How many here do not have a 529 savings account, on purpose?

[Anonymous]

Anonymous wrote:

Anonymous wrote:We were poor when kids were born. I did not want my kids college tuition in a 529 to tank if the stock market tanked, or if we were still poor, incapacitated or dead.

So, we bought the MD Prepaid College Trust for both kids for the maximum years allowed. This was guaranteed by the State Govt and money was kept aside to pay for it in the state budget. This Trust is not taking new enrollments anymore and not being offered anymore. If you had any money left in this program, you can also convert it into a Roth for your kid.

Our kids eventually went in-state, got full merit tuition scholarships, and much of the trust was not used. We also now are UMC, and to just pay from our cash flow for incidental expenses was very easy. So, now all that is over, we are in the process of converting it to Roth.

So long story short. We only bought for both kids tuition for 4 years of college each. Total cost for both kids was 80K. We spent around $60 K total for other costs (room, board, food, travel, socializing) for 4 years each. So, 2 kids, both did double majors in STEM subjects. In total it cost us 15K per year, per child - or $120K total for two kids for other college costs. We did not pay tuition.

Because they got free tuition from the college, the money invested for prepaid tuition will be converted to Roth for them. In retrospect, we saved the bare minimum ($80 K for both kids) for college and the opportunity cost of that money not being invested in stock market was not greater that the insurance factor of prepaid tuition or to hedge against increase in tuition.

To add - would we have invested in the MD Prepaid College Trust knowing what we know now? Probably yes. It was a good insurance policy for cheap. We did not know that both our kids would turn out to be such super high achieving kids in the public school system.

Wasn't there some crazy controversy over this program recently? https://marylandmatters.org/2023/04/07/lawmakers-moving-forward-with-plan-to-abolish-maryland-529-board-settle-claims-for-pre-paid-college-trust-accounts/

[Anonymous]

OP, whatever you choose, do make an estate plan for how your children will be sufficiently supported, as a practical matter, if something should happen to you and your spouse.

[Anonymous]

If you have kids and can afford it, it seems silly to not at least fund it to $35k for conversion in 15 years, no?

[Anonymous]

Anonymous wrote:If you have kids and can afford it, it seems silly to not at least fund it to $35k for conversion in 15 years, no?

We are doing it this year.

[Anonymous]

What state you live in or move to doesn't make any difference. You can pick any state's 529 plan no matter where you live. Ours is in Iowa because it was one of the best plans when we started years ago.

There are various ways to fund college, but the tax free growth, being able to use it to fund a few years of IRAs, and allowing tax free generational growth makes me glad I did the 529.

I super funded my children's 529s to $60,000 early, invested them for moderate growth and let them go. Including the growth I got from the account, my daughter's 529 is only down $18000 from its max even after 4 years of college. Now I still have enough to pay for at least one year of law school.

For a 529, you have to invest it well and manage it. Some have put money in and forgot to invest it and wonder why they have no gains.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:We were poor when kids were born. I did not want my kids college tuition in a 529 to tank if the stock market tanked, or if we were still poor, incapacitated or dead.

So, we bought the MD Prepaid College Trust for both kids for the maximum years allowed. This was guaranteed by the State Govt and money was kept aside to pay for it in the state budget. This Trust is not taking new enrollments anymore and not being offered anymore. If you had any money left in this program, you can also convert it into a Roth for your kid.

Our kids eventually went in-state, got full merit tuition scholarships, and much of the trust was not used. We also now are UMC, and to just pay from our cash flow for incidental expenses was very easy. So, now all that is over, we are in the process of converting it to Roth.

So long story short. We only bought for both kids tuition for 4 years of college each. Total cost for both kids was 80K. We spent around $60 K total for other costs (room, board, food, travel, socializing) for 4 years each. So, 2 kids, both did double majors in STEM subjects. In total it cost us 15K per year, per child - or $120K total for two kids for other college costs. We did not pay tuition.

Because they got free tuition from the college, the money invested for prepaid tuition will be converted to Roth for them. In retrospect, we saved the bare minimum ($80 K for both kids) for college and the opportunity cost of that money not being invested in stock market was not greater that the insurance factor of prepaid tuition or to hedge against increase in tuition.

To add - would we have invested in the MD Prepaid College Trust knowing what we know now? Probably yes. It was a good insurance policy for cheap. We did not know that both our kids would turn out to be such super high achieving kids in the public school system.

Wasn't there some crazy controversy over this program recently? https://marylandmatters.org/2023/04/07/lawmakers-moving-forward-with-plan-to-abolish-maryland-529-board-settle-claims-for-pre-paid-college-trust-accounts/

Yes. It was costing the state quite a bit in lost revenue. They had to pay the tuition costs that were locked in through this program decades in advance. So, the new settlement is that people who bought this prepaid tuition, the state will honor that committment. Also, money that is not spent by the account holder can be converted to Roth for the beneficiary. And yes, they stopped this program and have grandfathered it - because it was a steal for the MD residents but a money loser for the state.

Some of the controversy happened also because when they tried to grandfather and dismantle the program, some existing parents saw disruption in payments. It was just bad luck. They were in the middle of the transition in the program and the process. In any case, we were one of the parents, but since what we were paying for our kid's room and board was so miniscule, we just paid from our cash flow. And waited for the full resolution of the issue.

[Anonymous]

Thank you- this is helpful. We did discuss the new Roth option.

Anonymous wrote:Well we have 529s, which I know is not what you asked.

BUT we were absolutely in your boat for years and didn't open the 529s until our kid was 6. And we still don't fund them as heavily as we do other investment vehicles. What pushed us to finally do it was the rule change that allows you to convert a 529 to a Roth IRA (the account must have been open for that beneficiary for 15 years and the investments must be at least 5 years old).

It's currently capped at 35k for roll over so we decided to fund them up to that amount for sure and will then reassess. We've only had them a year.

There has been discussion of a rule change that would also allow leftover 529 funds to be used for a down payment on a home. We'll be keeping an eye on that.

Theses additional uses combined with the tax benefits were enough to push us to do it, as part of a broader investment strategy. We have no intention of "fully funding" the accounts and don't view it as the primary way we will pay for college.

[Anonymous]

Thank you- what a great option for your DC.

Anonymous wrote:we didn't put money in 529 .. instead we bought investment properties. then gave the kid the property to pay for tuition or whatever.

[Anonymous]

Thank you- I will discuss these with DH. Neither of us are in finance- our financial advisors were not pushing for 529s.

Anonymous wrote:

Anonymous wrote:This is for people who are educated about 529 accounts and can afford to set aside cash but have weighed the pros and cons, and decided not to set it up. If you are one of those- what were your reasons?

My DH and I have had this conversation so many times and he firmly believes that we can grow our money better elsewhere and not have to deal with the hassle- especially since we may have to move to different states for our job.

Thank you for the insights.

I did the opposite after researching it, and I think we made the right decision. For context, I work professionally in finance, and I was also weighing the pros/cons. We also have a Goldman Sachs financial advisor, and he recommended the 529 from the jump. I was the hesitant one.

The biggest pros are:

1. Account earnings grow tax free per federal tax law
2. Earnings are now able to used for non-educational expenses (with some limits)
3. Most good plans offer a variety of investment options that are similar to a 401K
4. You can use them regardless of your home state, though some states also give residents additional state tax benefits

If you all change your mind, look into the Utah 529. It is one of the most well regarded ones, and you don’t have to live in Utah to participate.

[Anonymous]

Thank you- this is exactly our current plan.


I don't use a 529.

I just pay the tuition from my income, or, if I need to, I will use my IRA (I have a SEP IRA, so contribution limits were pretty high)

There's no withdrawal penalty if used for educational purposes (of course, you pay income tax) and I can choose whatever stocks I want to invest in, so it's worked out well.

[Anonymous]

Our financial person recommended we only
fund 529 partially - she suggested a goal to hit enough for 3 out of 4 years at private. At the time, kids were little and I was worried it wouldn’t be enough. But with merit $ and other incentives, it worked out great. Hope this helps.

[Anonymous]

Many people here are talking about diversification but a lot of us don't have enough income to diversify.

When our kid was born every extra dollar was put into our retirement accounts. When DS was in MS our income had grown some. We sold our condo and and set aside some of the proceeds for his college fund and opted to invest it in index funds. (The remainder obviously went to our new home - just a bigger condo/townhome, no fancy house.)

I suppose we should have done a 529 for the tax benefit, but the restrictions on how we could use that money gave us pause. When we first looked at 529s it appeared to us that those funds could only be used for college expenses.

Uses for the money have expanded in recent years, but those weren't compelling enough for us to switch to a 529. We have one kid. We didn't need it for k-12 tuition or apprenticeship programs. The ability to roll over $$ into a retirement account is a compelling reason, but by the time that made it through legislation, our kid was in HS.

Also, other concerns such as: What if DH, our highest income earner, loses his job and we need that money to survive until we get back on our feet? (A v real possibility now since he's in research/academia.)

Just a reminder here that what works for people who have a lot of disposable income may not work for those who don't.

[Anonymous]

Anonymous wrote:Our financial person recommended we only
fund 529 partially - she suggested a goal to hit enough for 3 out of 4 years at private. At the time, kids were little and I was worried it wouldn’t be enough. But with merit $ and other incentives, it worked out great. Hope this helps.

Now that you can roll 35K to a Roth, why would you only partially fund it?

[Anonymous]

There are good arguments for maxing out other tax advantaged accounts first. But the odds that you will do better in a taxable account after taking into account the tax free growth and state tax benefits are very low.

[Anonymous]

Anonymous wrote:There are good arguments for maxing out other tax advantaged accounts first. But the odds that you will do better in a taxable account after taking into account the tax free growth and state tax benefits are very low.

This.

If you have the money there is no reason not to put some into a 529. There are very good investment options. In VA American Funds are options and they are solid. It is possible to put too much in. So you may want to limit the total.