When to stop contributing to a 529 plan

[Anonymous]

Are your goals to fund your kids’ college? Grad school? Have money for future generations?

[Anonymous]

Anonymous wrote:Fund the 529 with enough for in-state, and keep putting away more in a brokerage account. This way, if they go in-state you won't lose the money, and if they go private and/or expensive, you have the funds to cover their education, without any downsides (you can use the money for anything you want).

This is a good strategy, although keep in mind that the income that you put in the brokerage account is taxable income while the money you put into the 529 isn't (unless you don't use it and eventually pay taxes on whatever you don't use).

[Anonymous]

I’ve found that the options available to me in the Maryland 529 aren’t nearly as plentiful as I’m a regular investment account. I also don’t like that I can only shift among investments twice per year. (I went years with few changes but with the markets the way they are I find that to be a big constraint. Thus I only put as much into the 529 as helps with the Md tax break and all other savings go into a regular brokerage account earmarked for college expenses.

Keep in mind that your kid might get scholarships or select a cheaper school.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:In this case, for a 12 year old. No other kids to whom we can pass down any excess balance, and we're hoping to fully fund undergrad. We will be retired when kid is in college, so hoping to make a good guess. Current balance is pretty high, but I'm curious where others stop. If your goal is to fully fund a school that costs $80k per year, would you stop contributing if the balance is less than $320,000 because you assume at least some growth that outpaces inflation?

Well, what is it? Why do people share half-ass info. when asking for advice? This is an anonymous forum!

OP. Thanks for all the advice. Good point about the 10% penalty being not that significant. I’m probably overthinking the risk of overfunding. Balance is currently $245k for 12 yo. I’m still contributing $17k per year, and now I’m starting to wonder when to stop contributions.

It depends. Do you think your kid has the resume and or desire to attend a $80K+ university (all of the T25 cost near that)? Do you think they will want grad school? Do you have other kids to transfer the money to if this kid doesn't use it?
If you overfund, are you willing to leave it there and just give it to your kid, so they can use it later for school themselves, or for their own kids (your grandkids)?

Personally, I would run the calculations on what you currently have and what that will be worth in 6 years. I think you will have plenty, so unless grad school is planned for, I would stop saving in 529 and start saving in other vehicles, that you won't pay a penalty for access if you don't need for college.

Your $245K should easily be over $400K when your kid graduates HS, even with you moving a portion to "safer" investments/MM when they turn 16.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:In this case, for a 12 year old. No other kids to whom we can pass down any excess balance, and we're hoping to fully fund undergrad. We will be retired when kid is in college, so hoping to make a good guess. Current balance is pretty high, but I'm curious where others stop. If your goal is to fully fund a school that costs $80k per year, would you stop contributing if the balance is less than $320,000 because you assume at least some growth that outpaces inflation?

Well, what is it? Why do people share half-ass info. when asking for advice? This is an anonymous forum!

OP. Thanks for all the advice. Good point about the 10% penalty being not that significant. I’m probably overthinking the risk of overfunding. Balance is currently $245k for 12 yo. I’m still contributing $17k per year, and now I’m starting to wonder when to stop contributions.

I think you can stop NOW unless you plan to have additional kids or if your kid attends medical/law school and you want to fund that too.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:In this case, for a 12 year old. No other kids to whom we can pass down any excess balance, and we're hoping to fully fund undergrad. We will be retired when kid is in college, so hoping to make a good guess. Current balance is pretty high, but I'm curious where others stop. If your goal is to fully fund a school that costs $80k per year, would you stop contributing if the balance is less than $320,000 because you assume at least some growth that outpaces inflation?

Well, what is it? Why do people share half-ass info. when asking for advice? This is an anonymous forum!

OP. Thanks for all the advice. Good point about the 10% penalty being not that significant. I’m probably overthinking the risk of overfunding. Balance is currently $245k for 12 yo. I’m still contributing $17k per year, and now I’m starting to wonder when to stop contributions.

It depends. Do you think your kid has the resume and or desire to attend a $80K+ university (all of the T25 cost near that)? Do you think they will want grad school? Do you have other kids to transfer the money to if this kid doesn't use it?
If you overfund, are you willing to leave it there and just give it to your kid, so they can use it later for school themselves, or for their own kids (your grandkids)?

Personally, I would run the calculations on what you currently have and what that will be worth in 6 years. I think you will have plenty, so unless grad school is planned for, I would stop saving in 529 and start saving in other vehicles, that you won't pay a penalty for access if you don't need for college.

Your $245K should easily be over $400K when your kid graduates HS, even with you moving a portion to "safer" investments/MM when they turn 16.

Thanks. No other kids to pass the excess balance on to. Happy to let it go to future generations, but we're not so wealthy that we wouldn't miss it today. I I've been targeting NESCAC schools recently because they would be a good fit for his personality, athletic and academic interests, so likely looking at ~ $80k per year. Grad school of any kind is unlikely, but at this age, it's hard to know.

[Anonymous]

Anonymous wrote:The withdrawal penalty is only 10% of the gains.

If you put $200K in, and get $300K gains, and only spend $100K (in-state tuition + boarding), the penalty is at most 10% of the gains: 10% *($300K - (60% * 100K)) = $24K, while avoiding any intermediate taxes during the growth phase.

That's a big amount by itself, but not so big in the 20-year scheme of things with avoiding paying all that tuition, and considering the gains were largely unearned free investment income above inflation.

but you also have to pay the taxes. so 10% penalty + 20% cap gains, most likely.

[Anonymous]

Anonymous wrote:Fund the 529 with enough for in-state, and keep putting away more in a brokerage account. This way, if they go in-state you won't lose the money, and if they go private and/or expensive, you have the funds to cover their education, without any downsides (you can use the money for anything you want).

+1. The odds of your kid getting into a school that costs $80k a year and you having to pay full freight out of pocket are fairly low. Admissions rates to the top 20 are low, and schools outside of the top 20 give merit aid pretty freely. My kid wasn’t admitted to the top 20 school they applied to, but got around $30+k a year everywhere else they were accepted, which brought the cost down to about the same as in state public full freight. If they had gone in state, it would have been even cheaper after merit aid. So, save enough, just in case your kid wins the lottery, but don’t lock it all up in a 529.

[Anonymous]

Anonymous wrote:We plan on stopping at $500k to fund private and grad school. Whatever is left over, can be passed on to their children.

+Our goal is lower but the same thought about leftovers.

[Anonymous]

Anonymous wrote:

Anonymous wrote:The withdrawal penalty is only 10% of the gains.

If you put $200K in, and get $300K gains, and only spend $100K (in-state tuition + boarding), the penalty is at most 10% of the gains: 10% *($300K - (60% * 100K)) = $24K, while avoiding any intermediate taxes during the growth phase.

That's a big amount by itself, but not so big in the 20-year scheme of things with avoiding paying all that tuition, and considering the gains were largely unearned free investment income above inflation.

but you also have to pay the taxes. so 10% penalty + 20% cap gains, most likely.

It’s 10% penalty on top of income taxes (not capital gain taxes)