529

[Vishenka69]

Wondering who here has a 529 and if it makes any sense someone in our tax bracket. So far it seems that the only benefit is to move money out of your estate and not pay any capital gains taxes on the interest. Other than that I don't see much difference between opening a 529 for our kid or just putting money into a regular mutual fund.

I'll obviously be also brining this up with our accountant but just wanted to see what this group has to say, since none of our kids will be qualified for financial aid.

[Flynn]

I agree.

We're putting (some) money into a 529 so it's safe from everything (including us) AND if anything happened to us that would be for college and nobody could change that.

Our financial planner is fantastic and they have no money in 529s. I'm a tiny bit on the cautious side so we have some money in a 529 for each child. It will likely be only 1/3 or 1/4 of the total amount we have earmarked for education though.

[Cumberland]

We have one for each kid. Our oldest's ( she is almost 6) has doubled since it started when she was born.

Can you deduct contributions from your state income tax? That varies by state and sometimes you have to be using the state plan for the tax break. Otherwise, I agree that a main benefit is that the earnings are tax-free and with Flynn's reasoning on it.

[GrayMatterWife]

You should get a book (a recent one--not an outdated one) on 529s before you talk to an accountant. First, are you talking about a prepaid tuition plan or a college savings plan? Some states have done away with the prepaid tuition plans or are otherwise limiting participation. Also, there are some 529 taxes issues you need to consider. Yes, there are tax advantages over socking it away in non-tax advantage vehicle like a regular brokerage account where it is invested in mutual funds. Namely, the income earned (that is, in shorthand, the amount above the basis) is not subject to federal income taxes and, usually, not subject to state income taxes, when withdrawn for a qualified purpose (and be careful: if you have to pull it out early or for a non-qualified purpose, there is an additional penalty). However, if you move states, you may experience state tax implications for income realized in the foreign state's 529. In addition, there are contribution limits to consider. And, of course, since your investment outlook is so long, you should consider--when you crunch the numbers--if you could actually come out ahead by investing in a moderately aggressive non-tax advantaged vehicle (that is, if you could come out ahead by self-directing your investments and paying the taxes incurred as versus being limited to the investment returns offered by the state program).

Just my thoughts. Good luck!

[Vishenka69]

I was talking about a college savings plan. I think prepaid plan would greatly limit her choices of where those credits can be used. I was wondering if we can set up a trust in her name and invest through that, so that any gained interest is not counted as our income. But not sure if there's a way to earmark it "for education only." I think that would give us more investment choices and freedom to move the money around.

[DCJenn]

If you're not fully funding your retirement plans, don't even bother- the daughter can finance college in a variety of ways- there's not a finance plan for retirement.

My parents have opened 529s for the grandsons. We have a tiny one but decided that our money is better spent paying down debt, especially since interest rates suck right now.

Jenn