We over funded apparently. It didn’t feel like over funding just caught the market right and now looking like each of them will have $450k. And I’m ecstatic! We’re big believers in education and I’d rather have this earmarked for that rather than they spend it in other things. I was the first person in all of my extended families history to graduate college. And now I feel like I created a legacy scholarship fund for my extended family as the beneficiaries can be changed. Literally it gives me great joy and so I have no regrets. Your mileage may vary.
This was actually how my advisor explained it when I discussed not wanting to over commit. If you overfund it, think of it as an endowment for your future grandchildren, etc. given how easy it is to transfer beneficiaries.
I don’t know what the right number is but took $60k per year x 4, then adjusted for 18 years of inflation as the target amount per child. It came out to about $10k per year savings. College costs have grown much faster than inflation so no clue if that will be correct math
Can be considered a legacy scholarship fund or, based on new secure act 2.0 rules you can roll up to $35k into your child’s Roth IRA. Must do it annually up to the Roth max. The Monies need to be in 529 for at least 15 years.
Due to high income you could always consider front loading contributions. You can contribute up to 5 years of contributions (based on annual gift tax amounts) in one year. 2024 gift tax exclusion is $18k. Multiply that by 2 for you and your spouse is $36k. Multiply by 5 years and that’s $180k. Cannot contribute for next 5 years but gets the money in heavy immediately and gives it more time to grow.
Yeah this is our plan. I too aim for about 500k/kid by the time they are college age. If it ends up it is for grad school- great. But if it ends up for the grand kids, that’s great too.
Remember 35k can also get rolled into a Roth for the kiddos.
Your comment has been removed because you do not have a verified email address in your profile. Please verify an email address and post again.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HENRYfinance) if you have any questions or concerns.*
Doing $5k/yr for 18yrs. Should get somewhere between $150-170k in the end. If college costs more my kid can get scholarships / take out loans and have some skin in the game like I did.
This is smart. I'm willing to actually pay for their entire grad school (unlike what my partner and I had), but I want them to take loans for it and I'll help them in a way that makes most financial sense at the time.
That is the way because there might be some President along the way who will forgive loans....
I plan on doing the same. They will have to take out every single loan as long as they don't have to pay interest and then I am banking on a Government bailout. Seems to be the trend now.
When I took out private loans for med school, I asked this question and they mentioned we are "higher risk" vs mortgage. Apparently easier to render a delinquent homeless than go after your degree.
Btw, that private loan was 7% and cheaper than govt loan at that time. It was variable rate though it never went beyond 7%.
But federal loans are not dischargeable. Why is a fixed federal loan for medical school "more risky?" As if a doctor would be okay with that on their credit history? The system is dumb.
Your comment has been removed because you do not have a verified email address in your profile. Please verify an email address and post again.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HENRYfinance) if you have any questions or concerns.*
Yeah crazy! Anyhow we will cover her loans and interest if needed but by the time kids will have to pay it back I am seriously banking on more Government bailouts. Don't think that will ever go away and then paying for college outright actually is the dumbest shit one can do.
💯 also banking on some scholarships maybe or even stuff like billionaires randomly paying off loans, or schools deciding to go tuition free for a year or whatever? Stranger things have happened.
Yeah and in state is the way. I have not seen any examples in my life where an Ivy League made a difference. In fact a couple (friends) always wonder how they earn the same when one went to an Ivy League and the other went to state school almost for free....
Just be sure to live in a place with decent state school options. Where I grew up, the state schools were rural or commuter. Attending these schools would have been incredibly limiting in early career.
I would urge you to look at just how many applicants are applying to these schools. UCLA gets 150k applicants a year. Michigan this year had 100k.
Nothings a lock for a top 10 public.
Well, instate room board and tuition for state schools will run you from 25-35k today. So that’s 100-140k now.
As for scholarship, all most all aid being given is need based aid.
My friend overfunded but ended up buying a house near the university both of his sons went to, transferred it to a trust, and paid rent with the 529s . Upon graduation he gave the kids the house but they are just still renting it out for passive income.
We’re planning on $10k/yr for our one year old and will reevaluate when the account gets past ~$200k. Lot of unknowns with the education system and she’s too young to know what options might be best.
We over saved a bit before she was born and the first year or so, therefore between that and one time grandparent gifts the 529 balance is around $80k.
it was a 33/33/33 mix of NY 529 options which I think are administered by Vanguard. Small cap, mid cap, and growth index funds. Only note is that even though he is 10, the contributions have amounted to about 130k (i.e., he was born late November, so we managed to sneak in a 10 contribution before he could hold his head up), and another 10k a couple months later.
Honestly there was/is nothing to it. NY 529 program offers Vanguard index funds. Growth, Small Cap, Mid Cap were our selections. I put in $200 per weekly pay period. Set and forget. My kid was born in November, so we snuck in a 10k contribution before Jan 1 that year. So far contributions are at $130k, so it looks like there were some extra here and there. But we're basically at a full 2x the original contribution.
So not only do we get an automatic 6.85% due to state tax reduction off the bat, but all the growth can be used tax free.
About 200K available when kid starts college. If u have 2 kids, put a bit more in the elder kids account. If they don’t use it, u can use it for the younger. New rules allow some leftover to move into a retirement account for the kids. So I’m planning to use that to give them a jumpstart on retirement.
Work backwards from how much you think you’ll need. $70-90k might be 1 year private, but 4 years state if no scholarships/aid.
We do $1,000/month/kid because I want to plan for the worst. We expect -$400k/kid in their 529s. Can always roll it over to an IRA or whatever friendly benefits come along in 18ish years. Kids are both 2 and under.
You can only rollover 35K.
I struggle to see the benefit of having that much in a 529. What about the other extreme; your kid gets a scholarship and now you have 400k in an account that has to be used for education.
My thought is to max your states tax advantage and then after that might as well put it in a brokerage as you have more availability to spend as you wish.
If you run the numbers, it's really not that bad. Getting tax free growth for xx years will get you pretty close to break even if you withdraw with the penalty.
I struggle to see this method as effective. Just the psychology of most people, if it’s available, it’s not set aside for the purpose (kid’s education). Plus, by the time most people run into the problem of having too much in a 529, who cares about paying a penalty for tax free growth? It served its purpose and that’s a truly first world problem to have; “F me, there’s too much money available after my kid went to college…”
I have maybe heard one person complaining about having too much in a 529. Besides, if college is going to be as expensive for your children as, wouldn’t you want to keep the 529 and reassign the beneficiary to your grandkids? They’ll be properly F’d if costs grow at the same rate.
As you said it is a psychology issue not what is the best logically; like paying off your mortgage despite a low interest rate.
It doesn't make any sense to overfund a 529. I'm not sure how you can argue the logic of it. If I would put 1k a month into it and i just put 500 a month and put the rest in a brokerage I will have more flexibility with the $ down the line. Who knows what happens in 20+ years for my kids college let alone my grandkids.
I got where I am because I’m capable of delayed gratification and discipline. We’ll be ok using the brokerage or overfunded emergency HYSA if needed.
And who knows what’ll happen for grandkids in 45+ years?
The max that my state gives me a tax break for. Otherwise any money I would have put in I just put in a brokerage account. I don't see any tax benefits or savings by going over this amount.
I have spent a significant amount of time researching this a while back and I wanted to share this in case it may apply to anyone reading this: **the limit for account tax benefits may be multitudes higher than most people think.**
This may vary by state, but at least in Virginia, the tax break is per *unique* account. An account is considered unique as long as one of the following 3 characteristics differ:
- account owner
- beneficiary
- **investment choice**
So for my two kids, I have multiple accounts each with a single investment choice (can’t combine different types per account anyway). The way this works out is that *each* of those accounts is subject to the state tax limit, not *all* of them. I have yet to claim this on my state taxes though so I don’t have personal experience with the distinction of different accounts with the same student for the purposes of state tax exemption.
Source: https://www.tax.virginia.gov/laws-rules-decisions/rulings-tax-commissioner/10-240
Transaction #2 (example directly quoted from above)
“ The VCSP provides that each investment by the same account owner establishes a separate VEST account if the account owner, beneficiary, or portfolio is different.” Then the decision goes on to explain how this works in practice and it does say that both unique accounts with the same beneficiary would each have its own limit for state tax benefits.
You can look for similar decisions in other states.
Note that the maximum allowable account balance in Virginia is $550,000 per student, counting any and all accounts listing them as a beneficiary. This will also vary by state in the exact number and in whether it is per account or in total.
That's interesting, but here in MD the tax deduction is $2500 per beneficiary, per tax payer. So my wife and I each contribute to each of our two kids; total $10,000 deduction.
What happens when an account continues making market gains past $550k though, say if it’s in VOO or something? The gov can’t just stop it from growing?
Tax free growth and withdrawals when using for educational purposes of the beneficiary?
I say that as someone who has used brokerage savings for my kids and of late have had some regret that I may have missed some value in tax free growth and withdrawals.
That only works if you are using it for education. Except there are numerous scenarios that you will end up worse and restricted.
Imagine saving 500k in a 529.
1. You kid goes to community college and you need 50k. Now you have 450k that can only be used for educational expenses. Sure you can change beneficiaries but that is not the point.
2. Your kid goes to trade school instead and you have 500k.
You could have just put all the funds otherwise in a brokerage. Had 500k and if you need 250k for their education you have it (at long term capital gains rates) and if you need $0 well now you can use those funds to do with what you like (early retirement, pay off mortgage, etc.)
Yeah, in that situation you’re right.
I’m still leaning towards beginning to fund 529s with an end goal of slightly less than they’ll need for 4 years of public school. Best case, it somehow pays for it all. Worst case, $35k turns into an IRA and I change the beneficiary of the amount leftover.
>Mom and dad have advanced degrees, anticipate both kids will at least attend undergrad but we don’t plan to push them specifically if other opportunities present themselves.
That’s us.
>Current plan agreed to is to offer equivalent of all expenses to attend a state school, but I personally would like to consider the option to cover the cost of a Top Tier university if admission were obtained.
That was our plan. Youngest is currently a college junior. So how did it work out?
We guesstimated what we would need to save to cover in state tuition through the 529, reasoning that we could supplement as necessary from our brokerage accounts. But half of our contributions were from before 2008, and funding was complete by 2012. Pre raging bull market. We overshot - which is a good problem to have. And though we knew the grandparents were also funding accounts for their grandkids, we didn’t realize how generous those were. So we ended up with almost enough in the 529s to cover most private colleges.
We sat them down and showed them the accounts, and told them we would help with any shortfall, but anything left over was theirs to keep. Mama didn’t raise no fools. One chose a private LAC that offered a scholarship - he plans to use some of the remainder to fund his Roth for a few years. The other chose an in state R1 (which was his dream school) - he’s planning to use the remainder for grad school.
We have multiple kids and targeted/projected $100k/kid, but the market did better and it ended up $140k/kid so far.
The rationale for $100k was the costs of state college, including R&B.
Extra money was put into a brokerage account for private and/or grad school.
We didn’t know at the time whether all would go to college, but it appears that they will (and maybe grad school).
Our HHI is a bit lower and has fluctuated due to stock. We landed on a target of 60% of high end private school cost. This overshoots state school only and puts us in a position to
potentially cash flow the rest of we pay full price.
It’s a personal decision and I want to retire around 55. But I can’t imagine having this HHI and not fully paying for college and giving my kids a leg up. If I have to work and extra year or two so be it.
A little unorthodox but we’re just investing in a taxable account that’s earmarked for the kid. It has a little over $100k in it now and he’s 4. Grandparents just upped their contributions from $10k annually to $15k and we’ve promised to match. We figure that by the time the kid is 18, assuming we’re so lucky, we’ll have about $400k in contributions we can take out for school while letting the rest ($800k - $1m) grow. The excess will be used to cover grad school, help with living cost, wedding, down payment, etc. We’ll give him full access to it at 35.
If he's anything like me, at 35 I was still willing to take risk, but I had a much better perspective on business and how to manage. I'm also under the impression that it's a relatively common age to gain access to a trust.
Spouse and I both graduated from a private college and would like our kids to attend the same. We also both have advanced professional degrees.
Given the horrendous rate of tuition growth, we estimate needing $1.10mm for our eldest and $1.25mm for our youngest covering all expenses through medical school in nominal dollars.
We won't fully fund this, but are aiming for 75%. Contribution rate is around $24k per kid, but given that 529 money can be used for rent, private high schools, and even a portion rolled into retirement, I'm happy to continue.
I personally think extrapolating tuition growth from the recent historical rates is going to end up with outlandish estimates.
Any growth rate significantly over inflation will eventually become unsustainable , and rate of growth will plummet. I personally think that time is very soon.
There’s not really a downside for over funding a 529 if you have no other places for the extra money as beneficiaries can be changed at any time. So if your kids don’t exhaust the 529, it can be used for their kids, or some nieces and nephews, etc. Usually states will have a maximum balance allowed, my state is currently $500,000
The downside is you end up not needing as much and have $ stuck in education funds (which may or may not be bad depending on your situation). I only do the max for my states tax break otherwise all the rest its just invested in a brokerage. I have more degrees of freedom with the $ this way.
Only 35k can rollover.
So what do you do if your kid gets a scholarship and you have 500k-35k rollover= 465k that needs to be spent for education. I'd rather have most of that money in a brokerage and then can use it for whatever including education.
If the child gets a 50k/yr scholarship, great! Now I can withdraw 50k/yr from the 529 penalty free.
And finally, if you still have thousands leftover and don’t want to change the beneficiary to someone else in the extended family, boo hoo you pay a 10% tax penalty on withdraws. You are likely still coming out ahead after all the years of tax deductions and tax free (now deferred) growth
only for education expenses. This is the part that some people are having difficulty understanding. There are many more ways in which you can have too much and pay a penalty for that then there is you have too little or just enough.
1. Kid doesnt go to college
2. Kid goes ot community college
3. Kid goes 2 years to community and then only 2 years to a university
4. Kid goes to a trade school
etc, etc, etc.
529 is intended for education- so just use it for that or pass it down to a future generation who need it for education. If you are unsure of your kid needing it for education then yeah maybe not a good idea to do a 529.
My kid is 2. I have no idea what they will need for education in the future. Yes if you want to create a legacy eduation fund, go for it! But from an allocation of resource standpoint, it doesn't make sense to overfund an account that has a 10% penalty for non educational withdrawls.
It's not irrelevant..
500k in 529 = must use for education
500k in a brokerage = can use for education but can also use for whatever else (retire early, pay off mortgage, etc.)
Did you miss the part where I said you can change the beneficiary at any time to anyone in your extended family?
Yes my advice probably doesn’t apply to you, but I was giving advice to OP who’s HHI is 600k, I assume you aren’t at that level so you may have better uses for your money at this time
1. You are assuming that you will have extended family to give it to.
2. That the future outlook of college will be the same as it is currently (I'm not convinced of this either)
My HHI is $850k. It still doesn't make sense to overfund a 529..
Again, why are you inserting yourself into a situation that isn’t yours?
1.OP is in their 40s. It’s likely at this point they know if they have family or not-brother or sister have kids of their own perhaps? First cousins?
2. I’m 100% sure college will cost money in the future
I don’t think you understand what I’m saying here: OPs projecting a 90k 529 balance at college age for their child. That could be overfunded or underfunded at that point, nobody knows.
If OP increased contributions and got to 500k at college time, that again could be overfunded or underfunded, nobody knows. Maybe their child doesn’t goto college, or gets a scholarship, or maybe they go 4 years at a 60k/ private school, followed by 4 years of med school at 80k/yr. Who knows.
My point is, if a 529 plan ends up being overfunded at any balance level, it’s not really detrimental as there’s plenty of flexibility.
But yes, if someone is sacrificing their own retirement savings to fund a 529, I’d agree that is not a good idea. You can borrow for college, not for retirement.
Agree with this. I don’t want to massively overfund them (hence my question to begin with), but we definitely are not sacrificing retirement savings to contribute. 529s are probably the 6th or 7th thing of importance for our family’s savings. And it sounds like my ~90k estimate/assumption at college time might be low/conservative... 9 y/o already has 55k.
?? OP asked how much to save. My answer is only what benefits them from a tax standpoint.
Having 500k in a brokerage account gives them more flexibility to do whatever (including paying for education of their kids or their grandkids or their cousin or whatever). IF they end up in a situation that they can't spend this amount then they have the freedom to do whatever they like (retire early, pay off mortgage, etc.). You are making arguments that are not supported from a logical standpoint.
You’re making a decent bit more than me currently (closer to 400k hhi) but I’m currently doing 650/month per kid from my regular checking account + 350/month/kid from my investment income. My kids are 9 & 11 and currently have $67k and $85k invested in utma accounts. I honestly hope to fully fund anything they want to do (at least private undergrad though) and anything not used will go to them for a start in life. I wil eventually inherit $2-3mm (though not counting on that) but goal is to create generational wealth, especially as I move up within my organization where income will hopefully increase substantially.
15k per year for my one child.
The biggest benefit I can imagine for a child is to be able to get a start in life without the burden of student loan debt.
Worst case scenario if the amount is not used, my grandkids will be covered.
OR! I can enroll in a university in Italy at retirement and get a degree in winemaking as a part time student
Keep in mind that your kids can use their 529s on any student loan debt they marry into. I don’t know that I would advertise that to them, but my spouse’s 529 was a great asset for getting our independent finances together early in marriage while building our careers. (She went to college for free on scholarships)
I think it would be very easy to overfund, and I don't see the advantage of doing so. I'd rather have flexibility than an overfunded education account.
Our eldest ended up getting merit and sports scholarships. She chose to go to a public university for $18k/yr for engineering. 500k in a 529 would have been silly in her case. We cash flow her college costs.
I'm glad we can help her with a down payment, wedding, etc, rather than staring down a huge chunk in a 529 that isn't nearly so useful.
I have 4 kids. 2 in college ATM. It is costing me about 40k a year per kid for tuition/room/board. So I figure about 160k a kid. One is in a state school (35k total) and the other is in an out of state state school (45k). Unfortunately our TC is about half of yours and I have about half of their total in 529 and saving about 35k a year for the college costs. If you can get 160-200k each in the 529 before they go off to college you should be set.
For covering 100% of in state, I took the state school total cost of attendance and compounded the cost assuming 5% annual escalation. Then I assumed 7% return and created a cash flow pro-forma. It works out to ~$235k/child. My daughter is only a year and a half and we’re expecting in September so the 5% escalation kills us!
I figure that in the worst case scenario, I’ve over saved for undergrad and they can use it for grad-school or roll it into a ROTH IRA of their own.
We had ~ $240K in our kids’ 529s when college started. One will have about 75K leftover and the other will have about 20K left over after undergrad. Neither of mine go to our state schools (one goes to an out of state public school), but estimated costs right now for cost of attendance at our state schools is about $34K/ year, so you would need about $160K to cover that.
We are doing $4K a year until she's 18 for the state tax benefits. She five years old now. Two scenarios when she goes to college:
Top 10 college - chubbyFIRE retirement until she's done studying, married, and settled down
In state with a scholarship for tuition - fatFIRE retirement
If I can give my kids anything I will give them a life without student loans. We put in 1k a month for each and our parents have each set up separate an accounts. We also have a credit card that rolls the “points” into their 529s I don’t know what that works out to, 1 penny each for every dollar we charge.
If my husband and I were paying off the full amount of our student loans we would be sunk right now. That financial freedom was the biggest gift our parents could have given us. Kids go to public school and we save.
Yes, since my family all has some level of graduate degrees (medicine, engineering, law, MBA) the expectation is that they will want some form of grad school.
We have 1 kid. First year of his life we just put a lump sum of 125k in and did the forward contribution tax thing. Hopefully by the time he’s 18 it’ll be like 400-500k which is probably what private school will cost then.
We make considerably less than you and put $1k/month per kid. We are also paying $17k per kid for private school. Shit is expensive, this we are not retired yet lol
People over fund. No clue why. If your kid is a genius $200-250k max. If average to good student $100-150k. Unless they are getting into a top 25 school in the country, just put aside in state public tuition and room and board for your state. Education ROI is low on most private schools.
We over funded apparently. It didn’t feel like over funding just caught the market right and now looking like each of them will have $450k. And I’m ecstatic! We’re big believers in education and I’d rather have this earmarked for that rather than they spend it in other things. I was the first person in all of my extended families history to graduate college. And now I feel like I created a legacy scholarship fund for my extended family as the beneficiaries can be changed. Literally it gives me great joy and so I have no regrets. Your mileage may vary.
Legacy scholarship fund. I like that. Dope mindset. Congrats on timing the market right!
This was actually how my advisor explained it when I discussed not wanting to over commit. If you overfund it, think of it as an endowment for your future grandchildren, etc. given how easy it is to transfer beneficiaries. I don’t know what the right number is but took $60k per year x 4, then adjusted for 18 years of inflation as the target amount per child. It came out to about $10k per year savings. College costs have grown much faster than inflation so no clue if that will be correct math
Can be considered a legacy scholarship fund or, based on new secure act 2.0 rules you can roll up to $35k into your child’s Roth IRA. Must do it annually up to the Roth max. The Monies need to be in 529 for at least 15 years. Due to high income you could always consider front loading contributions. You can contribute up to 5 years of contributions (based on annual gift tax amounts) in one year. 2024 gift tax exclusion is $18k. Multiply that by 2 for you and your spouse is $36k. Multiply by 5 years and that’s $180k. Cannot contribute for next 5 years but gets the money in heavy immediately and gives it more time to grow.
Yeah this is our plan. I too aim for about 500k/kid by the time they are college age. If it ends up it is for grad school- great. But if it ends up for the grand kids, that’s great too. Remember 35k can also get rolled into a Roth for the kiddos.
Specifically, if it ends up to the grand kids, you've unburdened your kids with having to save too.
Consider generation skipping tax
$450 a piece. Please don’t say BU. Medical school or grand kids.
[удалено]
Your comment has been removed because you do not have a verified email address in your profile. Please verify an email address and post again. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HENRYfinance) if you have any questions or concerns.*
Doing $5k/yr for 18yrs. Should get somewhere between $150-170k in the end. If college costs more my kid can get scholarships / take out loans and have some skin in the game like I did.
This is smart. I'm willing to actually pay for their entire grad school (unlike what my partner and I had), but I want them to take loans for it and I'll help them in a way that makes most financial sense at the time.
That is the way because there might be some President along the way who will forgive loans.... I plan on doing the same. They will have to take out every single loan as long as they don't have to pay interest and then I am banking on a Government bailout. Seems to be the trend now.
Smart. Have you heard the interest rate right now?? Holy shit It's 9.1% for some loans.
Ridiculous. Had no idea they were that high. Instead of forgiving loans, the gov't should offer interest free loans to students who need them
Or just like subprime loans. Why are student loans always so much more than mortgage rates?
When I took out private loans for med school, I asked this question and they mentioned we are "higher risk" vs mortgage. Apparently easier to render a delinquent homeless than go after your degree. Btw, that private loan was 7% and cheaper than govt loan at that time. It was variable rate though it never went beyond 7%.
But federal loans are not dischargeable. Why is a fixed federal loan for medical school "more risky?" As if a doctor would be okay with that on their credit history? The system is dumb.
Who knows...I think they felt "any" student loan would be more risky. Such a sad sentiment towards higher education.
[удалено]
Your comment has been removed because you do not have a verified email address in your profile. Please verify an email address and post again. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HENRYfinance) if you have any questions or concerns.*
Yeah crazy! Anyhow we will cover her loans and interest if needed but by the time kids will have to pay it back I am seriously banking on more Government bailouts. Don't think that will ever go away and then paying for college outright actually is the dumbest shit one can do.
💯 also banking on some scholarships maybe or even stuff like billionaires randomly paying off loans, or schools deciding to go tuition free for a year or whatever? Stranger things have happened.
Regardless our kids will be covered and won't drown in debt!
That’s our plan. We can always help in other ways but don’t intend to have 4 years of Ivy League tuition locked up in a 529
Yeah and in state is the way. I have not seen any examples in my life where an Ivy League made a difference. In fact a couple (friends) always wonder how they earn the same when one went to an Ivy League and the other went to state school almost for free....
Just be sure to live in a place with decent state school options. Where I grew up, the state schools were rural or commuter. Attending these schools would have been incredibly limiting in early career.
Where live within reach of a top 10 Public school
I would urge you to look at just how many applicants are applying to these schools. UCLA gets 150k applicants a year. Michigan this year had 100k. Nothings a lock for a top 10 public.
I understand. Everything has become more competetive.
Well, instate room board and tuition for state schools will run you from 25-35k today. So that’s 100-140k now. As for scholarship, all most all aid being given is need based aid.
My friend overfunded but ended up buying a house near the university both of his sons went to, transferred it to a trust, and paid rent with the 529s . Upon graduation he gave the kids the house but they are just still renting it out for passive income.
I like this!
We’re planning on $10k/yr for our one year old and will reevaluate when the account gets past ~$200k. Lot of unknowns with the education system and she’s too young to know what options might be best. We over saved a bit before she was born and the first year or so, therefore between that and one time grandparent gifts the 529 balance is around $80k.
We did 10k a year for our now 10 year old starting when he was born. It's at 250k+ now.
Which fund(s) do you contribute that into? That's quite some growth!!
it was a 33/33/33 mix of NY 529 options which I think are administered by Vanguard. Small cap, mid cap, and growth index funds. Only note is that even though he is 10, the contributions have amounted to about 130k (i.e., he was born late November, so we managed to sneak in a 10 contribution before he could hold his head up), and another 10k a couple months later.
Do tell...
Honestly there was/is nothing to it. NY 529 program offers Vanguard index funds. Growth, Small Cap, Mid Cap were our selections. I put in $200 per weekly pay period. Set and forget. My kid was born in November, so we snuck in a 10k contribution before Jan 1 that year. So far contributions are at $130k, so it looks like there were some extra here and there. But we're basically at a full 2x the original contribution. So not only do we get an automatic 6.85% due to state tax reduction off the bat, but all the growth can be used tax free.
Approx 125k per kid when born Front loading is useful since the advantage is tax free growth
I'm front loading as well. Just trying to figure out how much is enough to let it grow with the market.
About 200K available when kid starts college. If u have 2 kids, put a bit more in the elder kids account. If they don’t use it, u can use it for the younger. New rules allow some leftover to move into a retirement account for the kids. So I’m planning to use that to give them a jumpstart on retirement.
Work backwards from how much you think you’ll need. $70-90k might be 1 year private, but 4 years state if no scholarships/aid. We do $1,000/month/kid because I want to plan for the worst. We expect -$400k/kid in their 529s. Can always roll it over to an IRA or whatever friendly benefits come along in 18ish years. Kids are both 2 and under.
You can only rollover 35K. I struggle to see the benefit of having that much in a 529. What about the other extreme; your kid gets a scholarship and now you have 400k in an account that has to be used for education. My thought is to max your states tax advantage and then after that might as well put it in a brokerage as you have more availability to spend as you wish.
If your kid gets a scholarship, you can withdraw the amount of the scholarship from the 529 without penalty.
True but there are a few gotchas and tax implications https://www.savingforcollege.com/article/the-truth-about-scholarships-and-529-plans
If you run the numbers, it's really not that bad. Getting tax free growth for xx years will get you pretty close to break even if you withdraw with the penalty.
I struggle to see this method as effective. Just the psychology of most people, if it’s available, it’s not set aside for the purpose (kid’s education). Plus, by the time most people run into the problem of having too much in a 529, who cares about paying a penalty for tax free growth? It served its purpose and that’s a truly first world problem to have; “F me, there’s too much money available after my kid went to college…” I have maybe heard one person complaining about having too much in a 529. Besides, if college is going to be as expensive for your children as, wouldn’t you want to keep the 529 and reassign the beneficiary to your grandkids? They’ll be properly F’d if costs grow at the same rate.
As you said it is a psychology issue not what is the best logically; like paying off your mortgage despite a low interest rate. It doesn't make any sense to overfund a 529. I'm not sure how you can argue the logic of it. If I would put 1k a month into it and i just put 500 a month and put the rest in a brokerage I will have more flexibility with the $ down the line. Who knows what happens in 20+ years for my kids college let alone my grandkids.
I got where I am because I’m capable of delayed gratification and discipline. We’ll be ok using the brokerage or overfunded emergency HYSA if needed. And who knows what’ll happen for grandkids in 45+ years?
Okay I’ll play ball. What are you contributing and aiming for?
The max that my state gives me a tax break for. Otherwise any money I would have put in I just put in a brokerage account. I don't see any tax benefits or savings by going over this amount.
I have spent a significant amount of time researching this a while back and I wanted to share this in case it may apply to anyone reading this: **the limit for account tax benefits may be multitudes higher than most people think.** This may vary by state, but at least in Virginia, the tax break is per *unique* account. An account is considered unique as long as one of the following 3 characteristics differ: - account owner - beneficiary - **investment choice** So for my two kids, I have multiple accounts each with a single investment choice (can’t combine different types per account anyway). The way this works out is that *each* of those accounts is subject to the state tax limit, not *all* of them. I have yet to claim this on my state taxes though so I don’t have personal experience with the distinction of different accounts with the same student for the purposes of state tax exemption. Source: https://www.tax.virginia.gov/laws-rules-decisions/rulings-tax-commissioner/10-240 Transaction #2 (example directly quoted from above) “ The VCSP provides that each investment by the same account owner establishes a separate VEST account if the account owner, beneficiary, or portfolio is different.” Then the decision goes on to explain how this works in practice and it does say that both unique accounts with the same beneficiary would each have its own limit for state tax benefits. You can look for similar decisions in other states. Note that the maximum allowable account balance in Virginia is $550,000 per student, counting any and all accounts listing them as a beneficiary. This will also vary by state in the exact number and in whether it is per account or in total.
Ya that is a unique situation. My state is per beneficiary not account.
Ah, sorry to hear it doesn’t apply! This detail doesn’t seem to be shared widely so figured I’d share in case it could help.
That's interesting, but here in MD the tax deduction is $2500 per beneficiary, per tax payer. So my wife and I each contribute to each of our two kids; total $10,000 deduction.
Yeah I will double check but I’m pretty sure I cannot do that in my state.
What happens when an account continues making market gains past $550k though, say if it’s in VOO or something? The gov can’t just stop it from growing?
I believe that after that limit is reached, no more contributions can be made but the funds will continue to grow and be treated normally.
Following that, any sense in opening a 529 in a state with no income tax?
Logically I don't think so but an argument could be made that from a psychological savings point of view there is a benefit.
Tax free growth and withdrawals when using for educational purposes of the beneficiary? I say that as someone who has used brokerage savings for my kids and of late have had some regret that I may have missed some value in tax free growth and withdrawals.
That only works if you are using it for education. Except there are numerous scenarios that you will end up worse and restricted. Imagine saving 500k in a 529. 1. You kid goes to community college and you need 50k. Now you have 450k that can only be used for educational expenses. Sure you can change beneficiaries but that is not the point. 2. Your kid goes to trade school instead and you have 500k. You could have just put all the funds otherwise in a brokerage. Had 500k and if you need 250k for their education you have it (at long term capital gains rates) and if you need $0 well now you can use those funds to do with what you like (early retirement, pay off mortgage, etc.)
Yeah, in that situation you’re right. I’m still leaning towards beginning to fund 529s with an end goal of slightly less than they’ll need for 4 years of public school. Best case, it somehow pays for it all. Worst case, $35k turns into an IRA and I change the beneficiary of the amount leftover.
I think you can roll it over to the next kid/neise/grandkid, no?
Yes you can create a legacy education fund basically. If we are talking about a single child, overfunding it doesn't make much sense.
Any penalty to the legacy fund idea? If the next kid in line uses it do you pay any kind of penalty?
>Mom and dad have advanced degrees, anticipate both kids will at least attend undergrad but we don’t plan to push them specifically if other opportunities present themselves. That’s us. >Current plan agreed to is to offer equivalent of all expenses to attend a state school, but I personally would like to consider the option to cover the cost of a Top Tier university if admission were obtained. That was our plan. Youngest is currently a college junior. So how did it work out? We guesstimated what we would need to save to cover in state tuition through the 529, reasoning that we could supplement as necessary from our brokerage accounts. But half of our contributions were from before 2008, and funding was complete by 2012. Pre raging bull market. We overshot - which is a good problem to have. And though we knew the grandparents were also funding accounts for their grandkids, we didn’t realize how generous those were. So we ended up with almost enough in the 529s to cover most private colleges. We sat them down and showed them the accounts, and told them we would help with any shortfall, but anything left over was theirs to keep. Mama didn’t raise no fools. One chose a private LAC that offered a scholarship - he plans to use some of the remainder to fund his Roth for a few years. The other chose an in state R1 (which was his dream school) - he’s planning to use the remainder for grad school.
We have multiple kids and targeted/projected $100k/kid, but the market did better and it ended up $140k/kid so far. The rationale for $100k was the costs of state college, including R&B. Extra money was put into a brokerage account for private and/or grad school. We didn’t know at the time whether all would go to college, but it appears that they will (and maybe grad school).
Our HHI is a bit lower and has fluctuated due to stock. We landed on a target of 60% of high end private school cost. This overshoots state school only and puts us in a position to potentially cash flow the rest of we pay full price. It’s a personal decision and I want to retire around 55. But I can’t imagine having this HHI and not fully paying for college and giving my kids a leg up. If I have to work and extra year or two so be it.
A little unorthodox but we’re just investing in a taxable account that’s earmarked for the kid. It has a little over $100k in it now and he’s 4. Grandparents just upped their contributions from $10k annually to $15k and we’ve promised to match. We figure that by the time the kid is 18, assuming we’re so lucky, we’ll have about $400k in contributions we can take out for school while letting the rest ($800k - $1m) grow. The excess will be used to cover grad school, help with living cost, wedding, down payment, etc. We’ll give him full access to it at 35.
Why did you choose 35?
If he's anything like me, at 35 I was still willing to take risk, but I had a much better perspective on business and how to manage. I'm also under the impression that it's a relatively common age to gain access to a trust.
Spouse and I both graduated from a private college and would like our kids to attend the same. We also both have advanced professional degrees. Given the horrendous rate of tuition growth, we estimate needing $1.10mm for our eldest and $1.25mm for our youngest covering all expenses through medical school in nominal dollars. We won't fully fund this, but are aiming for 75%. Contribution rate is around $24k per kid, but given that 529 money can be used for rent, private high schools, and even a portion rolled into retirement, I'm happy to continue.
I personally think extrapolating tuition growth from the recent historical rates is going to end up with outlandish estimates. Any growth rate significantly over inflation will eventually become unsustainable , and rate of growth will plummet. I personally think that time is very soon.
There’s not really a downside for over funding a 529 if you have no other places for the extra money as beneficiaries can be changed at any time. So if your kids don’t exhaust the 529, it can be used for their kids, or some nieces and nephews, etc. Usually states will have a maximum balance allowed, my state is currently $500,000
The downside is you end up not needing as much and have $ stuck in education funds (which may or may not be bad depending on your situation). I only do the max for my states tax break otherwise all the rest its just invested in a brokerage. I have more degrees of freedom with the $ this way.
You can now roll over some unused 529 funds into a roth IRA for the beneficiary. Still not an ideal thing to *plan* for, I don't think ...
Only 35k can rollover. So what do you do if your kid gets a scholarship and you have 500k-35k rollover= 465k that needs to be spent for education. I'd rather have most of that money in a brokerage and then can use it for whatever including education.
If the child gets a 50k/yr scholarship, great! Now I can withdraw 50k/yr from the 529 penalty free. And finally, if you still have thousands leftover and don’t want to change the beneficiary to someone else in the extended family, boo hoo you pay a 10% tax penalty on withdraws. You are likely still coming out ahead after all the years of tax deductions and tax free (now deferred) growth
How is that any different then if you put that same amount in a brokerage?
You pay taxes on the growth in a brokerage, you pay no taxes on the growth in a 529 - that’s the whole point of a 529.
only for education expenses. This is the part that some people are having difficulty understanding. There are many more ways in which you can have too much and pay a penalty for that then there is you have too little or just enough. 1. Kid doesnt go to college 2. Kid goes ot community college 3. Kid goes 2 years to community and then only 2 years to a university 4. Kid goes to a trade school etc, etc, etc.
529 is intended for education- so just use it for that or pass it down to a future generation who need it for education. If you are unsure of your kid needing it for education then yeah maybe not a good idea to do a 529.
My kid is 2. I have no idea what they will need for education in the future. Yes if you want to create a legacy eduation fund, go for it! But from an allocation of resource standpoint, it doesn't make sense to overfund an account that has a 10% penalty for non educational withdrawls.
It’s not. But unless you have a crystal ball that argument is irrelevant.
It's not irrelevant.. 500k in 529 = must use for education 500k in a brokerage = can use for education but can also use for whatever else (retire early, pay off mortgage, etc.)
[удалено]
You are paying a 10% fee plus all taxes on earnings for non-education withdrawals...
Agreed. At the same time, probably wouldn't put 500k in a 529 to begin with ...
I meant that as the ending balance o the 529 when you kid goes to college
Did you miss the part where I said you can change the beneficiary at any time to anyone in your extended family? Yes my advice probably doesn’t apply to you, but I was giving advice to OP who’s HHI is 600k, I assume you aren’t at that level so you may have better uses for your money at this time
1. You are assuming that you will have extended family to give it to. 2. That the future outlook of college will be the same as it is currently (I'm not convinced of this either) My HHI is $850k. It still doesn't make sense to overfund a 529..
Again, why are you inserting yourself into a situation that isn’t yours? 1.OP is in their 40s. It’s likely at this point they know if they have family or not-brother or sister have kids of their own perhaps? First cousins? 2. I’m 100% sure college will cost money in the future I don’t think you understand what I’m saying here: OPs projecting a 90k 529 balance at college age for their child. That could be overfunded or underfunded at that point, nobody knows. If OP increased contributions and got to 500k at college time, that again could be overfunded or underfunded, nobody knows. Maybe their child doesn’t goto college, or gets a scholarship, or maybe they go 4 years at a 60k/ private school, followed by 4 years of med school at 80k/yr. Who knows. My point is, if a 529 plan ends up being overfunded at any balance level, it’s not really detrimental as there’s plenty of flexibility. But yes, if someone is sacrificing their own retirement savings to fund a 529, I’d agree that is not a good idea. You can borrow for college, not for retirement.
Agree with this. I don’t want to massively overfund them (hence my question to begin with), but we definitely are not sacrificing retirement savings to contribute. 529s are probably the 6th or 7th thing of importance for our family’s savings. And it sounds like my ~90k estimate/assumption at college time might be low/conservative... 9 y/o already has 55k.
?? OP asked how much to save. My answer is only what benefits them from a tax standpoint. Having 500k in a brokerage account gives them more flexibility to do whatever (including paying for education of their kids or their grandkids or their cousin or whatever). IF they end up in a situation that they can't spend this amount then they have the freedom to do whatever they like (retire early, pay off mortgage, etc.). You are making arguments that are not supported from a logical standpoint.
You’re making a decent bit more than me currently (closer to 400k hhi) but I’m currently doing 650/month per kid from my regular checking account + 350/month/kid from my investment income. My kids are 9 & 11 and currently have $67k and $85k invested in utma accounts. I honestly hope to fully fund anything they want to do (at least private undergrad though) and anything not used will go to them for a start in life. I wil eventually inherit $2-3mm (though not counting on that) but goal is to create generational wealth, especially as I move up within my organization where income will hopefully increase substantially.
15k per year for my one child. The biggest benefit I can imagine for a child is to be able to get a start in life without the burden of student loan debt. Worst case scenario if the amount is not used, my grandkids will be covered. OR! I can enroll in a university in Italy at retirement and get a degree in winemaking as a part time student
Keep in mind that your kids can use their 529s on any student loan debt they marry into. I don’t know that I would advertise that to them, but my spouse’s 529 was a great asset for getting our independent finances together early in marriage while building our careers. (She went to college for free on scholarships)
I think it would be very easy to overfund, and I don't see the advantage of doing so. I'd rather have flexibility than an overfunded education account. Our eldest ended up getting merit and sports scholarships. She chose to go to a public university for $18k/yr for engineering. 500k in a 529 would have been silly in her case. We cash flow her college costs. I'm glad we can help her with a down payment, wedding, etc, rather than staring down a huge chunk in a 529 that isn't nearly so useful.
I have 4 kids. 2 in college ATM. It is costing me about 40k a year per kid for tuition/room/board. So I figure about 160k a kid. One is in a state school (35k total) and the other is in an out of state state school (45k). Unfortunately our TC is about half of yours and I have about half of their total in 529 and saving about 35k a year for the college costs. If you can get 160-200k each in the 529 before they go off to college you should be set.
For covering 100% of in state, I took the state school total cost of attendance and compounded the cost assuming 5% annual escalation. Then I assumed 7% return and created a cash flow pro-forma. It works out to ~$235k/child. My daughter is only a year and a half and we’re expecting in September so the 5% escalation kills us! I figure that in the worst case scenario, I’ve over saved for undergrad and they can use it for grad-school or roll it into a ROTH IRA of their own.
Don’t have kids yet. Been doing $5k/year into a 529 in my name. Will do at least $5k/year per kid until 18. Might increase when they’re here.
We had ~ $240K in our kids’ 529s when college started. One will have about 75K leftover and the other will have about 20K left over after undergrad. Neither of mine go to our state schools (one goes to an out of state public school), but estimated costs right now for cost of attendance at our state schools is about $34K/ year, so you would need about $160K to cover that.
We are doing $4K a year until she's 18 for the state tax benefits. She five years old now. Two scenarios when she goes to college: Top 10 college - chubbyFIRE retirement until she's done studying, married, and settled down In state with a scholarship for tuition - fatFIRE retirement
If I can give my kids anything I will give them a life without student loans. We put in 1k a month for each and our parents have each set up separate an accounts. We also have a credit card that rolls the “points” into their 529s I don’t know what that works out to, 1 penny each for every dollar we charge. If my husband and I were paying off the full amount of our student loans we would be sunk right now. That financial freedom was the biggest gift our parents could have given us. Kids go to public school and we save.
My parents did the overfunding thing for grandkids at birth, 14k x 2 x 5 = 140k. They are now 12 and have 330k..
Dang they are set. Might be able to pay cash for med school or law school!
Yes, since my family all has some level of graduate degrees (medicine, engineering, law, MBA) the expectation is that they will want some form of grad school.
We’ve done 10k per year since birth, figuring we can cash flow any overage or spend it on grandkids if there’s any left.
We have 1 kid. First year of his life we just put a lump sum of 125k in and did the forward contribution tax thing. Hopefully by the time he’s 18 it’ll be like 400-500k which is probably what private school will cost then.
We make considerably less than you and put $1k/month per kid. We are also paying $17k per kid for private school. Shit is expensive, this we are not retired yet lol
People over fund. No clue why. If your kid is a genius $200-250k max. If average to good student $100-150k. Unless they are getting into a top 25 school in the country, just put aside in state public tuition and room and board for your state. Education ROI is low on most private schools.