College financing cash flow plus 529 best strategy

[Anonymous]

We are about to start paying for college. We have about enough in the 529 to pay for 50% of college costs for 4 years and will cash flow the rest. Is there a best way to do this? Pay two years with all 529 while saving and then pay with cash? Pay 50% with each each semester? We don’t qualify for financial aid so depleting the 529 wont result in aid in the last two years.

PS: Our income recently increased substantially which is both why we don’t have enough in the 529 and why we can cash flow the rest because we have kept the same standard of living as before the income increase.

[Anonymous]

I don’t think it matters unless you want to time the market— if you leave the 529 money in something other than money market accounts you are making a bet on that investment doing better than a money market over the next four years.

Maybe that’s something you want to do or maybe it isn’t.

[Anonymous]

I have our 529s half in interest-bearing accounts and half in stock mutual funds. When the markets are up, as they are now, I draw from the stock accounts. When they have suffered losses, as they had six months ago, I draw from the cash accounts. You could do the same with your 529s vs. cash flow. (That’s assuming your 529s are at least partially in equities.)

[Anonymous]

We are in the same situation. We are using cash flow for the first 2 years and also saving some more (so maybe cash flow for 3 semesters, not 4).

[Anonymous]

Front load your 529 withdrawals, at least partially, so you don't get stuck with leftover locked up money.


Also, if you are in MD, you can contribute to 529 and then withdraw soon after, to get MD tax deduction.

[Anonymous]

We're doing this now. Used 529 to pay for 3 years for Kid 1. Will cash flow this year.

Using 529 for kid 2 now and will need to cash flow the 4th year definitely, but maybe part of the third year too.

[Anonymous]

Anonymous wrote:Front load your 529 withdrawals, at least partially, so you don't get stuck with leftover locked up money.


Also, if you are in MD, you can contribute to 529 and then withdraw soon after, to get MD tax deduction.

Agree.

[Anonymous]

529s are amazing tax-sheltered wealth transfers. Kids can use for grad school or for retirement (thanks Biden!). Continue to contribute to 529 and depending on the state you get the tax deduction. Cash flow as much as you can (unless you are also behind on retirement).

[Anonymous]

I am in a similar situation and am paying 50% each semester. I have two kids overlapping a couple years in college so I’d rather pay 50% from 529 to not make any one year overly expensive out of pocket.

[Anonymous]

Anonymous wrote:We are about to start paying for college. We have about enough in the 529 to pay for 50% of college costs for 4 years and will cash flow the rest. Is there a best way to do this? Pay two years with all 529 while saving and then pay with cash? Pay 50% with each each semester? We don’t qualify for financial aid so depleting the 529 wont result in aid in the last two years.

PS: Our income recently increased substantially which is both why we don’t have enough in the 529 and why we can cash flow the rest because we have kept the same standard of living as before the income increase.

We are kinda doing this.. In VA. We have 2 kids with one in college. We add $32K each year (32K/kid; upto gift tax max) so we can claim the 5.75% VA state tax deduction and turn around and withdraw the money spent for the year on college for kid 1. We are effectively cashflowing about half of older DC's 80K/yr but routing it through VA529 to get that 5.75% rebate.

[Anonymous]

Maybe use 529 first and then continue to put the cash you would cash flow tuition into the 529 for the tax break (if it applies to your state). I also would consider using 529 first in case your kid drops out, takes a year off, transfers to a less expensive school, etc. for whatever reason. You don’t want to be stuck with money in a 529 and no tuition to pay!

[Anonymous]

Assuming your 529 will grow and be worth later than it is now, and you want to maximize your taxable deduction, cash flow the first years and withdraw the 529 funds later. That assumption that funds will grow however, isn't a guarantee at the moment.

[Anonymous]

Anonymous wrote:Maybe use 529 first and then continue to put the cash you would cash flow tuition into the 529 for the tax break (if it applies to your state). I also would consider using 529 first in case your kid drops out, takes a year off, transfers to a less expensive school, etc. for whatever reason. You don’t want to be stuck with money in a 529 and no tuition to pay!

NP here. I'm looking at this situation and reading this thread for tips. This seems to make the most sense to me. Please let me know if I'm missing something.

[Anonymous]

I'd try to spend 529 in first three years and cash fund the last year. i think all of us are saying the same thing, maybe slightly different but basically the same idea. Use 529 first.

[Anonymous]

Anonymous wrote:529s are amazing tax-sheltered wealth transfers. Kids can use for grad school or for retirement (thanks Biden!). Continue to contribute to 529 and depending on the state you get the tax deduction. Cash flow as much as you can (unless you are also behind on retirement).

Can you point me to how to use 529 for retirement? I have tried to find this without success.
(I know google is my friend - but the ones that popped I must have been using the wrong words)

Thanks so much