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Savings Plan for Children - 529 vs. Other Options
Posted on 2/27/24 at 11:58 am
Posted on 2/27/24 at 11:58 am
Just trying to get opinions here..... I have a 3 year old and a 1 year old. I have about $100 for each per month that I can invest to start a savings account for them to utilize once they turn 18 or so (most likely for college , but who knows). I am debating on investing in a 529 plan or going with a more traditional investment account and put it into an ETF or Index fund. I spoke with a guy I know who works for New York Life and he was telling me about their variable universal life policies that are an option as well. It was the first time I've heard of those , but I am not sold that you get the most bang out of your buck with a VUL account.
6
Posted on 2/27/24 at 12:13 pm to LSUBlake11
So you asked a life insurance guy and he gave you an account he represents and makes money on…..shocker lol
Dude go 529 and get tax savings. Kids can roll it into a Roth IRA one day as well.
Dude go 529 and get tax savings. Kids can roll it into a Roth IRA one day as well.
Posted on 2/27/24 at 1:22 pm to jsk020
quote:
Dude go 529 and get tax savings. Kids can roll it into a Roth IRA one day as well.
pros and cons of all options, key is to just make a good decision based on good information and a plan you feel comfortable. Can always do multiple things, doesnt' have to be all in on one product.
Posted on 2/27/24 at 4:20 pm to LSUBlake11
Do a start 529. You can use it for elementary school fees and such then roll that into a 529 for college. La started the start 529 a couple of years ago. It’s nice
Posted on 2/27/24 at 4:39 pm to trident
I too am curious on this. I’m hearing from videos online not to use for education below college. Is it safe to use for private school?
Posted on 2/27/24 at 5:17 pm to fareplay
I was researching it to pay for kids private school from the k12 account, seems like you have to withdraw from account 30 days in advance, can’t pay school directly. I pay monthly, so seems like it might be more trouble than worth
This post was edited on 2/27/24 at 5:19 pm
Posted on 2/28/24 at 6:59 am to LSUBlake11
quote:
spoke with a guy I know who works for New York Life and he was telling me about their variable universal life policies
Of course he did. Baw, I’ve sold life insurance for 14 years and I’m here to tell you to NEVER mix life insurance and investments. It only ever works out for the agent who sold it to you.
Posted on 2/28/24 at 7:03 am to LSUBlake11
FWIW I hate 529s. I can’t think of a more commonly wasted vehicle.
More often than not, saving it in an account for yourself and just giving it to your child when you’re ready is the most flexible and reasonable thing to do.
More often than not, saving it in an account for yourself and just giving it to your child when you’re ready is the most flexible and reasonable thing to do.
Posted on 2/28/24 at 8:02 am to fareplay
quote:
I too am curious on this. I’m hearing from videos online not to use for education below college. Is it safe to use for private school?
I have mine in the K12 start and you can use it for private school tuition.
* NOTE that START K12 funds can only be used to pay tuition. If your school is eligible, but does not charge tuition, you cannot use START K12 funds for any expenses necessary to attend those schools.
It may not help you out if you dont send them to private school. If my kids went public i would just do the regular 529 plan
Posted on 2/28/24 at 8:06 am to trident
I’d much rather cash flow tuition and save elsewhere. That’s not feasible for everyone though.
Posted on 2/28/24 at 8:31 am to slackster
They are making some improvements to the 529 plan in regards to funds that aren't used for educational purposes. I think starting this year you can roll over 35K from the 529 to a Roth without penalty if it wasn't needed for education.
I personally just like the 529 because it's easy for the grandparents. They can throw money in when they want. Plus they like knowing it's going towards education.
I personally just like the 529 because it's easy for the grandparents. They can throw money in when they want. Plus they like knowing it's going towards education.
This post was edited on 2/28/24 at 8:32 am
Posted on 2/28/24 at 8:38 am to fareplay
quote:
I too am curious on this. I’m hearing from videos online not to use for education below college. Is it safe to use for private school?
Depends on the state, need to look at your states policy when using it for educational expenses below college.
With that said a few points to consider:
main reason to use a 529 in my opinion is for the tax deduction. My state allows up to $4000(8000 if MFJ) of tax deduction per beneficiary per year.
If you're in a situation where perhaps you are not truly saving 8000 per year, but maybe you're paying 6k+per year in elementary/highbschool tuition and maybe actually saving 2k . It can make some sense to consider funneling your tuition through the 529 to ensure you can maximize your states deduction.
Otherwise the other point is to obviously have tax free growth, in which case it makes sense to not use the funds for educational expenses below college to allow it to grow. The fact that you can convert unused portions to a roth is a great benefit now. But you can argue would you have been better offer just investing in a taxable brokerage and potentially obtaining better return which negated the benefits of the 529?
Posted on 2/28/24 at 8:45 am to slackster
I'm curious why you would hate tax free growth in a 529? I've been meaning to set one up for my child thinking it was a no brained, but now you have me intrigued on why I should not
Posted on 2/28/24 at 8:54 am to Civildawg
quote:
I'm curious why you would hate tax free growth in a 529? I've been meaning to set one up for my child thinking it was a no brained, but now you have me intrigued on why I should not
It’s purely a preference thing. He values freedom and flexibility over the restrictions of a 529. But as mentioned, 529 is a tax free vehicle while also tax deductible.
Posted on 2/28/24 at 8:57 am to slackster
quote:
FWIW I hate 529s. I can’t think of a more commonly wasted vehicle.
More often than not, saving it in an account for yourself and just giving it to your child when you’re ready is the most flexible and reasonable thing to do.
Maybe you dont fully understand the 529?
You can save a lot of money putting that money aside in a 529 for education purposes and even if said kid doesnt go to college (or you pay private school tuition out of it) you can just roll the money into a IRA over time without penalty. It's really a no brainer to me especially with the IRA rule now.
In GA I can deduct up to $8000 a year on contributions to the 529 on my state tax owed (which is at 5.75%). We contribute $200/mo right now so $2400 * .0575 = $138/yr in State tax savings. Once our kid is in college, anything we take out to pay for that is tax free, including all that growth over the years. If we continued to do $200 for 18 years (it will go up over time) we would have over $100k after 18 years and the majority of that is growth at 9% annual RoR. That's a f*ck ton of tax savings as opposed to just throwing that in a brokerage account over the same time.
Even if our daughter doesnt go to college, i can just roll that money into a ROTH IRA for her every year for a while. Seems like every other year now they are giving more and more reasons why a 529 makes a ton of sense.
This post was edited on 2/28/24 at 9:04 am
Posted on 2/28/24 at 9:10 am to thunderbird1100
So is there a better state plan than others or are they all the same basically?
Posted on 2/28/24 at 10:47 am to Civildawg
It depends on your state of residence. For example, LA has a relatively good 529 plan (in terms of investment options and fees), and other benefits for LA residents include a possible earnings enhancement (depending on income) and state income tax deduction (up to a limit).
Posted on 2/28/24 at 11:18 am to thunderbird1100
quote:
Maybe you dont fully understand the 529?
I’m a financial advisor with 529s across multiple states. I understand them.
quote:
You can save a lot of money putting that money aside in a 529 for education purposes and even if said kid doesnt go to college (or you pay private school tuition out of it) you can just roll the money into a IRA over time without penalty. It's really a no brainer to me especially with the IRA rule now.
Only up to $35k and it counts against the beneficiary’s annual limits. Also has to be open for 15 years and contributions within 5 years of the first distribution aren’t eligible for rollover.
quote:
GA I can deduct up to $8000 a year on contributions to the 529 on my state tax owed (which is at 5.75%). We contribute $200/mo right now so $2400 * .0575 = $138/yr in State tax savings. Once our kid is in college, anything we take out to pay for that is tax free, including all that growth over the years. If we continued to do $200 for 18 years (it will go up over time) we would have over $100k after 18 years and the majority of that is growth at 9% annual RoR. That's a f*ck ton of tax savings as opposed to just throwing that in a brokerage account over the same time.
It’s obviously state dependent, I’ll give you that, but there are so many ways to pay for college that the minimal tax savings and potential penalties offset the benefit for many people in my experience.
Posted on 2/28/24 at 11:54 am to LSUBlake11
Had a 529 for roughly 15 yrs. Got spooked when I learned that FASFA counts it against their calculation for tuition qualification amount. Proceeded to roll it into a Brokerage Account.
In hindsight, if known about the current rollover option, I would have left it alone. I'm not too broken up about it as I understand I still can receive the tax avoidance on the withdrawal(s) with the Brokerage if used for educational purposes.
In hindsight, if known about the current rollover option, I would have left it alone. I'm not too broken up about it as I understand I still can receive the tax avoidance on the withdrawal(s) with the Brokerage if used for educational purposes.
Posted on 2/28/24 at 12:06 pm to trident
quote:
You can use it for elementary school fees and such
Is the K-12 number capped per year per child or per family?
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