Why do a 529?

[Anonymous]

Can someone explain to me the point of a 529? I know that you can write it off in state taxes, but beyond that what are the benefits? It seems to me that investing that money in a standard stock account is much more preferable as you can control your portfolio and get much higher gains. I’m a MD resident. Can someone explain why I should choose a 529 over a stick account?

[Anonymous]

Well for one thing you would pay capital gains taxes on a distribution from a regular brokerage account.

The state income tax deduction is worth a little but the tax-free growth and withdrawal (for qualifying expenses) is the main feature.

[Anonymous]

Anonymous wrote:Well for one thing you would pay capital gains taxes on a distribution from a regular brokerage account.

The state income tax deduction is worth a little but the tax-free growth and withdrawal (for qualifying expenses) is the main feature.

OP here. So I’ve been saving in a 529 for a couple of years and the gains are small. I believe 4% total in two years. Seems to me I could’ve made out better with standard account, those have an 18% return for me over same period. I would’ve made more even when paying capital gains tax. Am I missing something?

[Anonymous]

Anonymous wrote:Can someone explain to me the point of a 529? I know that you can write it off in state taxes, but beyond that what are the benefits? It seems to me that investing that money in a standard stock account is much more preferable as you can control your portfolio and get much higher gains. I’m a MD resident. Can someone explain why I should choose a 529 over a stick account?

You can invest in a pretty wide range of options in the T Rowe Plan.

Just invest it aggressively. No one is stoping you.

It grows tax deferred for 18+ years which is significant if you are a high income earner with a large balance.

[Anonymous]

Anonymous wrote:Can someone explain to me the point of a 529? I know that you can write it off in state taxes, but beyond that what are the benefits? It seems to me that investing that money in a standard stock account is much more preferable as you can control your portfolio and get much higher gains. I’m a MD resident. Can someone explain why I should choose a 529 over a stick account?

Maryland 529 offers index mutual funds such as the s and p. I highly doubt you are capable OP of producing higher gains than the market average.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Well for one thing you would pay capital gains taxes on a distribution from a regular brokerage account.

The state income tax deduction is worth a little but the tax-free growth and withdrawal (for qualifying expenses) is the main feature.

OP here. So I’ve been saving in a 529 for a couple of years and the gains are small. I believe 4% total in two years. Seems to me I could’ve made out better with standard account, those have an 18% return for me over same period. I would’ve made more even when paying capital gains tax. Am I missing something?

Yes, you invested it poorly?

[Anonymous]

I never had a 529 plan for any of the kids and no college savings for them either. I just paid as I went.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Well for one thing you would pay capital gains taxes on a distribution from a regular brokerage account.

The state income tax deduction is worth a little but the tax-free growth and withdrawal (for qualifying expenses) is the main feature.

OP here. So I’ve been saving in a 529 for a couple of years and the gains are small. I believe 4% total in two years. Seems to me I could’ve made out better with standard account, those have an 18% return for me over same period. I would’ve made more even when paying capital gains tax. Am I missing something?

Yeah, you clearly chose a shitty investment vehicle for your 529.

[Anonymous]

Another advantage — unfortunately something I saw up close — is that money in 529s can’t be easily grabbed in contentious divorce. So, if you fund early in life, it protects against a parent who may develop mental illness or go off the rails.

I saw this with a friend, whose husband (who was stable and productive when the kids were born) went off the rails in mid-life. He decided he didn’t want to pay for the education of kids at all any more and they could go to community college. This is after telling them for years college was important. Having money pre-allocated in 529s infuriated him, but he could not take the money from his kids and they were able to go to college. He refused to contribute at all, but they went anyhow. They hate him, and it was emotionally hard, but at least they got to college.

[Anonymous]

Op, put it into the MD global equity fund. Lowest fees and highest average returns out of the MD 529 funds. I’ve averaged 12% over the last 13 years.

[Anonymous]

Anonymous wrote:Op, put it into the MD global equity fund. Lowest fees and highest average returns out of the MD 529 funds. I’ve averaged 12% over the last 13 years.

Thanks! I’m currently in a plan managed by Fidelity. Does anyone have recs for a Fidelity plan?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Op, put it into the MD global equity fund. Lowest fees and highest average returns out of the MD 529 funds. I’ve averaged 12% over the last 13 years.

Thanks! I’m currently in a plan managed by Fidelity. Does anyone have recs for a Fidelity plan?

Do you not use the MD plan?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Can someone explain to me the point of a 529? I know that you can write it off in state taxes, but beyond that what are the benefits? It seems to me that investing that money in a standard stock account is much more preferable as you can control your portfolio and get much higher gains. I’m a MD resident. Can someone explain why I should choose a 529 over a stick account?

You can invest in a pretty wide range of options in the T Rowe Plan.

Just invest it aggressively. No one is stoping you.

It grows tax deferred for 18+ years which is significant if you are a high income earner with a large balance.

+1

Pick a more aggressive investment choices within your plan, or switch plans to one with more choices. Key benefits is that it grows tax free---you do not pay any cap gains while it grows or when withdrawing for "educational purposes". You can also withdraw tax free if your kid gets merit awards and you don't need it, you can only withdraw the amount matching the merit awards.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Can someone explain to me the point of a 529? I know that you can write it off in state taxes, but beyond that what are the benefits? It seems to me that investing that money in a standard stock account is much more preferable as you can control your portfolio and get much higher gains. I’m a MD resident. Can someone explain why I should choose a 529 over a stick account?

You can invest in a pretty wide range of options in the T Rowe Plan.

Just invest it aggressively. No one is stoping you.

It grows tax deferred for 18+ years which is significant if you are a high income earner with a large balance.

+1

Pick a more aggressive investment choices within your plan, or switch plans to one with more choices. Key benefits is that it grows tax free---you do not pay any cap gains while it grows or when withdrawing for "educational purposes". You can also withdraw tax free if your kid gets merit awards and you don't need it, you can only withdraw the amount matching the merit awards.

Any penalties for withdrawing if merit award received? Do sports scholarships count? Does the withdrawal have to go to a Roth or specified use or is it cash?

[Anonymous]

Anonymous wrote:Well for one thing you would pay capital gains taxes on a distribution from a regular brokerage account.

The state income tax deduction is worth a little but the tax-free growth and withdrawal (for qualifying expenses) is the main feature.

+1