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best strategy for a 529 plan?
Posted by: space-time
Date: May 30, 2015 09:30AM
I have some 529 plans (one for each kid). Should I continue to add money to those funds, or open one for myself? not sure where I read that, but I think having a 529 fund set up for the kid may actually hurt his/her chances of having financial aid. Apparently so does when a grandparent sets up a 529, it also hurts the grandchildren, but apparently when the parent sets up a 529 and does not designate the kids as beneficiaries, this is the best way to go. Can anyone explain, or point to a good web site that explains all these situations? when I looked a few days ago, I could not find a simple straightforward explanation, it seems like you needed to be a tax adviser to understand all the details. man, the US tax system needs some reform big time.
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Re: best strategy for a 529 plan?
Posted by: Robert M
Date: May 30, 2015 09:58AM
Space,

This is the kind of stuff that I take up with a reputable financial adviser. Just way to complex and convoluted especially because of the potentially negative long-term consequences. You noted one of the possibilities.

Robert
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Re: best strategy for a 529 plan?
Posted by: Bill in NC
Date: May 30, 2015 10:04AM
Private or public school?

Private schools will go well beyond the FAFSA, even asking questions about how much equity do you have in your home, value of any private businesses you own, etc.
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Re: best strategy for a 529 plan?
Posted by: Acer
Date: May 30, 2015 10:04AM
Not a tax lawyer, but as I understand it:

A 529 opened by the parent always counts towards the parent's contribution, which is always limited to X percent, can't recall the percent at the moment. Keep in mind that even if you have multiple children, all your 529s are lumped together on the FAFSA, even if you keep separate accounts for child A and child B. The 529 total balance is a single asset of the parent, period. Being clever with beneficiaries won't help.

A 529 opened by a grandparent, where the grandparent remains the account owner, will present problems when used because funds used are considered income of the child (for FAFSA purposes) when the next year's FAFSA rolls around. And a much greater percentage of the child's income is counted in the FAFSA calculations.
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Re: best strategy for a 529 plan?
Posted by: Speedy
Date: May 30, 2015 10:29AM
About a dozen years ago I researched doing a 529 for my one college bound child and decided it wasn't of any value to us because we were middle class and it appeared the plans were designed for higher income and asset families. I went with a safe deposit box and cash. Said child, who graduated less than two weeks ago from college, received very little in grants and loans anyway because my wife's employer picked up his tuition. Child/we paid for room and board, books, fees, etc.



Saint Cloud, Minnesota, where the weather is wonderful even when it isn't.
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Re: best strategy for a 529 plan?
Posted by: sekker
Date: May 30, 2015 10:53AM
Earnings in the 529 are tax-free if they are used for education.

Works fine for this middle class parent.

I don't think it matters whose name the 529 is in - it will count against need-based scholarships. But IMHO that's ok.
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Re: best strategy for a 529 plan?
Posted by: Acer
Date: May 30, 2015 11:01AM
Quote
sekker
I don't think it matters whose name the 529 is in - it will count against need-based scholarships. But IMHO that's ok.

There are two ways of looking at it:

1) "Good for me, I don't need the aid, that's more for others who don't have my resources."

OR

2) "GAAH! I am being punished for my success!"

But that's a discussion for the Other Side.
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Re: best strategy for a 529 plan?
Posted by: Speedy
Date: May 30, 2015 11:04AM
Quote
sekker
Earnings in the 529 are tax-free if they are used for education.

Works fine for this middle class parent.

I don't think it matters whose name the 529 is in - it will count against need-based scholarships. But IMHO that's ok.

But your tax-free earnings are probably minimal, as are your tax savings.



Saint Cloud, Minnesota, where the weather is wonderful even when it isn't.
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Re: best strategy for a 529 plan?
Posted by: graylocks
Date: May 30, 2015 11:10AM
Quote
sekker

I don't think it matters whose name the 529 is in - it will count against need-based scholarships. But IMHO that's ok.

depends upon the school. my son went to a state school. the $30,000+ in the 529 i had for him did not affect his financial aid and, because i'm broke otherwise, FAFSA said the expected parental contribution was $0.

as for Speedy's assertion that the 529 only benefits high income families, my original contribution to the plan was $19,500; last time i checked it had grown to $36,000+. i think that's a pretty damn good benefit. now, if only the lad would figure out what he wants to do, go back to school, and actually do the work this time...



"Success isn't about how much money you make. It is about the difference you make in people's lives."--Michelle Obama



Edited 1 time(s). Last edit at 05/30/2015 11:11AM by graylocks.
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Re: best strategy for a 529 plan?
Posted by: Acer
Date: May 30, 2015 11:15AM
A true 529 is invested in the market, earns market rates (and has market risks, of course), plus earnings are tax free. You're going to need tens of thousands in ANY savings plan to make a dent in college tuition, anyway, so the potential gain is not trivial.



Edited 1 time(s). Last edit at 05/30/2015 11:16AM by Acer.
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Re: best strategy for a 529 plan?
Posted by: Speedy
Date: May 30, 2015 11:22AM
Okay, okay, okay. The numbers didn't crunch for me.



Saint Cloud, Minnesota, where the weather is wonderful even when it isn't.
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Re: best strategy for a 529 plan?
Posted by: 3d
Date: May 30, 2015 11:30AM
My daughter has $20,000 in her 529 plan and she's not even in kindergarten yet. My understanding is that you should max out your annual ROTH IRA first. Then if there is anything left, deposit money into a 529 for the kiddies.
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Re: best strategy for a 529 plan?
Posted by: Acer
Date: May 30, 2015 11:55AM
Kids can borrow and work their way through college; retirement requires cash.



Edited 1 time(s). Last edit at 05/30/2015 11:56AM by Acer.
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Re: best strategy for a 529 plan?
Posted by: sekker
Date: May 30, 2015 01:49PM
Quote
Speedy
Quote
sekker
Earnings in the 529 are tax-free if they are used for education.

Works fine for this middle class parent.

I don't think it matters whose name the 529 is in - it will count against need-based scholarships. But IMHO that's ok.

But your tax-free earnings are probably minimal, as are your tax savings.

My thoughts, but in the end, I've saved $15,000 tax free so far for my son's account. Tax savings on that is more than the cost of his MacBook Air and his iPad for school. That was worthwhile.
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Re: best strategy for a 529 plan?
Posted by: Buzz
Date: May 30, 2015 02:07PM
"best strategy for a 529 plan?"

Bet on horses #5, #2, and #9 in the upcoming Belmont Stakes.


or make sure your 529's are fully funded in a (very good) friend's name that you know won't screw you over, by the end of your kid's sophomore year in HS. Send your kid off to college and take loans (at the best terms you can find) to pay for it. When kid graduates, good friend changes beneficiaries of the essentially held-in-trust 529 over to your kid, and pays off student loans. Or use some similar scenario to keep the 529's off of your tax records as the kid(s) approach and attend college while they're racking up the bills. That way, any aid and grants that they might be eligible for are not affected since the 529's are not in your, or their names at the time, and your prior contributions occurred before your initial FAFSA filing. Other relatives (grandparents, aunts/uncles) used to be almost safe by using another grandkid/niece/nephew as the initial beneficiary, but I've heard they've tightened up on that. Or, if you have access to a retirement vehicle, simply contribute the equivalent of 529 funds to that, and borrow against it as needed for college expenses. Or make your kids study harder and get scholarships unless they're gifted athletes and can get athletic scholarships. Or get a time machine and go back 50 years when state colleges were affordable.
==
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Re: best strategy for a 529 plan?
Posted by: graylocks
Date: May 30, 2015 02:52PM
Quote
Buzz
or make sure your 529's are fully funded in a (very good) friend's name that you know won't screw you over, by the end of your kid's sophomore year in HS. Send your kid off to college and take loans (at the best terms you can find) to pay for it. When kid graduates, good friend changes beneficiaries of the essentially held-in-trust 529 over to your kid, and pays off student loans
==

that's not going to fly. 529 funds have to be used for qualified education expenses and they specifically exclude paying off a student loan. the new graduate would wind up having to pay a 10% penalty on the earning plus taxes on the earnings at that graduates current tax rate is. money left after that could then be put to whatever use. of course, since qualified education expenses don't necessarily have to be paid directly to an institution there's always the hope the graduate wouldn't get caught but that's a pretty big risk to take.



"Success isn't about how much money you make. It is about the difference you make in people's lives."--Michelle Obama



Edited 1 time(s). Last edit at 05/30/2015 02:53PM by graylocks.
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Re: best strategy for a 529 plan?
Posted by: Buzz
Date: May 30, 2015 03:23PM
"that's not going to fly. 529 funds have to be used for qualified education expenses and they specifically exclude paying off a student loan. the new graduate would wind up having to pay a 10% penalty on the earning plus taxes on the earnings at that graduates current tax rate is. money left after that could then be put to whatever use. of course, since qualified education expenses don't necessarily have to be paid directly to an institution there's always the hope the graduate wouldn't get caught but that's a pretty big risk to take."

life w/o risk is pretty dull... just wanted to give s-t the opportunity to have some more excitement in his life. That said, we just bit the bullet w/ the 529 and let the chips fall wherever they may. Thankfully, for Baby Buzz, the ROI has been great enough to exceed the offset, so he's done OK for our having gone the 529 route... even after taking a hit in the crash of 2008/'09 (at which time we were worried...). Our well-heeled friends favor the added contribution to retirement vehicles..., but then again, they're not worried about loans, aid and grants. I hate to say it, but the real best way to address college funding as far as third party participation goes, is to buckle down and apply for every obscure grant you can find, and keep at it, hoping that enough of them come thru to make a difference. There are tons of them out there, and while many of them may be small, like only $50 or $100 a semester or year, collectively they add up. That 5-2-9 trifecta for the Belmont is looking better all the time.
==
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Re: best strategy for a 529 plan?
Posted by: Speedy
Date: May 30, 2015 03:34PM
Quote
Buzz
I hate to say it, but the real best way to address college funding as far as third party participation goes, is to buckle down and apply for every obscure grant you can find, and keep at it, hoping that enough of them come thru to make a difference. There are tons of them out there, and while many of them may be small, like only $50 or $100 a semester or year, collectively they add up. That 5-2-9 trifecta for the Belmont is looking better all the time.
==

Son did this, too. His best payoff was $1k from our electric co-op. A short essay, an envelope and a stamp! Plus he had to register for an intro Econ class which he would have done anyway. But he got a few $100 grants which were enough to buy more than a few books. On Thursday he had his last day at his campus job which was "land care" or grounds keeping. Campus jobs (work-study) are very nice because the university lets him work within his schedule.



Saint Cloud, Minnesota, where the weather is wonderful even when it isn't.



Edited 1 time(s). Last edit at 05/30/2015 03:35PM by Speedy.
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Re: best strategy for a 529 plan?
Posted by: mrbigstuff
Date: May 30, 2015 06:26PM
one strategy I have read of is to earn very little in the two years prior to the little darling's entry into university.



Edited 1 time(s). Last edit at 05/30/2015 06:27PM by mrbigstuff.
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Re: best strategy for a 529 plan?
Posted by: jdc
Date: May 30, 2015 08:37PM
clark has some info.

[www.clarkhoward.com]



----


Edited 999 time(s). Last edit at 12:08PM by jdc.
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Re: best strategy for a 529 plan?
Posted by: mattkime
Date: May 30, 2015 08:54PM
Talk with a financial planner!

You should be prioritizing retirement - max out 401k and IRA. Then and only then do consider a 529 plan.



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Re: best strategy for a 529 plan?
Posted by: rz
Date: June 01, 2015 02:14PM
Quote
Buzz
I hate to say it, but the real best way to address college funding as far as third party participation goes, is to buckle down and apply for every obscure grant you can find, and keep at it, hoping that enough of them come thru to make a difference. There are tons of them out there, and while many of them may be small, like only $50 or $100 a semester or year, collectively they add up.

This. It's been a while since I graduated, but the school I went to used to have dozens of scholarships and grants go unused every year. They had a very specific specialty program within their marketing department. In my senior year, someone told me he basically had his first two years paid for in scholarships and grants. He came in under the specialty major. The curriculum was almost identical to a standard business degree. In the first two years, he just had to take one specialty course each semester. Upon entering his junior year, when he would have had to take a majority of courses in this field, he changed to just a basic Marketing major. At that point, he lost his scholarships, but he was already halfway done. He just had to pay for two years to get his bachelor's degree. The four courses ended up counting as electives.
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Re: best strategy for a 529 plan?
Posted by: TLB
Date: June 01, 2015 04:30PM
I sent 3 to college, one through an MS with no debt, one lost their way and accumulated about $11,000 in student loans and the youngest graduated in December with a BSME and $24,000 in debt, but got a fully funded GRA to pursue his PhD. His stipend is large enough that he thinks he can cover living expenses and substantially pay down his loans. The biggest savings was in living at home, closely followed by AP classes and dual enrollment opportunities. They shortened time to degree by one year and a half year, respectively for my two graduates. Only the first lived at home, I covered room and board for the others. The biggest surprise was the little financial aid offered (scholarships and loans) given we are a one earner family.
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