Are we suckers for diligently saving in our kids' 529s?

[Anonymous]

We've been playing around with various schools' net price calculators and it seems that our EFC goes up significantly when we put in 529 data. But had we put that money in, say, a Roth IRA instead, that money wouldn't be lumped in with our assets. Or had we saved nothing at all, the schools would be picking up more of the bill. So freaking frustrating.

[Anonymous]

Yes. Stop the 529 and start back dooring Roth.

[Anonymous]

^^^^
This is what I do.

[Anonymous]

Your EFC is more or less calculated by using your income for 1-2 years prior to your DC's freshman year of college, and you have to file with your current income every year after that for FAFSA. For CSS Profile, your assets will also be closely examined. And if you're a business owner, you're just basically screwed.

Save for college, OP. You don't say how old your DC is, but it's better to be safe than sorry. Take it from someone who is sorry.

[Anonymous]

We decided against 529s when we realized it could be used for college and nothing else. All things considered, huge waste if kid decides not to go to college or is unable to for some reason.

[Anonymous]

We just pay cash every year for OOS. It sucks big time. Wish we had your 529 but hey $60000 out of pocket works.

[Anonymous]

We decided against 529s when we realized it could be used for college and nothing else. All things considered, huge waste if kid decides not to go to college or is unable to for some reason.

Not a huge waste. The penalty is small compared to the returns you could get (just 10% of returns is the penalty for withdrawal for noneducational use). We made 35K in ours. That really helps us with our son's college education, but if he had not gone, we would have still made a healthy return (no loss). It is not a "huge waste". You can also use it for another child, such as a niece, nephew or grandchild (or for yourself if you go back to school).

We did not have to file the CSS for the college that our son attended (one more reason we loved the school). They also gave us merit aid. We did not qualify for anything else. The 529 made absolutely no difference regarding our ability to pay. SAVE.

[Anonymous]

^ With a 529 you are making money tax free. It's a great thing. Obama tried to get rid of it, but the blow back was so huge that he rescinded the idea within two days! Look it up.

[Anonymous]

Anonymous wrote:Yes. Stop the 529 and start back dooring Roth.

What does it mean to back door it?

[Anonymous]

Not everyone can do a backdoor Roth.
Those of us with a bunch of regular IRA funds are stuck.

[Anonymous]

How old will you be when your child goes to college? You can not take money out of a Roth until you are almost 60. If you need money for your child's college and don't have it, your child will have to borrow. Are you okay with that?

[Anonymous]

Anonymous wrote:

We decided against 529s when we realized it could be used for college and nothing else. All things considered, huge waste if kid decides not to go to college or is unable to for some reason.

Not a huge waste. The penalty is small compared to the returns you could get (just 10% of returns is the penalty for withdrawal for noneducational use). We made 35K in ours. That really helps us with our son's college education, but if he had not gone, we would have still made a healthy return (no loss). It is not a "huge waste". You can also use it for another child, such as a niece, nephew or grandchild (or for yourself if you go back to school).

We did not have to file the CSS for the college that our son attended (one more reason we loved the school). They also gave us merit aid. We did not qualify for anything else. The 529 made absolutely no difference regarding our ability to pay. SAVE.

But wouldn't that be a $3500 penalty, for example, in your case? Are you saying you wouldn't have earned as much returns via any other investment vehicle?

[Anonymous]

But wouldn't that be a $3500 penalty, for example, in your case? Are you saying you wouldn't have earned as much returns via any other investment vehicle?

Of course we may have earned more somewhere else, but we would have been paying taxes on the proceeds all those years and, we did not take a penalty because our son went to college (so we did not lose 3500). I can see where someone whose child is not going to college might think twice about a 529, but we pretty much knew by the time he was in 6th grade that he would be going to college.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

We decided against 529s when we realized it could be used for college and nothing else. All things considered, huge waste if kid decides not to go to college or is unable to for some reason.

Not a huge waste. The penalty is small compared to the returns you could get (just 10% of returns is the penalty for withdrawal for noneducational use). We made 35K in ours. That really helps us with our son's college education, but if he had not gone, we would have still made a healthy return (no loss). It is not a "huge waste". You can also use it for another child, such as a niece, nephew or grandchild (or for yourself if you go back to school).

We did not have to file the CSS for the college that our son attended (one more reason we loved the school). They also gave us merit aid. We did not qualify for anything else. The 529 made absolutely no difference regarding our ability to pay. SAVE.

But wouldn't that be a $3500 penalty, for example, in your case? Are you saying you wouldn't have earned as much returns via any other investment vehicle?

I know I get a Maryland tax break for the money I put in; that's worth something. We put in 50K, so we saved almost 3K in MD taxes; would come close to breaking even in this case.

[Anonymous]

Of course you are taking a risk with a 529---the risk being that your child does not go to college. But no investment is risk free. The risk of not saving was greater for us. If our child had to take out college loans, his interest rate would more than offset the 3500 we would lose by taking the risk that he would not go to college. These are sort of the life calculations you make. But, if you have plenty of money, you probably do not need a 529. I certainly would not count on a college giving you extra financial aid because you don't have a 529 though. Many colleges ask about all of your assets and they will see your money in other places anyway. There's no getting a "deal" because you hid your money. The colleges are pretty savvy on this stuff. Just save.