Why do a 529?

[Anonymous]

Op, it may be not for you. It's not for my family for example. My taxes are so low or non-existent. I also don't like the rules or fees. I can make a lot more in the market myself and have.
Skip it. There's something to be said about keeping finances simple. You don't need another account that is really beneficial to the companies offering it and government.

[Anonymous]

We have one for each kid. But we are not aiming to have every single cent of college costs stored in there. I do like the tax free withdrawl though, so we're aiming for about half of each kid's college to be in 529s. Then another half will be other investment accounts.

[Anonymous]

Anonymous wrote: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.

Wow good point.

Similarly, the disadvantage of having a 529 is financial aid eligibility in case a student loses a parent or there is a sharp decrease in income for any reason, or in case the student chooses not to attend college . This is why we never bothered to have a 529.

I think of 529 as something people should have if they paid off their mortgage, have ample retirement savings, and are looking for another savings vehicle knowing they will never be eligible for college financial aid no matter what.

[Anonymous]

In addition to not being up for grabs in a divorce, it's also not up for grabs in a lawsuit, bankruptcy etc. If not used, in 2024 it can be rolled into a roth for the child/ young adult

[Anonymous]

Anonymous wrote: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.

529 is your money
You can even change the name of the beneficiary and use it to study yourself or pay for step child’s college

[Anonymous]

It can also be rolled over into a Roth IRA if not used for education. You could basically front load their retirement. $50k and nothing more added at 7% for 40 years is $750k.

[Anonymous]

Anonymous wrote:It can also be rolled over into a Roth IRA if not used for education. You could basically front load their retirement. $50k and nothing more added at 7% for 40 years is $750k.

Max roth conversion is 36k. 6k per year

[Anonymous]

Anonymous wrote:

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?

There are no penalties for withdrawing an amount equal to the merit or athletic scholarship received, though you should consult with someone knowledgeable about the tax implications, which will differ depending on what you do with the money.

[Anonymous]

Anonymous wrote:

Anonymous wrote: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.

Wow good point.

Similarly, the disadvantage of having a 529 is financial aid eligibility in case a student loses a parent or there is a sharp decrease in income for any reason, or in case the student chooses not to attend college . This is why we never bothered to have a 529.

I think of 529 as something people should have if they paid off their mortgage, have ample retirement savings, and are looking for another savings vehicle knowing they will never be eligible for college financial aid no matter what.

What does financial aid have to do with it? If a parent, for example, has $100K saved in a 529 or in his own investment account, it is counted the same. In both cases, it is $100K of parental assets. Also, a 529 plan can be used for trade schools in addition to college. Also can be used for private primary and secondary school ($10K per year). Up to $36K can also be rolled into a Roth IRA and beneficiaries can be changed if your original beneficiary doesn't use it for any of those reasons.

[Anonymous]

Anonymous wrote:

Anonymous wrote: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.

Wow good point.

Similarly, the disadvantage of having a 529 is financial aid eligibility in case a student loses a parent or there is a sharp decrease in income for any reason, or in case the student chooses not to attend college . This is why we never bothered to have a 529.

I think of 529 as something people should have if they paid off their mortgage, have ample retirement savings, and are looking for another savings vehicle knowing they will never be eligible for college financial aid no matter what.

Please don't give financial advice. You have a poor understanding.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote: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.

Wow good point.

Similarly, the disadvantage of having a 529 is financial aid eligibility in case a student loses a parent or there is a sharp decrease in income for any reason, or in case the student chooses not to attend college . This is why we never bothered to have a 529.

I think of 529 as something people should have if they paid off their mortgage, have ample retirement savings, and are looking for another savings vehicle knowing they will never be eligible for college financial aid no matter what.

Please don't give financial advice. You have a poor understanding.

+1000

Please don't listen to that previous poster

[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.

Equity Index 500 is the lowest fee from my review - https://maryland529.com/Portals/0/Files/MCIP_Disclosure_Statement.pdf

Our accounts are at 8% returns over 4-5 years, but we were in target date portfolio funds until late last year when I did some more research, realized how high the fees were, and decided to get more aggressive.

[Anonymous]

Use the Search button for this weekly topic.

[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?

You are missing that returns vary year to year, and 2 years after a massive crash is not the same as 20 years.

[Anonymous]

Very important to look at the fees. They might not seem much as a percentage but that can be deceptive. The Equity fund, for example, has high fees while the Equity 500 has the lowest. The Target date funds have high fees.