College Savings Plan - 529

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Submitted by SD Transplant on September 16, 2019 - 9:31am

Hi Piggs,

Could you recommend a proper way, venue and/or institution that can be trusted with a college savings (529) plan? I have about 8 years to go, but I am in position to start putting money aside. Any tips from someone that has started this process?

NOTE: I see there aren't limits, but up to $15K/year isn't considered a gift.

Cheers,

Submitted by spdrun on September 16, 2019 - 10:59am.

Have your kid move to NY or any other state that offers free 4-yr college a year before matriculation. They can work in a cheap area of the state for a year, then go to SUNY or CUNY for virtually free, especially if your income is under $120000 for those years.

Submitted by Hobie on September 16, 2019 - 12:29pm.

They are really pretty simple. You have a lot of options as to what the investment instrument is. Just research it as any other brokered investment product. ie mutual fund

If you take any money out non educated related, you pay at your normal income tax rate state/fed plus a 10% penalty.

Can't remember if the checks toward education are paid with 2 signatures or just directly to the institution.

This calculator will help you evaluate a particular plan:

https://tools.finra.org/529_calculator/main

good info here too:
https://www.collegesavings.org/

Submitted by flu on September 16, 2019 - 12:33pm.

send me a PM. Too many people with no kids will respond to this thread who have no clue on how to invest. you're probably trying to figure out the difference between one plan versus the other.

Submitted by spdrun on September 16, 2019 - 3:06pm.

Why should you invest if you can get a government to give it for free? State university in a state that offers a full ride under an income threshold, make sure your income is below the threshold. If they have to work for a year to establish residency, so be it.

Submitted by flu on September 16, 2019 - 3:34pm.

.

Submitted by flu on September 16, 2019 - 3:45pm.

lol... see what I mean....

I am pretty confident if you live in San Diego with kids and your household AGI is less than $120k, the last thing you are thinking about is a 529k. You are probably thinking about damn, it's tough out here. so I would assume.those considering the 529k plan have a household AGI above that.

Also, for those of us that make more than that, some of us have no desire to be on the east coast. especially for a state school. You can't argue all you want being on a cheap(er) budget. And maybe for you, that's out of necessity because you have a smaller budget. And that certainly your choice if you intentionally want to earn less. But for the rest of the population that wants to and has the capability to earn more, has earned and accumlated more, there is no desire (and more importantly) no need to go on a cheap budget. Not that there is anything wrong with it too
Just different strokes for different folks. Which is exactly why your response is completely useless.

Plus the 529k plan isn't just for tuition, it also includes incidentals like room and board , books, etc. None of which is completely covered. Like I said, none if this is information you would know about or consider if you don't have kids. Which makes commenting on this moot if you don't. It's almost as dumb as a president that had no prior presidential skills. oh oops...

Submitted by spdrun on September 16, 2019 - 4:17pm.

Some of us attended state schools on the East Coast and liked it just fine. You won't be attending the school, the kid will be. Private schools are overrated.

Also, AGI can be adjusted below $120k for a few years to meet "standards" -- if you have paid off homes, take a pay cut. The rich play the subsidy game, why not the middle class?

Submitted by Myriad on September 16, 2019 - 5:03pm.

Well, there's those people in IL that changed custody of their kids to a different legal guardian to get scholarships. That seems easier than moving to the east coast.

Submitted by flu on September 16, 2019 - 5:07pm.

spdrun wrote:
Some of us attended state schools on the East Coast and liked it just fine. You won't be attending the school, the kid will be. Private schools are overrated.

Also, AGI can be adjusted below $120k for a few years to meet "standards" -- if you have paid off homes, take a pay cut. The rich play the subsidy game, why not the middle class?

But you admitted on a different thread you attended an expensive private school... So what do you mean by "some"?

Not only are you giving out advice for something you didn't do. You are giving out advice for kid and family you currently don't have for now or for the foreseeable future with an AGI you probably don't have too.

If this isn't the most ridiculous thing ever, I dont know what is. Anyone with a shred of logic would see it the same way.

OP asked a very simply question. OP probably already put a lot of thought into it. OP isnt asking for a what you think about public schools in New York. For all we know there might be very specific reasons why he or she isn't interested. And given that he/she is only talking about starting a 529k account, it means his/her kid are young and a lot of things can happen from now until then. For example, your foolish idea of counting taking a lower AGI just into a public school in New York could completely blow up 16-18 years later when his/her kid actually is old enough to attend and when, due to state budgets, free isn't free because the state runs out of money. You don't know, and as a parent you would be stupid to count on any state assistance that currently exists today to still be there 16-18 years later, especially of you are the borderline of being middle class and reasonably well off by admissions standard. This is the sort of stupid short sightedness that 80+% of the American population make thinking future benefit will be there and find out it's not and, well, get screwed. It's the same inane foolishness similar to waiting for that one big investment score while it's been proven time and time again proper long term planning, small investment decisions along the way, on average trounces those one shot, one hit, one time big bang investments people try to score only to be wrong and get left behind because one's single time gamble blew up and didn't occur the way one wanted. There is no replacement for well planned , well thought out, small, decisions over a longer period of time that limits single instance big risk and uncertainty even if at any instance in time the world briefly blows up.

The only exception is if you really are poor, and then you have nothing to lose, which would defeat the entire point of this discussion because some who really is poor wouldn't be thinking about a 529k plan.

Is it really that difficult for to answer a simple question asked by the OP and nothing else?

Submitted by Myriad on September 16, 2019 - 5:15pm.

Back to the original post.
The drawback of the 529 is that it can impact the student's financial aid package.
https://www.reuters.com/article/us-colum...

The argument can be made that non-parents shouldn't use the 529's for the "future" student. They're better off paying the tuition directly which doesn't count as a gift to the IRS.
As for a 529 owned by the parent or student, you could invest in 401k/IRA instead, but there of course are limitations associated with those vehicles vs 529.
https://www.cappex.com/articles/money/ho...

Submitted by flu on September 16, 2019 - 5:23pm.

Myriad wrote:
Back to the original post.
The drawback of the 529 is that it can impact the student's financial aid package.
https://www.reuters.com/article/us-colum...

The argument can be made that non-parents shouldn't use the 529's for the "future" student. They're better off paying the tuition directly which doesn't count as a gift to the IRS.
As for a 529 owned by the parent or student, you could invest in 401k/IRA instead, but there of course are limitations associated with those vehicles vs 529.
https://www.cappex.com/articles/money/how-to-shelter-assets-on-the-fafsa

529ks can pretty much be rolled over from one account to another belonging to the same owner. 529 accounts can also be rolled over between accounts for the same beneficiary. The beneficiary of a 529k account can also be changed. The gift tax exemption per person is now more than 10million making large rollovers among beneficiary moot... 4 variables to play with years before college.....

Submitted by Myriad on September 16, 2019 - 5:24pm.

flu wrote:
529ks can pretty much be rolled over from one account to another belonging to the same owner. 529 accounts can also be rolled over between accounts for the same beneficiary. The beneficiary of a 529k account can also be changed. The gift tax exemption per person is now more than 10million making large rollovers among beneficiary moot... 4 variables to play with years before college.....

True, but you don't have to file the paperwork if you go over the $15/year. Not that the IRS is really checking that closely though.

Submitted by flu on September 16, 2019 - 5:45pm.

Myriad wrote:
flu wrote:
529ks can pretty much be rolled over from one account to another belonging to the same owner. 529 accounts can also be rolled over between accounts for the same beneficiary. The beneficiary of a 529k account can also be changed. The gift tax exemption per person is now more than 10million making large rollovers among beneficiary moot... 4 variables to play with years before college.....

True, but you don't have to file the paperwork if you go over the $15/year. Not that the IRS is really checking that closely though.

True... I was thinking of the other case. Let's say one fvcked up and had $200k extra in Timmy's 529k and didn't want that towards his assets as part of financial aid consideration. Mommy Jane rolls over $200k into Timmy's 529k owned by Uncle Bob. Uncle Bob rolls over $200k into Niece Jane account also owned by Uncle Bob. Niece Jane and Nephew Timmy not related.

Poof.. $200k gone from Jimmy's household 2-3 years prior to financial aid consideration.... Of course bringing that money back into play the following year is a challenge. Which is a second exercise of a different kind.

But I should warn that while most public schools dont consider equity in primary home as assets, most private schools do... Forget about financial aid if you own 5-6 rental properties free and clear. Which is why for many folks, it's not even a question.. Financial aid is clearly off the table...which is even more of a reason to get a 529k started as early as possible.

Personally, even if I could hide my assets and get need based financial aid, I wouldn't do it. I figure there are people who actually need it. But that's my personal decision.

Submitted by scaredyclassic on September 16, 2019 - 6:11pm.
Submitted by Hobie on September 17, 2019 - 7:18am.

"Financial Aid" is a bit of a misnomer. FA actually is a combination of your personal savings, (529, cash), state/fed grants, scholarships, work study with Fed adding to student earned income, school grants, and loans. Both parental and student.

All bets are off if you are an accomplished athlete, musician, or a dreamer in Ca.

As mentioned, private schools tend to have more endowment available for need based grants. State and UC's, not so much.

At this point, the op is just salting away $. Good.

He will become deep in the weeds soon enough, especially when he has to fill out the CSS profile and other school specific financial disclosure forms where they ask for a 'full' breakdown of your net worth! ..cause you probably ain't getting any free $!

That is when you pull out the 529 and just pay the bill ;).

Another wildcard is that you just don't know if your star kid is actually college material at this point. Lot's will be happening in middle and high school!

So, you can always take your $ out of the 529 by paying tax and penalty.

Oh, and don't forget that the very generous grant and FA package made to freshman can quickly dry up the following year. Hey the kid doesn't want to leave the school, and they now don't have to incentivize you with $ any longer. I'm looking at you USC!!

Submitted by ltokuda on September 18, 2019 - 3:48pm.

I just opened a 529 plan with Vanguard. Contributions to 529 plans are not deductible in California so there's no penalty for choosing a 529 plan from another state. I chose the Nevada 529 plan, which I think is what many Californians do.

Submitted by flu on September 23, 2019 - 10:07am.

New promotion offer. Open a new 529 ScholarShare account (CA plan) and deposit $1000, get $100 free.

https://www.doctorofcredit.com/100-bonus...

Offer over end of Sept...

Free money. Why not? lol

Actually, it's free $100 for each account you and your relative(s) and spouse opens per beneficiary.. If you can convince 10 relatives to open an account for your kid, $1000 free money... lol.

Submitted by scaredyclassic on September 23, 2019 - 11:31am.

flu wrote:
New promotion offer. Open a new 529 ScholarShare account (CA plan) and deposit $1000, get $100 free.

https://www.doctorofcredit.com/100-bonus...

Offer over end of Sept...

Free money. Why not? lol

Actually, it's free $100 for each account you and your relative(s) and spouse opens per beneficiary.. If you can convince 10 relatives to open an account for your kid, $1000 free money... lol.

100 isnt enough nowadays 4 me to choose a bank.

I did jump at a recent 400$ offer from wellsfargo

Submitted by flu on September 23, 2019 - 12:00pm.

scaredyclassic wrote:
flu wrote:
New promotion offer. Open a new 529 ScholarShare account (CA plan) and deposit $1000, get $100 free.

https://www.doctorofcredit.com/100-bonus...

Offer over end of Sept...

Free money. Why not? lol

Actually, it's free $100 for each account you and your relative(s) and spouse opens per beneficiary.. If you can convince 10 relatives to open an account for your kid, $1000 free money... lol.

100 isnt enough nowadays 4 me to choose a bank.

I did jump at a recent 400$ offer from wellsfargo

Yes, but that $400 is really $200 after you get that 1099 at the end of the year. Plus there's theoretical no limit on the number of 529k accounts you can open to get that $100 credit, if you were planning to open one or more anyway. And it's easy peasy to rollover amounts among accounts.

Submitted by scaredyclassic on September 23, 2019 - 12:05pm.

flu wrote:
scaredyclassic wrote:
flu wrote:
New promotion offer. Open a new 529 ScholarShare account (CA plan) and deposit $1000, get $100 free.

https://www.doctorofcredit.com/100-bonus...

Offer over end of Sept...

Free money. Why not? lol

Actually, it's free $100 for each account you and your relative(s) and spouse opens per beneficiary.. If you can convince 10 relatives to open an account for your kid, $1000 free money... lol.

100 isnt enough nowadays 4 me to choose a bank.

I did jump at a recent 400$ offer from wellsfargo

Yes, but that $400 is really $200 after you get that 1099 at the end of the year. Plus there's theoretical no limit on the number of 529k accounts you can open to get that $100 credit, if you were planning to open one or more anyway. And it's easy peasy to rollover amounts among accounts.

True.

Still. I'll do it for 400 pretax

Submitted by sdduuuude on September 25, 2019 - 4:00pm.

Put the funds into an account in your parents' name or maybe one of your siblings if they are trustworthy, not yours. Why ? Because if the account is in your name, the gubmnt will consider it assets that can be used for your kids' education and it will reduce the amount of financial aid for which they can qualify.

I was just at a college financial aid meeting. When the presenter said this an audience member piped up and said "Why didn't you tell me this when my kid was 4?" So, I'm telling you now.

Read all about FAFSA and the ECA and you'll know what I mean.

As FLU says, if you have 5 rental properties, financial aid is out the window anyway so maybe not important.

I'd consider setting up a company to manage those 5 rental properties, make the kids an employee of that business, give them a little salary on which they will pay tax at the below-poverty rate, and the business can pay up to $5200 of their tuition tax-free on top of that.

Submitted by flu on September 25, 2019 - 9:20pm.

If the College Board really wanted to help make college more obtainable for poor people, instead of mucking around with this Adversity Score (which I'm happy they backtracked on), they should reconsider reducing all the fees and costs that they impose on students, particularly since the CEO of the College Board, a non-profit BTW, took home over $1million/year in total compensation. Probably even more now, since that number was back in 2009. Lesson to learn.. Just because an organization is non-profit, doesn't mean the executives aren't milking others while serving in that non-profit.

https://en.wikipedia.org/wiki/College_Board
The consumer rights organization Americans for Educational Testing Reform (AETR) has criticized the College Board for violating its non-profit status through excessive profits and exorbitant executive compensation; nineteen of its executives make more than $300,000 per year, with CEO Gaston Caperton earning $1.3 million in 2009 (including deferred compensation).[18][19] AETR also claims that College Board is acting unethically by selling test preparation materials, directly lobbying legislators and government officials, and refusing to acknowledge test-taker rights.[20]

Those increases have bolstered the College Board's financials. As of 2016, the nonprofit was sitting on $1.1 billion of assets and paid its top executive, David Coleman, more than $1.4 million in compensation.

Regarding costs...
It's $48 to take the SAT, $65 with the essay portion, $51 ACT, $67 with the writing section, and $22 for each SAT subject test, not including the $26 registration fee....each time.... The PSAT costs $17-20...

Each AP class costs $94 ($124 abroad) and an additional $40 late fee if you register after Nov16. If you cancel your exam or don't use it, there's an additional $40 cancellation fee.

If you are "poor", the College board gives a "generous" $37 discount off of the AP class (late fees still withstanding)....

Submitted by The-Shoveler on September 26, 2019 - 6:06am.

I know a guy who started a non-profit,

Lives in a 5000sqf home on 50 acres in Colorado springs.

I want to start a non-profit.

Submitted by bibsoconner on September 26, 2019 - 9:29am.

Hey everybody (especially Flu!) I've been following this thread with interest as I have a 12th, 10th, and 6th grader. Please post to the group as there is a lot of interest. I suspect there are a lot of lurkers like me that don't bother to post political or cultural comments. We are just interested in useful info!

I have 529s (and Educational IRAs) via Vanguard. I'm not advocating this. It was just a painless path for me. The 529 is actually through Nevada and given that none of my kids have even a remote interest in moving to Nevada (can't say I blame them :) ) this seems sort of silly. If there are 529s that people like that give me some sort of cost advantage for Californian schools I'd like to know.

My own limited research is that for somebody like me (~240K/yr income) there is not a chance in hell of getting financial aid so I should max out on things like 529s. I mention this because I have heard arguments that the 529s will be counted against you for purposes of financial aid. That might be a concern for some. If folks have other tips to save for college, please share.

Finally, I'm particularly curious how folks with older kids (FLU, I'm talking to you!) got on with trying to get residency in other states to lower their tuition. Back in my day when dinosaurs roamed the earth, one could establish California residency (for example) after 1 year and thereby lower the tuition for UC Berkeley. You basically just had to get a driver's license and maybe live with your aunt for the summer or have a part time job. My understanding is that it's much, much harder now in every state but I'd like to be corrected by those who know. All of my kids are interested in California schools but one of them is also interested in University of Hawaii* and maybe University of Oregon. Turns out that University of Hawaii non-resident total cost is roughly the same as a University of California school resident cost. The resident cost of University of Hawaii is dirt cheap so hence my interest in what it takes to become a resident. Heck, it might even be worth buying a studio condo to get her residency. But again, I think most states have clamped down and make rules like "must have been there 3 years prior".

Thanks!

*Yes, I'm well aware that University of Hawaii is not as prestigious as UC Berkeley or Santa Barbara. Whether one gets more out of a prestigious school or whether your results come from what you put into it yourself is a (long) topic for another thread!

Submitted by flu on September 26, 2019 - 4:00pm.

My kid is in middle school so I don't have answers about residency because we haven't considered much yet. started my kids 529k and custodial accounts much earlier, before the first birthday..There was also a point in time I was planning on going back to school for an MBA, so I had a 529k for myself before I decided not to go back. So there is a rollover that goes on...

Exactly how you rollover matters if your kid is somewhat eligible for financial aid.. It doesn't matter that much if they are not. What matters is rolling over between beneficiaries are subject to gift tax rules... Which don't matter if you stay under the limit per rollover per year or do t plan on exceeding the lifetime exclusion limit.

I am in the Nevada/vanguard plan because i generally like vanguard funds. I think the ScholarShare plan is ok, but it doesnt matter really which one. except I was tempted to get the free cash offer(s)

Submitted by sdduuuude on September 26, 2019 - 2:03pm.

bibsoconner wrote:
*Yes, I'm well aware that University of Hawaii is not as prestigious as UC Berkeley or Santa Barbara.

I'm told in Marine Bio they steal students from the top tier colleges with ease.

Submitted by sdduuuude on September 26, 2019 - 2:10pm.

bibsoconner wrote:
Finally, I'm particularly curious how folks with older kids (FLU, I'm talking to you!) got on with trying to get residency in other states to lower their tuition.

I have not heard about anyone establishing residency in another state when the kid graduates from HS in another.

I have heard, however, of parents legally "disowning" their kids on paper so they look like an very poor, independent student so that the financial aid commissions can legally ignore their parents' resources for the purpose of calculating need. I don't know all that is involved in doing this. I just know it is done and it takes considerble effort.

bibsoconner wrote:
I suspect there are a lot of lurkers like me that don't bother to post political or cultural comments. We are just interested in useful info!

That's a good policy. Difficult to do. When I see scardy
"Why the hell is parental wealth taken into account for student aid?" I want to ask "why is the gubmnt paying for ANYONE'S school in the first place?" But somehow I restrained myself and didn't post it.

Damn. I just did.

Submitted by flu on September 26, 2019 - 4:17pm.

Some states offer a state tax incentive to participate in the 529plan of their state. However, for California, no advantage exists, so for practical reasons, any of them will do... There are websites that rank the performance of 529 plans...

For example,
https://www.savingforcollege.com/529-pla...

However, I think more important than which plan "is better" is how are you allocating your investments in the 529k. I chose the Nevada plan simply because it's run by Vanguard, and I am familiar with Vanguard funds and indexes, and generally I have been happy with them elsewhere. So I stuck to something I'm familiar with. Some people really like the CA ScholarShare plan. Probably good too..

But again, imho, it's all about the allocation. We had an incredible run if you just allocated most of it to Vanguard total stock market or Vanguard Index 500 + Vanguard Total International Stock Market Index... I'm afraid, though the trend will not continue indefinitely, and especially as your kid gets closer to college (within a 7 year window), it's time to slowly change the allocation to be "safer"... I've been slowly moving out of stock market funds into some corporate bonds, some inflation protected index funds, some income funds, and some cash based funds. So I'm am about 50% in the stock market right now for the 529k's. That would have happened, irrespective of who is in office, whether we had a trade war or not, or any other external events.

It's a strategy that people with 401k/IRAs have been preeching to me about... as you get closer to using it, take less risks and put more things into something more predictable that won't swing wildly. I think for a 529k account ,especially if you only plan on using it for 1 kid at one time, it's even more so the rule. Assuming you start when your kid turns 1, you have about 18 years. Statistically we have a good run at the market maybe for 10 year period followed by a downturn.. So if you milked it for the first 10 years, imho there is an increasing odd the next 10 years won't be that great in the same investments... Since I had a pretty decent returns for almost 18 years between my account and my kids, I am over due to take a beating, so I'm not expecting things to continue. It's time to plot a "safer" course for me. If you have more than 1 kids, then you have a largere timeframe to recover from prolonged downturn, since if you can't' take advantage of a large capital gains for your first kid, you can roll it over to an account for your second, third, or four... or their kids eventually... or their kid's private K-12 now....

The magic number to beat is 4% per year. That's roughly the average annual increase in college expenses and that has not changed.

Submitted by bibsoconner on September 27, 2019 - 9:05am.

My apologies Flu. For some reason I thought all your kids were in college. I'm trying to make you older than you are :).

Like you, I've been pretty happy with Vanguard for my own retirement and mutual funds so I just went with them for the 529s. I went with the "age" funds where they start out almost all in stock and now (for my 12th grader) are almost all in cash/bonds.

Like you, I'm not particularly interested in gaming the system. I'm too lazy for those games and I think the money is needed for those less fortunate. I don't consider getting residency in another state gaming the system. Besides living there for four years, based on my experience, one often ends up settling down near the university or grad school. If the kid has a condo in that state, he/she really does have a vested interest in that state and is paying into it (ex: property taxes).

However, my brief research indicates that it is not trivial to establish residency for purposes of in state tuition. I'd be interested to hear from folks whose kids are recently in university if they considered getting residency in another state and if they were successful.

Submitted by flu on September 27, 2019 - 11:42am.

bibsoconner wrote:
My apologies Flu. For some reason I thought all your kids were in college. I'm trying to make you older than you are :).

Like you, I've been pretty happy with Vanguard for my own retirement and mutual funds so I just went with them for the 529s. I went with the "age" funds where they start out almost all in stock and now (for my 12th grader) are almost all in cash/bonds.

Like you, I'm not particularly interested in gaming the system. I'm too lazy for those games and I think the money is needed for those less fortunate. I don't consider getting residency in another state gaming the system. Besides living there for four years, based on my experience, one often ends up settling down near the university or grad school. If the kid has a condo in that state, he/she really does have a vested interest in that state and is paying into it (ex: property taxes).

However, my brief research indicates that it is not trivial to establish residency for purposes of in state tuition. I'd be interested to hear from folks whose kids are recently in university if they considered getting residency in another state and if they were successful.

I don't have a problem of taking advantage of every tax benefit legally :) That said. You do bring up a good point. Hypothetically if my kid goes to a local school, could I rent a condo to my kid, and have they cost of rent be deducted from my kids 529k account? Obviously not above the amount that is how much room and board would be at the university dorms.

Stay focus on personal finance. Short of the rest of the world is exploding, no point worrying about it.

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