plan for our DD who was 2 mos. old. He recommended we try to have $100K saved for her for a 4 year in-state (VA) public school. So we are doing $200/mos. since she was 3 mos. old and put in whatever extra $$ she may get from grandparents (not much, they mostly give toys). My understanding was if there was $ leftover (like if she got scholarships), then the extra $ can go towards another sibling of her's college. We will start another one when we have a second kid. If the cost is more than what is in the 529 plan when they start college they will have to get a student loan (just like I did). We aren't rich but are trying to be savers in the money/college game and have a nice chunk of change for our kids. We sacrifice monthly to put this $ away now. We won't sacrifice our retirement savings though. We can't borrow for that. |
Anonymous
This is a great start. We started when DD was 7 doing $200/month ($2500/year) to get the MD tax break, and I wish we'd started doing it at birth. At least we'll have something, and the remainder we'll have to borrow or pay cash or share with DD, but would have had so much more if we'd started sooner. The amount is less important than the idea to just START! |
Anonymous
| Another thing with 529's is that if your child gets a grant/scholarship, you can withdraw the equivalent without penalty. |
Anonymous
| I wouldn't fully fund up front. My advice is pay off your mortgage before the college years so you can cash flow part of each year's expenses. |
Anonymous
| OP here, no mortgage. |