Reply to Do most parents have a 529 plan?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]A family member was surprised to hear we didn't have a 529 plan for our DC's college. We have other investments and savings we plan to use when the time comes but it got me wondering - do most people invest in 529 when they have children? Are we somehow missing out for not having one?[/quote]

The biggest advantage is the tax free growth.  It’s like a Roth.  Your money grows and compound and if you use it for college you pay no taxes on all that profit.  So in theory you could put in 100k and that money could grow to 250k and you would not pay taxes on that 150k profit.  You also are paying 100k for a 250k education with compounding and no taxes  This is based on conservative returns over 14-18 years.

Your other investments if it’s in brokerage, you will have to pay taxes on them.  In addition, you also get tax breaks up to a certain amount in most states and DC in the 529.

If your money is in savings account, you are losing money right now.  You should never keep your money in savings but rather invest and have your money work for you.

[/quote]

Yeah, and if you contributed in the past 2 years you can also see your money shrink by 15% like we did![/quote] or see it grow by 30%+ like it did a few years before that.  That's how the market works. As your kid gets closer to college, plan to pull it back to cash based or bond funds where you wont be affected by the market swings.  But long term, you will gain more by having it fully in the market.[/quote]

This.  Who cares about short term changes if you are holding for the long run.  Then when you get closer to withdrawal time, you re-allocate to lower risk investments.[/quote]

That's a prudent strategy, but equities can post negative returns for a decade or longer. Not that big of a deal in a retirement portfolio designed to last 40 years, but big deal when you need the money in a few yrs.[/quote]

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