Anonymous wrote:

Anonymous wrote:Why are you caught up on prepaid? Doesn't that mean it works for only a handful of in-state universities? I don't think that's a wise bet to make.

Instead, just do the general 529.

I'm not caught up on the prepaid.. just wanted input from folks on using that to minimize risk. 529 is totally market dependent and I will be using it for 50% of my needs (2 years). I was hoping to use the prepaid for 25% (1 year) and current income/outside investments for the other 25%. I understand that it works only for a handful of universities. However, instead of keeping 25% of my educational needs as cash, I thought it might make sense to place it in a prepaid account, get the state tax deduction and if it works out (kid goes to state school) benefit from inflation adjustment. Isn't that better than just holding cash?

That's why you get an age-based investment, as listed on VA's 529 plans:
http://www.virginia529.com/invest/index.php

Let their experts worry about market risk and cash, not you. In short, when the need to use the money is far out, they'll take a more risk-based approach, and as the day of schooling nears, it will shift heavily towards safer investments like cash and bonds.

Anonymous wrote:Why are you caught up on prepaid? Doesn't that mean it works for only a handful of in-state universities? I don't think that's a wise bet to make.

Instead, just do the general 529.

I'm not caught up on the prepaid.. just wanted input from folks on using that to minimize risk. 529 is totally market dependent and I will be using it for 50% of my needs (2 years). I was hoping to use the prepaid for 25% (1 year) and current income/outside investments for the other 25%. I understand that it works only for a handful of universities. However, instead of keeping 25% of my educational needs as cash, I thought it might make sense to place it in a prepaid account, get the state tax deduction and if it works out (kid goes to state school) benefit from inflation adjustment. Isn't that better than just holding cash?

Anonymous wrote:OP here. Thanks for the thoughts folks. We are in VA.

Also wondering if there's a website or info. somwhere that shows the change in prepaid fees over the years so I can determine how much I may have to pay if I delay participation..

There is a good deal of info on va529.com, but you have to search around. You can find the prepaid cost schedules for the past few years, as well as the "reasonable rate of return" for the prepaid (the amount they payout in addition to principal if you attend out of state - the lesser of average instate tuition OR reasonable rate of returns).

I think your approach is reasonable as far as trying to hedge the market and the tuition increases. If you are going to do invest, you don't have much of a time line for the 12 year old, as you only have a few years to be aggressive. Prepaid may be a better option there. Or you can move the invest money from the older kids portfolio to the younger if it is under performing when you need it.

I would not worry about using any other states options, va is pretty decent as far as options (some vanguard funds, some balanced funds) and their administration fees went down for 2014. Plus their deduction (per cpntract) is very generous.

Why are you caught up on prepaid? Doesn't that mean it works for only a handful of in-state universities? I don't think that's a wise bet to make.

Instead, just do the general 529.

OP here. Thanks for the thoughts folks. We are in VA.

Also wondering if there's a website or info. somwhere that shows the change in prepaid fees over the years so I can determine how much I may have to pay if I delay participation..

OP I like the MD prepaid as a hedge against bad markets (although I am generally fairly conservative). Our plan is basically to try and fund one kid's education through the prepaid 529 and then a similar amount through the traditional 529 and then figure we can make up any different with private college through other savings/income.

Even if you contribute more than the allowable MD tax deduction I think the excess rolls forward to the next year, so you don't entirely lose it.

FYI T Rowe Price has fairly aggressive "age based portfolios"-- so if you are relying on those you might look at them to see if they match your risk tolerance (esp. around ages 17+).

Also with the current low cap gain tax rates it is not so bad to invest some college savings you don't know you'll need in taxable accounts.

Anonymous wrote:Double check your assumption regarding the decirations. In md the state deduction is per kid not per contract/taxpayer.

I think you are wrong on this. The deduction is $2500 per contract per beneficiary, so if both parents open accounts then each parent can claim 2500 per kid for the prepaid plan and 2500 per kid for the savings plan.

If you are in MD the prepaid plan pays out Md-CP tuition even for private schools so it is a pretty good option.


Also I have never heard anyone suggest IN as the best plan for out of state people. My suggestion would be Utah.

No in Md both parents can establish accounts and take tax deductions for each kid.

Double check your assumption regarding the decirations. In md the state deduction is per kid not per contract/taxpayer.

I don't see why you wnt to fund the pre-paid if you have no idea where the kids will go. I agree that you shouldn't try to fund all of it; I like the idea of planning to pay for ayear or two our fo current income if you are wealthy enough to realistically do so.

Anonymous wrote:Are you referring to prepaid, where it only lets you use it at certain colleges.. or the general 529 that can be used at any college?

Anyway, generally if you can pre-fund, then do so, because it grows tax-free, so you have a larger chunk to grow over the next 6-10 years than if you put in a bit each year.

Also, put it in funds based tied to college dates, like "Fund 2020" or whatever.

Finally, the current wisdom is Indiana has the best 529 in terms of lowest fees and most flexibility. You can put into your own state 529 , then transfer out of it right after taht and still get your state tax deduction.

Another trick is that grandparents can contribute to a 529 and take their own tax deduction, so if part of yoru contribution is over the limit, just "gift" that money to them (I forget the tax-free gift limit to family.. $10k or $15k), then they contribute to the 529 and get a nice tax deduction out of it.

OP here. Thanks for your response.

I was referring to funding 1 year worth of pre-paid (right away) and 2 years worth of general 529 (over time) and manage the 4th year with current income. Needed input on that strategy given the uncertainties sorrouding college choices, private vs. public, stock market performance, etc..

Are you referring to prepaid, where it only lets you use it at certain colleges.. or the general 529 that can be used at any college?

Anyway, generally if you can pre-fund, then do so, because it grows tax-free, so you have a larger chunk to grow over the next 6-10 years than if you put in a bit each year.

Also, put it in funds based tied to college dates, like "Fund 2020" or whatever.

Finally, the current wisdom is Indiana has the best 529 in terms of lowest fees and most flexibility. You can put into your own state 529 , then transfer out of it right after taht and still get your state tax deduction.

Another trick is that grandparents can contribute to a 529 and take their own tax deduction, so if part of yoru contribution is over the limit, just "gift" that money to them (I forget the tax-free gift limit to family.. $10k or $15k), then they contribute to the 529 and get a nice tax deduction out of it.

Need input from finance gurus or from parents who have been through this already..

We have 2 kid - 12 & 9 in ES. No clue where they end up collegewise. We are in VA. We have not been very diligent with contributions (about $10K each at this point). I was wondering if the following action plan makes sense..

Contribute 2 semesters worth of pre-paid for each child - $ 29K (approx). DH/DW buy a semester each for each kid so we get 16K annual deduction for state tax (4K*2children*2taxpayers)
Keep contributing each year (4K/child) so we can continue to fund the accounts (6 more years for the older one and 9 for younger) - Expect this to be enough to pay for 2 more years
Pay out of current income for the 4th year of college.
Pay out of current income for any private college differential.

Does the above approach make sense given all the uncertainties - Not knowing which college they will go to, stock market performance, job status in the future, etc. Is the prepaid plan a good hedge against market non-performance? How bad is the return if we decide to go elsewhere for college?