College 529 fund question

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michigande
Posts: 106
Joined: Mon Feb 13, 2012 5:51 pm

College 529 fund question

Post by michigande »

I'd like to provide my little guy a 5th option to fund college aside from one of the ones I took at the military recruiter's office.

My outside financial advisor recommended a fund called the CollegeAmerica 529 Savings Plan. Given that I'd like to leave the state where we currently live between now and when I retire, does anyone have any experience with this plan or others?

Thanks!

seawatcher
Posts: 87
Joined: Sat Feb 03, 2018 10:49 pm

Re: College 529 fund question

Post by seawatcher »

My understanding is you can establish a 529 account with any state. We enroll in Maryland's 529 investment plan because there is a $2500 state tax deduction. But only allowed to make two fund transfers a year! Not sure if other state plans allow more interfund transfers.
Good luck with your TSP and retirement plans!

Mrexter
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Joined: Wed May 25, 2016 10:06 am

Re: College 529 fund question

Post by Mrexter »

It would depend on if you want to do a seasonal strategy. 529s are a joke in my opinion. Only 2 transfers per year and there are limited funds that are specific to 529s to choose from. The tax advantage is simply not worth it. Vanguard has some 529 funds that follow the S&P and other indexes, for example, but again, only 2 transfers per year. Do the math on a strategy for 15 years and see where you would be with 25% per year vs. the 9-10% from a S&P index.

$2,000 initial deposit with $180.00 monthly deposits at 25% = $ 433,000 in 15 years
$2,000 initial deposit with $180.00 monthly deposits at 10%= $84,000 in 15 years

After 15 years, yearly interest would be about $95,000 on the 25% example. Even after paying tax of 25%, would still leave over $70,000 to spend on education (or however you choose). This money is yours to use however you want and not restricted by the 529 rules (whatever they are). We are maxing out our ROTHs and will use ROTH funds to finance our kids college IF we need to.

I wish I knew about these seasonal strategies 15 years ago. I look forward to learning where I am wrong or additional 529 advice.

searight
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Joined: Wed Jan 16, 2013 8:56 am

Re: College 529 fund question

Post by searight »

For 529's some states will give you state tax breaks for putting funds into them like Maryland does upto $2500/spouse (which immediately drops our taxes by $500). Then you can transfer it to any state. We use NY because it met our criteria but you can pick your own.

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bloobs
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Re: College 529 fund question

Post by bloobs »

michigande wrote:I'd like to provide my little guy a 5th option to fund college aside from one of the ones I took at the military recruiter's office.

My outside financial advisor recommended a fund called the CollegeAmerica 529 Savings Plan. Given that I'd like to leave the state where we currently live between now and when I retire, does anyone have any experience with this plan or others?

Thanks!
IMO a 529 only works if you have more than 15 years to go before it gets used and you are a very hands off investor of those investments. otherwise i recommend a roth IRA to fund juniors college bill. much more flexible with investment choices, potential for much higher returns, as well as flexibility in usage, since you can use it for retirement expenses (obviously ) instead of just college expenses.

most 529s give state income tax deductions which unless you live in california, washington state, new york or new jersey is often not enough to offset a much lower returns compared to money invested in a Roth.
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jyarch2012
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Joined: Wed Jan 04, 2012 2:09 am

Re: College 529 fund question

Post by jyarch2012 »

T Rowe Price 529 college portfolios funds return decent amount. I left the funds in college graduation date - Just in case the kid decide to be a career student! It’s for long term; unlike we are here second guessing which way the trade wind blows- one less thing I have to worry about.
:D

Scb74
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Joined: Tue Jan 06, 2015 11:25 am

Re: College 529 fund question

Post by Scb74 »

michigande wrote:I'd like to provide my little guy a 5th option to fund college aside from one of the ones I took at the military recruiter's office.

My outside financial advisor recommended a fund called the CollegeAmerica 529 Savings Plan. Given that I'd like to leave the state where we currently live between now and when I retire, does anyone have any experience with this plan or others?

Thanks!
North Carolina does not offer a state tax benefit, so I use the Vanguard 529 plan - not specific to any one state. https://investor.vanguard.com/529-plan/

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cswift01
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Re: College 529 fund question

Post by cswift01 »

michigande wrote:I'd like to provide my little guy a 5th option to fund college aside from one of the ones I took at the military recruiter's office.

My outside financial advisor recommended a fund called the CollegeAmerica 529 Savings Plan. Given that I'd like to leave the state where we currently live between now and when I retire, does anyone have any experience with this plan or others?

Thanks!
I'm using Coverdells. They are easier to organize and require less funding. I'm also supplying them with very small Roth IRAs. Either way, both could be utilized for college. I like the Coverdell better than the 529s because I can invest it anywhere I want. I'm going full speed ahead with risky investments. I have for one over 10 years and the other over 15.

Best,

Me

michigande
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Joined: Mon Feb 13, 2012 5:51 pm

Re: College 529 fund question

Post by michigande »

Thanks everyone for sharing your insight!

Based on your feedback I took a closer look at Roth vs. 529, which I hadn't even considered. Roth apparently has flexibility I wasn't previously aware of with respect to withdrawing for education. That coupled with the tax free withdrawals after I reach 59.5, I'll be eligible there when my little guy is ready for college, the freedom to use it for my retirement if college isn't in the cards and the expanded investment options makes it an easy decision.

This lays it out pretty well:

https://www.thesimpledollar.com/investi ... e-savings/

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mjedlin66
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Re: College 529 fund question

Post by mjedlin66 »

bloobs wrote:
IMO a 529 only works if you have more than 15 years to go before it gets used and you are a very hands off investor of those investments. otherwise i recommend a roth IRA to fund juniors college bill. much more flexible with investment choices, potential for much higher returns, as well as flexibility in usage, since you can use it for retirement expenses (obviously ) instead of just college expenses.

most 529s give state income tax deductions which unless you live in california, washington state, new york or new jersey is often not enough to offset a much lower returns compared to money invested in a Roth.
Washington State doesn't have an income tax.

I'm also not sure about your assertion of "much lower returns". My nephew's 529 is invested in the S&P 500.
Owner/creator of TSPcalc.com - "Know your numbers"

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IRQVET
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Re: College 529 fund question

Post by IRQVET »

I started 529 College Accounts at USAA as soon as each of my kids social security cards came in the mail after they were born. I just have $100 per month per kid going into them, its out of sight/ out of mind investment. So far no complaints. USAA does offer a "Upromise" feature where I can go on social media and post a link for family members to access if they want to contribute. I usually post them twice a year on their birthdays and X-Mas, and I ask the family to forego buying them gifts and instead throw the money in their college accounts.

Its the virual equivalent of shaking coins in a can on the side of the freeway off-ramp, lol.
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Disclaimer: The contents of this thread are known to the state of California to cause cancer.

VAmanBulls
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Joined: Wed Jul 24, 2019 8:37 am

Re: College 529 fund question

Post by VAmanBulls »

I researched this several years ago when I started 529's for my kids. I live in GA but the best one I found was supported by the state of Iowa: https://www.collegesavingsiowa.com/

You can use the grow and savings for any college in any state. The program offers several different 'funds' similar to the TSP.

wingchaser
Posts: 124
Joined: Thu Jan 22, 2009 8:39 am

Re: College 529 fund question

Post by wingchaser »

There’s several strong reasons for wanting to pursue Prepaid College Options. The most obvious is that allows for College Savings @ a relatively low rate ($75/month if you start when they’re still in diapers). Another strong benefit is that you “lock in” tuition rates @ the moment you enroll. Finally, a hidden benefit is that if you opt for

2-Yr Junior College
2-Yr State College

all Entrance Exams & Minimum GPA requirements will be waived. Also, embedded (here) is ensuring that the student gets eased into College prior to throwing them in with the Big Boys.

Best of Luck (everyone) in all you choose to endeavor!!!
“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t... pays it.” ~ Albert Einstein

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bloobs
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Re: College 529 fund question

Post by bloobs »

Also

- For you moneyed types, 529 plan balances can also be used for K-12 private school tuition payments
- Be careful though, as each state administers these rules differently. States typically only allow the "prepaid" type of 529 accounts for payment to that state's list of public colleges, which may not meet your child's potential or goals. Only some states offer a tax deduction for contributions. There is the conundrum of expending the balance for other purposes should junior refuse to go to college or, inversely, wonderfully get a full ride scholarship. The worst disadvantage of a 529 is the extremely limited and often subpar performance of its investment funds; good luck getting it to perform at the same level as the TSP C/S/I funds---it has not and won't.

- For those approaching or at retirement, using a ROTH may be just as advantageous as it gives you more flexibility a 529 cannot.

searight
Posts: 82
Joined: Wed Jan 16, 2013 8:56 am

Re: College 529 fund question

Post by searight »

For 529's look at what benefits your states provide. As an example in Maryland your contribution as fully deductible upto $2500 per account. In Maryland with a 10% income tax that is a free $250 (Now you can create accounts for cousins, nieces, grand parents etc and transfer them back to your child later). Also, we immediately pull some of it out to pay for private school.

Once you get the benefit for contributing, then you can transfer the 529 to another state that may have better expense ratios, like NY.

In short 529's can be great, but are more complicated then the TSP.

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