Funding a 529 in one payment?

[Anonymous]

My DH and I have worked hard to live largely a middle-class lifestyle while making 600k (gross) a year. We have enough in savings to fully fund our toddler's 529 account with one deposit, without affecting our 401k contributions or emergency fund. We will have to pay capital gains taxes, as the money is in an index fund, but that is the only downside I see to doing this instead of setting aside a certain amount of $ from our paychecks over time. Is there any other reason *not* to do this that I'm not thinking of?

[Anonymous]

Curious what you were going to put in to "fully fund" the account for a toddler? Given that you can expect it to grow over the next 15 years. (I actually recently came into some cash and am trying to decide where to sensibly invest it, given that I have 2 preschoolers.)

[Anonymous]

Following because I'm thinking of superfunding my kid's 529 when he's born next year -- but what are you considering "fully funded" for this question? $250k (or whatever the account limit is), or a smaller amount that would be projected to land in the "covers college" area by the time the toddler is 18?

[Anonymous]

Not OP, but we did this math last month using a few online resources (ex. Fidelity College Cost Calculator). We decided that we'd need about $240K now (for our 2yo) to go to a college that currently costs ~$60K a year. Roughly.

[Anonymous]

I did this last year. Super funded 100k all at one time, figuring that would get to 300k by the time i needed it in 17 years, only putting in the 4k (x2) per year for the DC deduction. do i think this is enough for college? No way. However, i'm nervous about the market right now, and regardless of what people say about 18 years of growth etc...I still don't want everything to just tank in the next year or two.

[Anonymous]

When we looked into super funding we were told we can't invest more than $140K at once... so for most private and expensive schools you can't really FULLY fund with one investment. Lots of articles about superfunding 529's. Like this one... https://www.thebalance.com/529-limits-contributions-balances-taxes-4138359

[Anonymous]

Anonymous wrote:I did this last year. Super funded 100k all at one time, figuring that would get to 300k by the time i needed it in 17 years, only putting in the 4k (x2) per year for the DC deduction. do i think this is enough for college? No way. However, i'm nervous about the market right now, and regardless of what people say about 18 years of growth etc...I still don't want everything to just tank in the next year or two.

I'm not following. You put the $100k in all at once or you're putting in $4k per year for the tax deduction?

[Anonymous]

OP, I would leave it alone. Pay the capital gains when you take the money out later. If you continue earning as you are, you may not even need to use savings to pay for college, and then you'll have to pay additional taxes on the 529 money that you already paid capital gains on to use it for other purposes.

Better to each of you "gift" the max tax-free amount in your brokerage account to your child each year, just transferring it.to a new account at the same bank/house without selling anything. No capital gains until your child needs it.

[Anonymous]

You do not live a middle class lifestyle. That makes no sense and start funding it now with income earned. Whywoudl you cash out when you can put a few thousand away a month.

[Anonymous]

Anonymous wrote:OP, I would leave it alone. Pay the capital gains when you take the money out later. If you continue earning as you are, you may not even need to use savings to pay for college, and then you'll have to pay additional taxes on the 529 money that you already paid capital gains on to use it for other purposes.

Better to each of you "gift" the max tax-free amount in your brokerage account to your child each year, just transferring it.to a new account at the same bank/house without selling anything. No capital gains until your child needs it.

+1. This is the smarter option.

[Anonymous]

Won’t your taxes get complicated if you gift more than you are allowed to for one year? Why not contribute the max allowed per year into the 529 instead?

[Anonymous]

You are a dream hoarder. Donate.

[Anonymous]

I did something like what op wants to do and it gave me a lot of emotional pleasure and sense of well being.... to the point I don’t really care if it was financially optimal planning. Anyway, if isn’t optimal planning it’s not terribly far off.

[Anonymous]

Anonymous wrote:Not OP, but we did this math last month using a few online resources (ex. Fidelity College Cost Calculator). We decided that we'd need about $240K now (for our 2yo) to go to a college that currently costs ~$60K a year. Roughly.

Are you saying they need to superfund 240k now to cover private tuition? What assumptions are you running?

[Anonymous]

OP I am thinking about doing this with a bond fund that has lost money. That way I can claim the tax loss and move the $$ without paying capital gains. Would love for others to weigh in on this plan.