529 plans

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med2010

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I assume many of us use 529s for expected education expenses for our kids. I struggle a little bit with how much to fund these. My initial goal was to get to 300k per kid by the time they’re 18, but now I think that’s too low. Any goals you guys shoot for?
 
med2010 said:
I assume many of us use 529s for expected education expenses for our kids. I struggle a little bit with how much to fund these. My initial goal was to get to 300k per kid by the time they’re 18, but now I think that’s too low. Any goals you guys shoot for?
Click to expand...
300k is too low? Depends on goals I guess…

How much does a state college cost where you live? Where I am it is about 25k/yr for tuition. That is 100k for 4 years. I figure let them work/take loans out for part of living expenses or earn scholarships to figure the rest of it out and have some skin in the game so my goal is 150ish
 
chessknt said:
300k is too low? Depends on goals I guess…

How much does a state college cost where you live? Where I am it is about 25k/yr for tuition. That is 100k for 4 years. I figure let them work/take loans out for part of living expenses or earn scholarships to figure the rest of it out and have some skin in the game so my goal is 150ish
Click to expand...

It’s getting to the point of futility even with an 18 year head start. Costs continue to rises faster and faster even for state schools and then forget grad school if your kid goes that route. You’d be dedicating a pretty significant portion of your funds.

I thought about letting my kid fend for himself entirely but I don’t delude myself into thinking of it as some kind of character building exercise for them. Purely selfish on my part. It just too expensive.
 
RadsWFA1900 said:
It’s getting to the point of futility even with an 18 year head start. Costs continue to rises faster and faster even for state schools and then forget grad school if your kid goes that route. You’d be dedicating a pretty significant portion of your funds.

I thought about letting my kid fend for himself entirely but I don’t delude myself into thinking of it as some kind of character building exercise for them. Purely selfish on my part. It just too expensive.
Click to expand...
Too expensive to cover some living expenses by yourself?

I agree that coat inflation is ridiculous my hope is that there is some sort of government backed aolution by the time my kids are of age because it seems impossible for anyone not from the upper class to go to college at these prices
 
chessknt said:
Too expensive to cover some living expenses by yourself?

I agree that coat inflation is ridiculous my hope is that there is some sort of government backed aolution by the time my kids are of age because it seems impossible for anyone not from the upper class to go to college at these prices
Click to expand...

Cheapest route may be com college followed by state school undergrad/grad. Overseas education may not be such a bad alternative either univ cambridge is about 30K USD.

It won’t get fixed until people find out a way to hand out these coveted credentials for cheaper. Although the ROI is already negative for many college studies.
 
My background: I had a single mom with three siblings still at home when I went to college, zero family/friend/legacy financial support, I attended a highly competitive college.

Graduated with $4,500 student loans from undergrad and <$50,000 loans from medical school (though I did take more time as an MSTP fellow). Pell grants and scholarships helped a lot though I wasn't a full ride or anything like that. Work-study (paid research assistant) and summer jobs filled the gaps.

I plan on having ~$150,000 per child because they will otherwise be penalized for having rich parents. If the investments outperform then perhaps I will have more.

Everybody calling for government-backed solutions are going about it wrong. Government is the cause of this huge cost-inflation by heavily subsidizing it. You want to see how expensive college can get just have Government subsidize and forgive all the loans.
 
NICMAN said:
My background: I had a single mom with three siblings still at home when I went to college, zero family/friend/legacy financial support, I attended a highly competitive college.

Graduated with $4,500 student loans from undergrad and <$50,000 loans from medical school (though I did take more time as an MSTP fellow). Pell grants and scholarships helped a lot though I wasn't a full ride or anything like that. Work-study (paid research assistant) and summer jobs filled the gaps.

I plan on having ~$150,000 per child because they will otherwise be penalized for having rich parents. If the investments outperform then perhaps I will have more.

Everybody calling for government-backed solutions are going about it wrong. Government is the cause of this huge cost-inflation by heavily subsidizing it. You want to see how expensive college can get just have Government subsidize and forgive all the loans.
Click to expand...
Im in the same boat as you as far as background.

I don’t see how if the government invented this problem they can’t fix it. I agree the unlimited no credit government loans invented this problem but just cutting that off isn’t going to fix it now, the standard is there that the costs are impossible to cover without huge loans. If the government exits then it will just be private banks filling the gap making more money and probably getting the government to underwrite the loans anyways. There needs to be some kind of cola limit of tuition and fee increases for public universities.
 
NICMAN said:
Everybody calling for government-backed solutions are going about it wrong. Government is the cause of this huge cost-inflation by heavily subsidizing it. You want to see how expensive college can get just have Government subsidize and forgive all the loans.
Click to expand...

Exactly!!
 
chessknt said:
Im in the same boat as you as far as background.

I don’t see how if the government invented this problem they can’t fix it. I agree the unlimited no credit government loans invented this problem but just cutting that off isn’t going to fix it now, the standard is there that the costs are impossible to cover without huge loans. If the government exits then it will just be private banks filling the gap making more money and probably getting the government to underwrite the loans anyways. There needs to be some kind of cola limit of tuition and fee increases for public universities.
Click to expand...

Hopefully the private banks will means test those loans and not lend $300000 to future social workers who have no hope of paying it back. Masters programs at “prestigious” universities seem particularly predatory.


“The strategy has paid off. During the 2019-20 academic year, Columbia collected $268 million in federal loans on its graduate programs. The undergraduate schools, on which Columbia built its reputation, only supplied $16 million in federal loans.”

www.wsj.com

USC Pushed a $115,000 Online Degree. Graduates Got Low Salaries, Huge Debts.

The prestigious private university hired a for-profit firm to recruit students to its social-work master’s program. “You don’t feel like you’re part of an elite school.”
www.wsj.com www.wsj.com

www.nationalreview.com

Defund Columbia | National Review

Federal loans for high-cost, low-value graduate schools have enabled the Ivy League master’s-degree racket to thrive.
www.nationalreview.com www.nationalreview.com

B8637981-47B2-445B-9D3D-454C01049747.jpeg
 
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I'm hoping to be retired before my kids go to college. I haven't yet looked into it yet, but am wondering how many years of minimal to no income by parents would impact their financial aid/scholarship possibilities (even if I have a large net worth).
 
Mman said:
I'm hoping to be retired before my kids go to college. I haven't yet looked into it yet, but am wondering how many years of minimal to no income by parents would impact their financial aid/scholarship possibilities (even if I have a large net worth).
Click to expand...
It won’t because The fafsa is a reasonable aid tool and it’s not gameable like the health insurance carnival. They look at net assets not just income.

Although to be fair they dont look at tax advantaged retirement accounts (https://studentaid.gov/2122/help/parent-investments) or your primary home so if you can sink most of your assets in those youll be good.
 
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chessknt said:
It won’t because The fafsa is a reasonable aid tool and it’s not gameable like the health insurance carnival. They look at net assets not just income.

Although to be fair they dont look at tax advantaged retirement accounts (https://studentaid.gov/2122/help/parent-investments) or your primary home so if you can sink most of your assets in those youll be good.
Click to expand...

Havent you seen enough rich people hide their wealth so that their "net assets" look like nothing?? Doesnt even have to be complicated.. They give their assets to their kids,, other family members, etc... It is possible to game fafsa, just not as easily as health insurance and coverage.
 
coffeebythelake said:
Havent you seen enough rich people hide their wealth so that their "net assets" look like nothing?? Doesnt even have to be complicated.. They give their assets to their kids,, other family members, etc... It is possible to game fafsa, just not as easily as health insurance and coverage.
Click to expand...
Very true I am clearly not hitting at their level to be able to paly shell games with funds.
 
chessknt said:
It won’t because The fafsa is a reasonable aid tool and it’s not gameable like the health insurance carnival. They look at net assets not just income.

Although to be fair they dont look at tax advantaged retirement accounts (https://studentaid.gov/2122/help/parent-investments) or your primary home so if you can sink most of your assets in those youll be good.
Click to expand...

I am too far out to start looking into this, but are they literally just asking you to be honest and tell them the value of accounts? Because a random taxable investment account might contain almost nothing that is reportable on a tax return. There can be literally no evidence of it's existence/value depending on what is in it.
 
Mman said:
I am too far out to start looking into this, but are they literally just asking you to be honest and tell them the value of accounts? Because a random taxable investment account might contain almost nothing that is reportable on a tax return. There can be literally no evidence of it's existence/value depending on what is in it.
Click to expand...
I imagine committing fraud on a federal application will have repercussions not just on your career but also on your kids ability to get in to college.
 
chessknt said:
I imagine committing fraud on a federal application will have repercussions not just on your career but also on your kids ability to get in to college.
Click to expand...

I would already be long retired, just wondering about the details. Also it's interesting that the value of savings/checking accounts is not included in any calculation.
 
I’m sure the financial aid system can be manipulated if that’s what you want to bank on. Maybe some student loans will be forgiven, but probably not. All I know is that my med school is about 250% more expensive than it was 15 years ago. Obviously unsustainable but is the breaking point now, or in 10 years, or later? No one knows. The only reason 529s don’t have an income limit is probably because colleges lobby against it. That said, I expect to have to pay a ton.
 
med2010 said:
I assume many of us use 529s for expected education expenses for our kids. I struggle a little bit with how much to fund these. My initial goal was to get to 300k per kid by the time they’re 18, but now I think that’s too low. Any goals you guys shoot for?
Click to expand...
$300K is a good number to shoot for. Have the kids go to CC's for thier first two years of UG...the final diploma will still read the name of the 4 year school they graduated from.

My wife and I started from $25K each for our kids when they were toddlers. It's up to a very nice figure now.
 
med2010 said:
I assume many of us use 529s for expected education expenses for our kids. I struggle a little bit with how much to fund these. My initial goal was to get to 300k per kid by the time they’re 18, but now I think that’s too low. Any goals you guys shoot for?
Click to expand...
300k is reasonable
but id rather undershoot here than overshoot
i can always supplement any additional money needed with regular money that i put in the market for the same time period that doesn't have withdrawal restrictions
im shooting for 200-300k per kid
 
patriot6 said:
300K per kid?! What happens if you have five of them? ... asking for a friend
Click to expand...
Find an academic job that will pay for part of your kids' college - in addition to state universities which usually will give you a break, there's also Penn, Stanford, UChicago, Northwestern, WashU, Vanderbilt, and I'm sure many more that will pay a percentage of the school's tuition at any university.

I've done the math on this one and you're still probably losing money versus private practice if you have 1 or 2 kids. But 5, maybe that's worth it.
 
med2010 said:
I assume many of us use 529s for expected education expenses for our kids. I struggle a little bit with how much to fund these. My initial goal was to get to 300k per kid by the time they’re 18, but now I think that’s too low. Any goals you guys shoot for?
Click to expand...
Read anything about college financing by Mark Kantrowitz; he is the reliable expert on the issue, and often updates his advice to match changes in rules/regulations.
Here's a page about 529s :Account Ownership: In Whose Name to Save?
It has less impact on a student's financial aid eligibility if the 529 is in the parent's name rather than the child's. It also matters when you take distributions from the 529.

Other things you can do: set up investment accounts for each child in a trust, dollar cost average investments into it, and use the proceeds for college. Or if your state has it, a pre-paid tuition plan that you invest in now when they are very young so that by the time they are in college the fund pays tuition at the going rate.
 
nimbus said:
Khan academy biochemistry lectures are as good or better than anything I had in undergrad or med school.
Click to expand...

Honestly this is the future. Schools can dance around it all they want but I’ve seen khan academy do some pretty good content. The industry is ripe for real disruption and I’m not talking about EDX harvard Bs.
 
anbuitachi said:
its about time they recognize some of this stuff more instead of putting so much pressure on going to college the old school way!
Click to expand...

That’s probably the biggest flaw in the govt push for free college. It’s money that goes to an establishment that at this point is unsustainable.
 
ambiturner said:
Find an academic job that will pay for part of your kids' college - in addition to state universities which usually will give you a break, there's also Penn, Stanford, UChicago, Northwestern, WashU, Vanderbilt, and I'm sure many more that will pay a percentage of the school's tuition at any university.

I've done the math on this one and you're still probably losing money versus private practice if you have 1 or 2 kids. But 5, maybe that's worth it
Click to expand...
I love my kids enough to encourage them to NOT drop 300K into higher education. Instead, I will create in them a dream to become a mailman at the age of 18, with no college debt and little to no workday anxiety.
 
patriot6 said:
I love my kids enough to encourage them to NOT drop 300K into higher education. Instead, I will create in them a dream to become a mailman at the age of 18, with no college debt and little to no workday anxiety.
Click to expand...
A friend of mine who was a corporate business guy had a parent die... stressed him out to no end. Quit his corporate job and became a mailman - been at it now for 10 years. He loves it!
 
Honest question. What is the state of online education these days? Can you get a real degree from a real university that has an actual reputation for a reasonable price? I know Arizona state has pretty far reaching online programs. Hardly the Harvard of the southwest, but if you can get a bachelors that a job recruiter/HR won’t immediately assume online diploma mill that’s a big deal.
 
529 plan at around $150K per kid. Why not more? Because the kid may not need more and the 529 plan is used for educational expenses only.
If you have 2-3 kids the odds are one will need $250K while another spends a lot less like $60K at a state university.

There is no reason to overfund a 529 plan when you can always supplement the cost of the education at a later date. One last thing is that the military academies are free while providing a great education.

www.bradley-morris.com

Hire a Military Academy Graduate - Military's Top Talent

An Academy Graduate’s knowledge coupled with their skill set make them a ‘pre-approved candidate’ for high-level positions in America’s workforce.
www.bradley-morris.com www.bradley-morris.com
 
BLADEMDA said:
529 plan at around $150K per kid. Why not more? Because the kid may not need more and the 529 plan is used for educational expenses only.
If you have 2-3 kids the odds are one will need $250K while another spends a lot less like $60K at a state university.

There is no reason to overfund a 529 plan when you can always supplement the cost of the education at a later date. One last thing is that the military academies are free while providing a great education.

www.bradley-morris.com

Hire a Military Academy Graduate - Military's Top Talent

An Academy Graduate’s knowledge coupled with their skill set make them a ‘pre-approved candidate’ for high-level positions in America’s workforce.
www.bradley-morris.com www.bradley-morris.com
Click to expand...
Don’t forget that 529s can be passed down, used for grandkids, etc. And worst case scenario, while a 10% penalty is a lot, one could probably run calculations on the cost of overfunding vs underfunding based on Expected probability of use.

Service academies are great schools and I laud those that attend, but I’m not encouraging my children to join and maybe get sent to the next hellhole we decide needs the gift of democracy.
 
ambiturner said:
Find an academic job that will pay for part of your kids' college - in addition to state universities which usually will give you a break, there's also Penn, Stanford, UChicago, Northwestern, WashU, Vanderbilt, and I'm sure many more that will pay a percentage of the school's tuition at any university.

I've done the math on this one and you're still probably losing money versus private practice if you have 1 or 2 kids. But 5, maybe that's worth it.
Click to expand...
Just become a Jan Itor
 
BLADEMDA said:
529 plan at around $150K per kid. Why not more? Because the kid may not need more and the 529 plan is used for educational expenses only.
If you have 2-3 kids the odds are one will need $250K while another spends a lot less like $60K at a state university.

There is no reason to overfund a 529 plan when you can always supplement the cost of the education at a later date. One last thing is that the military academies are free while providing a great education.

www.bradley-morris.com

Hire a Military Academy Graduate - Military's Top Talent

An Academy Graduate’s knowledge coupled with their skill set make them a ‘pre-approved candidate’ for high-level positions in America’s workforce.
www.bradley-morris.com www.bradley-morris.com
Click to expand...

As someone who was accepted, but did not attend, to West Point, Military academies are very competitive. Way more steps than applying to medical school, not to mention the military commitment. Physical fitness, congressional letter, multiple committee evaluations. Also, they didn’t seem to take kindly to the, “I want to be a doctor“ thing.

I do kinda regret not going, but I dont think my life would be the same right now, and I really like my life.

Also, you can withdrawal tax free from 529’s if your kid gets scholarship. No clue how that works for the academies. . . But you an save it for your grandkids. 529’s are the most tax efficient way to save for higher education. I hope that this decade sees a change for the better in higher education, given that it has become a completely stupid and inefficient system currently.

Worst possible outcome, the kids take it out and use it for whatever and have to pay a penalties (rusty mind says 20% penalty on the growth but. . . )
 
NITRAS said:
As someone who was accepted, but did not attend, to West Point, Military academies are very competitive. Way more steps than applying to medical school, not to mention the military commitment. Physical fitness, congressional letter, multiple committee evaluations. Also, they didn’t seem to take kindly to the, “I want to be a doctor“ thing.

I do kinda regret not going, but I dont think my life would be the same right now, and I really like my life.

Also, you can withdrawal tax free from 529’s if your kid gets scholarship. No clue how that works for the academies. . . But you an save it for your grandkids. 529’s are the most tax efficient way to save for higher education. I hope that this decade sees a change for the better in higher education, given that it has become a completely stupid and inefficient system currently.

Worst possible outcome, the kids take it out and use it for whatever and have to pay a penalties (rusty mind says 20% penalty on the growth but. . . )
Click to expand...
It’s actually not as punitive as you think. Basically if you withdraw for non qualified expenses you have to pay the cap gains taxes on your earnings (just like if you had left the money in a regular account) plus an extra 10% penalty on earnings, not contributions.

That means say you fund 100k and it grew to 200k. You then pull it all out and buy a boat. You’d pay 20k in cap gains taxes and then an 8k penalty. Basically in this situation, you would have been risking 8k (in the rare event you can’t use your 529) in order to save 20k in cap gains taxes.
 
DoctwoB said:
It’s actually not as punitive as you think. Basically if you withdraw for non qualified expenses you have to pay the cap gains taxes on your earnings (just like if you had left the money in a regular account) plus an extra 10% penalty on earnings, not contributions.

That means say you fund 100k and it grew to 200k. You then pull it all out and buy a boat. You’d pay 20k in cap gains taxes and then an 8k penalty. Basically in this situation, you would have been risking 8k (in the rare event you can’t use your 529) in order to save 20k in cap gains taxes.
Click to expand...
You do realize you can "gift" money to your kids each year tax free. For 2022 it is $16K per parent. If you want to "gift" more like $100K you need to file a form with IRS which means the money comes out of your lifetime estate tax exemption.

The bottom line is that you can invest the money in a tax efficient ETF or mutual fund and gift it to a kid as a well without paying any penalty whatsoever.


Can I gift money to avoid capital gains?


If you don't want to pay 15% or 20% in capital gains taxes, give the appreciated assets to someone who doesn't have to pay as high a rate. The IRS allows taxpayers to gift up to $15,000 per person (a couple filing jointly can gift up to $30,000), per year without needing to file a gift tax return.



www.nerdwallet.com

Gift Tax: 2025 Exemptions and Limits - NerdWallet

The gift tax limit is the maximum you can give someone without having to file a gift tax return with the IRS. The limit is $19,000 in 2025 ($38,000 if married).
www.nerdwallet.com www.nerdwallet.com
 
BLADEMDA said:
You do realize you can "gift" money to your kids each year tax free. For 2022 it is $16K per parent. If you want to "gift" more like $100K you need to file a form with IRS which means the money comes out of your lifetime estate tax exemption.

The bottom line is that you can invest the money in a tax efficient ETF or mutual fund and gift it to a kid as a well without paying any penalty whatsoever.


Can I gift money to avoid capital gains?


If you don't want to pay 15% or 20% in capital gains taxes, give the appreciated assets to someone who doesn't have to pay as high a rate. The IRS allows taxpayers to gift up to $15,000 per person (a couple filing jointly can gift up to $30,000), per year without needing to file a gift tax return.



www.nerdwallet.com

Gift Tax: 2025 Exemptions and Limits - NerdWallet

The gift tax limit is the maximum you can give someone without having to file a gift tax return with the IRS. The limit is $19,000 in 2025 ($38,000 if married).
www.nerdwallet.com www.nerdwallet.com
Click to expand...
Fair point and interesting. Doesn’t that mean your child has to file a separate tax return and can no longer be claimed as a dependent though?

It is also worth noting that since the assets will now be in their name it will have a greater effect on eligibility for aid. Finally this only works for 15k/year of appreciated assets unless you want to dip into your estate exemption, which is problematic in that it won’t cover the majority of their costs.
 
DoctwoB said:
Fair point and interesting. Doesn’t that mean your child has to file a separate tax return and can no longer be claimed as a dependent though?

It is also worth noting that since the assets will now be in their name it will have a greater effect on eligibility for aid. Finally this only works for 15k/year of appreciated assets unless you want to dip into your estate exemption, which is problematic in that it won’t cover the majority of their costs.
Click to expand...
Up to $32,000 per year can be gifted to the kid. This is not a reportable event on your taxes or theirs. I suggest speaking to your CPA about this before over-funding a 529 plan. There are so many ways to pass on wealth without paying taxes there is no need to overfund a 529 plan. I strongly believe in 529 plans and suggest you do fund one but there is no reason to over-fund. Instead, if you have 2 children or 3 you can fund all 3 with $150K each them move the funds as needed to the kid who has the highest expenses. That's what I did for my kids and it worked out quite well. The issues is more with just 1 child as then you can't move funds around but with just 1 kid what is the issue anyway.
 
BLADEMDA said:
You do realize you can "gift" money to your kids each year tax free. For 2022 it is $16K per parent. If you want to "gift" more like $100K you need to file a form with IRS which means the money comes out of your lifetime estate tax exemption.

The bottom line is that you can invest the money in a tax efficient ETF or mutual fund and gift it to a kid as a well without paying any penalty whatsoever.


Can I gift money to avoid capital gains?


If you don't want to pay 15% or 20% in capital gains taxes, give the appreciated assets to someone who doesn't have to pay as high a rate. The IRS allows taxpayers to gift up to $15,000 per person (a couple filing jointly can gift up to $30,000), per year without needing to file a gift tax return.



www.nerdwallet.com

Gift Tax: 2025 Exemptions and Limits - NerdWallet

The gift tax limit is the maximum you can give someone without having to file a gift tax return with the IRS. The limit is $19,000 in 2025 ($38,000 if married).
www.nerdwallet.com www.nerdwallet.com
Click to expand...

My Google fu shows that the gifted stock does not have a stepped up basis, so the capital gains would have to be paid by the recipient when they sell it. I guess you can make the case of 15% vs. 20%, but that isn’t an issue I currently run into. You do get a stepped up basis in case of inherited stock.
 
"Let’s say you’re an adult and you have this stock with a lot of gains built into it. If you were to sell it, you would pay taxes on the gain. Assuming it’s long-term, you might pay 15%," he says. But instead of selling the stock, you could give it as a gift, transferring the gains to the recipient.
"The person who received the stock now has that appreciated stock. They can hold it if they want, but if they sell it, assuming they’re in a lower tax bracket, they might pay 0% in capital gains taxes," Schwartz says.
In other words, both the giver and receiver could avoid paying capital gains altogether on stock that’s been appreciating for years. (Learn more about how capital gains taxes work.)

www.nerdwallet.com

How to Gift Stock - NerdWallet

Learn how to gift stock through a Roth IRA or custodial brokerage account.
www.nerdwallet.com www.nerdwallet.com
 
Another benefit some state 529s is the tax deduction.

Virginia for example will let you deduct up to $4K per year per kid. And if you contribute more, that contribution carries over to future years, forever. At this point I think I've passed enough money through the Virginia 529 in 3 kids' names that I'll enjoy an annual $12K tax deduction for the rest of my working life. It's not a huge benefit - the VA marginal rate is only 5.75% so it's effectively just $700 to my pocket every year, but it is free money.

Other states don't offer anything, which is sad.
 
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