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ATP: 529 Education Savings Plans

CantStandYa

CantStandYa

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Anyone have experience and/or insight into the value of these plans? Does it make sense to have this kind of dedicated education savings account vs. just saving the money in something more traditional (e.g. 401k)? Other recommendations?
 
I'm going to state the obvious, but you'd use a 529 plan for a child whose college education you'd like to fund. A 401k, a retirement account, won't help with that. The earnings on a 529 aren't taxed federally and typically not by state when used for education. There aren't any investment vehicles that compare for college funding. Roth IRA sorta but not really.
 
DeacHead said:
I'm going to state the obvious, but you'd use a 529 plan for a child whose college education you'd like to fund. A 401k, a retirement account, won't help with that. The earnings on a 529 aren't taxed federally and typically not by state when used for education. There aren't any investment vehicles that compare for college funding. Roth IRA sorta but not really.
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On the other hand, no income tax deduction for the 529, which you can get with the 401. For that reason, we're heavier on retirement than education savings. We started a 529 for each child and contribute monthly, but most of our effort is directed towards more flexible vehicles.
 
DeacHead said:
I'm going to state the obvious, but you'd use a 529 plan for a child whose college education you'd like to fund. A 401k, a retirement account, won't help with that. The earnings on a 529 aren't taxed federally and typically not by state when used for education. There aren't any investment vehicles that compare for college funding. Roth IRA sorta but not really.
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Agree with this 100%. Also some states (I live in MD and its true there) have tax deductions if you use their plans which is also great. You get a tax benefit today, but also future tax benefit from the use of funds for children's education. Depending on what state you in, you may want to join a 529 from another state. I have always heard that Utah is pretty good.
 
If you live in North Carolina, you'll want another state's 529. I went with New York.
 
It might make sense, depending on what else you're doing from a savings stand point. Best to talk to a financial planner to determine if it's the right college savings vehicle for you.
 
If you aren't fully funding your 401K then I would start there first. But if you have that checked off then it's a good idea to fund a 529. Depending on your situation you may not get any financial aid for your kids. That # for four years of college keeps getting bigger year by year. If one kid gets a scholarship or doesn't attend college, then the money can be used for a subsequent kid. The rules on actual use of the 529 have loosened up a bit from what I understand.

As mentioned above, some states have better incentives to use their plans than others. NC offers no tax break. So I use Ohio for my youngest child. When we lived in VA we got a tax credit so I used the Virginia529. You can invest in other state's 529 plans with very little effort on your part. I also heard Utah had a good plan.
 
good tips so far. Thanks. Had not even considered using another state's plan but I'm a rube
 
JamesSokolove said:
good tips so far. Thanks. Had not even considered using another state's plan but I'm a rube
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Seriously look into Utah's. I think they have really low fees which can help over the life on the savings. I'm no expert obviously, but have researched this stuff in the past.
 
DeacHead said:
I'm going to state the obvious, but you'd use a 529 plan for a child whose college education you'd like to fund. A 401k, a retirement account, won't help with that. The earnings on a 529 aren't taxed federally and typically not by state when used for education. There aren't any investment vehicles that compare for college funding. Roth IRA sorta but not really.
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I believe you can withdraw from an IRA before 59.5 to pay for higher education with no penalty so max out IRAs before opening a 529 because the tax benefit is better and you have more flexibility for how to use the money.
 
IRAs (both traditional and Roth) allow for penalty free withdrawals, but you still have to pay income tax on earnings, as opposed to a 529.

This is the best post so far

leftcoastdeac said:
It might make sense, depending on what else you're doing from a savings stand point. Best to talk to a financial planner to determine if it's the right college savings vehicle for you.
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I know a CFP that's a wizard for college funding. He's great at getting a holistic view of what's best for an individual's situation. If you're seeking FA, then a 529 may be disadvantageous, for example. A post on OGB may be good for getting introductory info, but I wouldn't base any decisions based on advice from here. It's going to take a lot of info about your goals and financial situation to get to the right approach for you.
 
deacondamo said:
Seriously look into Utah's. I think they have really low fees which can help over the life on the savings. I'm no expert obviously, but have researched this stuff in the past.
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Nevada as well has very low fees. Vanguard runs that one, that's where we are
 
529 plans are generally a good way to save for college. As already noted, every situation is not the same, so either read up (a lot) or get professional advice.

General idea for many folks is to max out on tax advantaged (401k etc. plus Roth IRA if you qualify or traditional IRA if not--still grows tax deferred) savings for retirement, then save for college (typically in a 529). Pick a target amount and plan for that.

If you have any accounts with Vanguard, just use their 529 vehicle. Unless you live in a state with good tax deduction that fits your situation.

A few links that might be helpful:

Saving for college

Vanguard's page for college saving/planning/education.

5 Things to Know About Using an IRA to Pay for Tuition
 
What are your thoughts on the likelihood of changes in the rules that govern 529s based on political whims?
 
I looked into this briefly over the weekend. It appears as if there are no maximum annual limits? Can't you just do some savings outside of the plan and then like by the time your kid is a Senior in High School just dump $50k a year in there pre-tax?
 
palmab03 said:
I looked into this briefly over the weekend. It appears as if there are no maximum annual limits? Can't you just do some savings outside of the plan and then like by the time your kid is a Senior in High School just dump $50k a year in there pre-tax?
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It's post tax dollars, at least federally. Earnings are tax free like a Roth. Some states do allow you to get a small break. In Ohio it's up to $2k per year deducted from state taxes.
 
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