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finally set-up 529 education plans
Posted by: robfilms
Date: December 23, 2014 07:30PM
i finally set-up 529 education plans for each daughter.

i had been putting it off becuz oldest daughter got a full ride in an honors college program and younger daughter would have gotten full ride but rules changed in her junior year from merit award to "need only" based award and suddenly we were out and paying retail!

(was i livid. the idea of changing a six-figure scholarship award midstream is/was outrageous. argued with university-an ivy leaguer-for a full year and they would not budge.)

so for senior year wanted a 529 plan for ivy league younger daughter and older daughter just informed me that she is now looking at grad schools for fall 2016 admittance.

new york state was very simple to apply online. hooked right into vanguard index funds which wife & 1 already had in our retirement accounts.

i was really quite impressed.

now i need to get older daughter, who has been out of college 18 months and has been working full-time during that period, to set-up her own 529 plan and name herself as beneficiary.

i wanted the 529s more for the federal/state deductions and less for the long-term investment opportunities.

ymmv

who else has gone down the 529 education plan route?

thanks in advance to those who care to share.

be well.

rob



Edited 1 time(s). Last edit at 12/23/2014 07:33PM by robfilms.
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Re: finally set-up 529 education plans
Posted by: mattkime
Date: December 23, 2014 07:34PM
529 plans are great, just make sure you take care of your retirement first.

FAFSA forms look at how much money you have in your pocket. 529s count toward that, retirement accounts don't.



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Re: finally set-up 529 education plans
Posted by: sekker
Date: December 23, 2014 07:35PM
Awesome!

We are in the closing stages of ours - but they've saved us quite a bit of money.
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Re: finally set-up 529 education plans
Posted by: space-time
Date: December 23, 2014 07:35PM
done. I set up automatic deposits.

Also, get the fidelity Amex, 2% goes into investments or 529 account. You can split the rewards between several accounts, I put 60% to older son and 40% to younger son (he has more time till he needs these funds).

On the other hand, maybe I should not save at all. A colleague at work told me his daughter was no eligible for financial aid, since she had a 529 and parents had 401k. Her high school colleagues who did not have 529 and parents did not have 401k DID receive finical aid. If this is true, the system rewards those who DO NOT SAVE.
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Re: finally set-up 529 education plans
Posted by: Buzz
Date: December 23, 2014 07:51PM
Wink, wink, nudge, nudge... per what s-t said, you're probably better off having another relative/extremely close friend open the 529 for your kid(s) so that the 529 doesn't count against you if your kid could otherwise qualify for financial aid... but you gotta get the 529 out of your name by the time the kid is a junior in high school, or it's too late. You gotta figure out your own best way to get the funds into the 529, but a few years ago, that was the big tip presented at collegiate financial aid night at the old high school. We got clobbered in 2008-09, but the 529 thankfully rebounded handsomely, and has helped a lot.



Sometimes it is what it is...
and then there's times when it's really better.



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Re: finally set-up 529 education plans
Posted by: tronnei
Date: December 23, 2014 07:51PM
Quote
space-time
A colleague at work told me his daughter was no eligible for financial aid, since she had a 529 and parents had 401k. Her high school colleagues who did not have 529 and parents did not have 401k DID receive finical aid. If this is true, the system rewards those who DO NOT SAVE.

Incorrect conclusion. FAFSA does not ask you for retirement account balances. You're not expected to plunder your retirement funds to put a kid through college.
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Re: finally set-up 529 education plans
Posted by: graylocks
Date: December 23, 2014 08:09PM
Quote
space-time
On the other hand, maybe I should not save at all. A colleague at work told me his daughter was no eligible for financial aid, since she had a 529 and parents had 401k. Her high school colleagues who did not have 529 and parents did not have 401k DID receive finical aid. If this is true, the system rewards those who DO NOT SAVE.

i think your friend may have been mistaken. parents' retirement are not counted. a 529 OWNED IN THE PARENT'S NAME does not count against the child though in some states it does if it is held by grandparents. (weird, huh.) many parents make the mistake of opening the plan in the child's name with the child as beneficiary. FAFSA declared me as having no ability to pay for my son's college though I hold $34,000 in a 529 for him. he was eligible for the Pell Grants and the Supplementary Grant for low income applicants. sadly that is the extent of true financial aid available to him as the rest of that year's college expense was done with stafford loans and a private loan.

now i need to get older daughter, who has been out of college 18 months and has been working full-time during that period, to set-up her own 529 plan and name herself as beneficiary.

no, no, no if she intends to apply for financial aid. they expect the student to wipe out all their savings first including a 529 they own and are beneficiary of. do it in your name or a non-grandparent relative or friend.

everything I know about 529 plans i learned from listening to Clark Howard for the last 15 years.



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



Edited 5 time(s). Last edit at 12/23/2014 08:17PM by graylocks.
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Re: finally set-up 529 education plans
Posted by: Bill in NC
Date: December 23, 2014 08:22PM
FAFSA matters for public schools, but private colleges will consider every non-retirement asset of the parent including the amount of equity in the family home, and the value of any privately-held business if self-employed.
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Re: finally set-up 529 education plans
Posted by: Acer
Date: December 23, 2014 11:08PM
I use state-administered guaranteed tuition plan, which is similar but not directly tied to the market. The plan promises to match the inflation of tuition. A 4 to 7%, tax-free yearly gain is not bad for a low risk investment. It's not risk free, as the state has no obligation to us should the whole thing fall apart, but so far these things are very common and seem to be holding up well. We probably lost some potential gain over a true 529, but then again we aren't at the mercy of an ill-timed market crater.

In the end, we have about $16K in funds available for every 10K we put in over the last 15 years. I front-loaded it as much as I could afford in the first five years, then chipped away with continual automatic deposit since.

Yes, 529 and Guaranteed Tuition Plans go on the FAFSA, as does home equity. Retirement does not. It's up to the providing agencies whether to count a 529. In Pennsylvania, the state grant program specifically excludes its own 529.

We've told our kids up front that we will pay the equivalent of 25% of the big state university. The rest is up to them. Kids can borrow and work their way through college; retirement only accepts cash.







Edited 1 time(s). Last edit at 12/23/2014 11:10PM by Acer.
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Re: finally set-up 529 education plans
Posted by: davemchine
Date: December 24, 2014 02:27AM
We have a 529 plan for each daughter. I felt it offered the most flexibility since it can be used for trade school, college, or living expenses while attending either. I've got three more years till the first begins college. I better invest faster.



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Re: finally set-up 529 education plans
Posted by: robfilms
Date: December 24, 2014 07:41AM
Quote
graylocks
Quote
space-time

now i need to get older daughter, who has been out of college 18 months and has been working full-time during that period, to set-up her own 529 plan and name herself as beneficiary.

no, no, no if she intends to apply for financial aid. they expect the student to wipe out all their savings first including a 529 they own and are beneficiary of. do it in your name or a non-grandparent relative or friend.
.

it is my understanding that there is NO financial aid for graduate school programs.

there are other "givebacks" - teaching assistant opportunities to defray the cost - but no financial aid as in 2 & 4yr colleges.

ymmv

be well.

rob
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Re: finally set-up 529 education plans
Posted by: Bixby
Date: December 24, 2014 09:17AM
I'm 3 and 1.5 years into 529 investing for my two children of the same age. So quite some time to go. Even so, running the calculators I don't think we'll be able to pay for even 1/2 of their college costs, as I expect that will be astronomical by then and we are funding retirement and other investments first. I'm ok with that. I had to pay my entire way though school. They are the named beneficiaries. I hadn't thought about the financial aid part, will have to investigate if I should make some changes.
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Re: finally set-up 529 education plans
Posted by: cbelt3
Date: December 24, 2014 09:44AM
Congrats.

I'm sad to say I got off easy through careful selection of parents.. When Dad died, Mom took his large life insurance payout and funded 529 plans in her name for all her grandchildren. Careful selection of the plans resulted in them being of high value by now.

Which she said do not need to be included in the FAFSA . And since Mom is a lawyer and specializes in estates and taxes and trusts and such, I took her word at it.

#1 daughter blew through 75% of hers in her quixotic abortive search for her muse. The remainder is now growing again.
#1 son has no idea what to do with his. He's got until he turns 51 to use it or lose it .
#2 son is hoping it will pay for 100% of his college career... it will cover 100% of any state university and 1 year of grad school, and 3/4 of a private college.
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Re: finally set-up 529 education plans
Posted by: Wailer
Date: December 24, 2014 10:16AM
Quote
robfilms
ii wanted the 529s more for the federal/state deductions and less for the long-term investment opportunities.

ymmv

I'm confused.

Does your state allow for federal and state deduction of 529 contributions? If so, that is a nice plan and definitely contrary to my state.

If you don't get to deduct all or a portion of your contribution and you only have, say, 2 or 3 years of tax-free growth, then I don't see the big advantage of contributing to a 529. Let's say you contribute a lump sum $40k and you get 8% growth for 3 years. That's roughly $50.4k. At 15% LTCG, you'll save about $1560 in tax versus just investing in a taxable account. If the investment choice in the 529 charges a 1.5% ER (my experience is that most 529s have funds with higher than average ERs), that will eat up the tax savings.

I looked at 529s a few years ago for my kids and while they have a nice advantage of putting a lot of money in them (for FAFSA purposes or whatever), they all seemed expensive. The Coverdell IRAs are offer much better investment choices but are limited to $2k/yr. I prefer the flexibility and low (or no) cost of taxable accounts that I can tax-loss harvest in. However, if you can deduct your contributions (even at just the state) level and then get it tax-free on the way out, that is a bonanza. That would make them as good or better than HSAs.
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Re: finally set-up 529 education plans
Posted by: Ombligo
Date: December 24, 2014 10:23AM
We are about to find out next year how we did when #1 (and only) son heads to college. We bought a state prepaid plan when he was born that will pay two-years of community college and two years upper division. It also covers all local fees (which can be a few thousand a year).

For FAFSA our funds are primarily in Roth IRA's and those don't count, neither does our home equity. His Grandmother will be gifting him about $30k next summer that will be for around a 40% down payment on a house. That also won't count on the FAFSA. So I'm hoping that he'll qualify for some assistance other than loans.

The state tuition assistance program was changed two years ago and only the top 3%-5% now qualify from the 30% that did before the change.



“No persons are more frequently wrong, than those who will not admit they are wrong.” -- François de La Rochefoucauld

"Those who cannot accept the past are condemned to revise it." -- Geo. Mathias
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Re: finally set-up 529 education plans
Posted by: Acer
Date: December 24, 2014 10:50AM
Quote
cbelt3
Congrats.

I'm sad to say I got off easy through careful selection of parents.. When Dad died, Mom took his large life insurance payout and funded 529 plans in her name for all her grandchildren. Careful selection of the plans resulted in them being of high value by now.

Which she said do not need to be included in the FAFSA . And since Mom is a lawyer and specializes in estates and taxes and trusts and such, I took her word at it.


Just to be clear:
"The 529 plans owned by college students or their parents count as assets and reduce need-based aid by a maximum of 5.64 percent of the asset's value."

"However, if the 529 plans are held by grandma and grandpa, they won't appear on the FAFSA as assets. Instead, as the money is withdrawn to pay for tuition or other educational expenses, that amount must be reported on the next year's financial aid forms as untaxed income to the student, and it can reduce the amount of aid by 50 percent."

[www.reuters.com]

TL;DR: No free lunch.
TL;DRv2: No good deed goes unpunished.



Edited 1 time(s). Last edit at 12/24/2014 10:51AM by Acer.
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Re: finally set-up 529 education plans
Posted by: ztirffritz
Date: December 24, 2014 01:19PM
Washington state's 529 plan is a guaranteed tuition plan. I buy credits that are redeemed later based on the cost to attend the most expensive public state school (UW most likely). If the cost of tuition goes up the value of the plan increases with it and it's guaranteed by the state. It can be used for any accredited school though. I started the plan for my son before he was even born. It's fully funded and he's 5 now. In those 5 years tuition at UW has increased about 35% so by the time he's 18 this will likely be the best investment I've ever made. Maybe even better than appl.

[www.get.wa.gov]

Quote
Washington GET
3. How will a GET account affect my financial aid? -
If the parent or dependent student is the Account Owner, GET is considered an asset of the parent and treated more favorably than assets of a non-dependent student when determining eligibility for financial aid. Distributions from GET accounts owned by non-parents may be treated as student income the following year and have greater impact. You may want to consult your financial advisor or the financial aid office at your school



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Edited 2 time(s). Last edit at 12/24/2014 01:41PM by ztirffritz.
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Re: finally set-up 529 education plans
Posted by: robfilms
Date: December 24, 2014 01:22PM
Quote
Wailer
Quote
robfilms
i wanted the 529s more for the federal/state deductions and less for the long-term investment opportunities.

ymmv

Does your state allow for federal and state deduction of 529 contributions? If so, that is a nice plan and definitely contrary to my state.
.

wailer-

yes, my home state-new york-allows both federal and state deductions.

since my kids are already in their early 20s, the idea of long-term savings is not realistic.

that said, 529s offer tax incentives and a pathway towards savings, in our case, for both daughters' plans for graduate school.

ymmv

be well.

rob
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Re: finally set-up 529 education plans
Posted by: Wailer
Date: December 24, 2014 03:03PM
Quote
robfilms
Quote
Wailer
Quote
robfilms
i wanted the 529s more for the federal/state deductions and less for the long-term investment opportunities.

ymmv

Does your state allow for federal and state deduction of 529 contributions? If so, that is a nice plan and definitely contrary to my state.
.

yes, my home state-new york-allows both federal and state deductions.

Wait. I misspoke when I originally said "federal deductions" because you cannot deduce your 529 contributions from your federal income tax. Gains, of course, are free from fed and state taxes if you use the for qualified education expenses.

Based on my cursory research, it appears you can deduct up to $5k from your state income for each contribution. Based on the highest marginal rate of ~9%, that amounts to a tax savings of up to $450/yr per child. NY charges 0.16% ER to administer the plan (or $8 per $5000), so it's not a bad deal as long as the investment options aren't too expensive.

If my state allowed such a deduction, I'd probably contribute up the that amount.
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