• Text Only
Voting History
rated:
I've read these boards on college savings and what I'm missing is actually mom and dads giving examples of how 529 plans turned out bad for them. My impression after reading all these threads is that 529 plans are not great if taken out by the parent, so my question is what about having the grand parents put the 529 plans in, will that help. I know there's not a perfect answer to pay for college but my situtation is I have a 3 and 6 year old and I haven't started saving at all. I jut found out about the Coverdell and will start doing that as they will most likely be going to private middle/high school. But with college 10 years away and me not having saved a penny (HSA and 401K is maxed and no mortgage on house were the priorities first). I now am focused on making the right decision today for 10 years from now but reading these threads have me doubt setting up the 529 plans as it sound like I make too much money (approx $250,000 anually). But it being tax free seems like too good an option to pass up. Still financial aid/tution help is better than 529 advantages so I don't want to make a mistake that costs me financial aid in the future. I've always benefited from the advice given on these boards but this is the first time it's been counter (don't do 529 plans) than what I've heard or read elsewhere. I'd appreciate fathers and mothers who have gone (recently) or are going through the process to weigh in on 529 plans on give advice on what one should do in my circumstance (38 years old)

Thanks in Advance

Member Summary
Most Recent Posts
LOL, so if I make my brother the beneficiary and don't tell him, and then I make my son the beneficiary, my brother has ... (more)

DavidScubadiver (Apr. 25, 2013 @ 11:41a) |

Yep. Not only that, he can really potentially get screwed. How can he do things like make a 5 year election when he do... (more)

BrodyInsurance (Apr. 25, 2013 @ 11:49a) |

Thanks. I and my wife have accounts in our own names (because Md. law provides exemptions that are on a per beneficiary ... (more)

ProfessorEd (Apr. 25, 2013 @ 6:14p) |


I'm certainly not an expert, so others will probably have better advice, but with your salary so high, I don't think they're going to get any need-based financial aid anyways. So, your best bet is probably to invest in the 529 plans or coverdell. Also, invest in your kids: help them do well in school, and they'll get a good GPA and be eligible for merit-based financial aid.

beefjerkay is the true expert on this and I hope he knocks this out of the park, but you've highlighted the major downside of a 529 - it can gut your kid's ability to get financial aid from some schools. i think his general advice boils down to this (for people in your income bracket) - max fund all of your retirement accounts, and during your oldest kid's 8th grade school year, do as much reading as you can on FAFSA and CSS and what they make you disclose to schools about your assets, and then put a plan in place to have your money in other assets well in advance of your eldest's senior year of high school.

There are already a few threads here that discuss 529's and saving for college. I will summarize the key take home points I learned from them:

=529's in the Parents name will count 100% towards Expected Family Contribution spread over the expected college years. This is above and beyond all other available money included in the EFC.
=529's in the grandparents name will be found out by most private colleges and treated the same as 529's for parents
=You need to have a plan in place by the time the kid is finishing eighth grade

Beyond that, everyone's situation is unique. There are a multitude of ways to shelter assets from being included in the EFC. I beleive the most common and obvious ones are to put it all in tax sheltered retirement accounts and pay off the mortgage. Once you have done that, it gets trickier and you are not going to get random souls on the internet to find the answer for you. You will have to read and research to figure out what works for your family. You should get a pretty good idea of where to start just by searching and reading the threads on FWF.

Good Luck.

ryanstruve said:   beefjerkay is the true expert on this and I hope he knocks this out of the park, but you've highlighted the major downside of a 529 - it can gut your kid's ability to get financial aid from some schools. i think his general advice boils down to this (for people in your income bracket) - max fund all of your retirement accounts, and during your oldest kid's 8th grade school year, do as much reading as you can on FAFSA and CSS and what they make you disclose to schools about your assets, and then put a plan in place to have your money in other assets well in advance of your eldest's senior year of high school.

Green for beating me to the punch.

OP, on FWF, you can search by "Message Bodie" for author. Should help to find the tidbits spread throughout the forum.

Good Luck.

=529's in the Parents name will count 100% towards Expected Family Contribution spread over the expected college years. This is above and beyond all other available money included in the EFC.

Based upon what you have written, it is hard to tell exactly what you mean. I am guessing that you do understand it, so I am just clarifying this for others.

For federal financial aid purposes:

1)A 529 plan that is owned by a parent (regardless of the beneficiary), is treated identically to money sitting in the parent's checking account.

2)A 529 plan that is owned by a dependent student is treated identically to money sitting in the parent's checking account (yes, it is treated like the parent's money when it comes to aid for that particular student).

3)A 529 plan that is owned by someone else such as a grandparent is not an asset and has no impact on aid. However, when the grandparent actually uses that money to pay for school, it will be the equivalent of the child earning that money and can greatly impact aid the following year. For that reason, grandparent money should be used for the last year of school.

As an academic advisor, I can tell you that college does not have to be that expensive. If you want to send your kids to a private college that is out of state while living in the residence halls then yes. However, if they go to a nearby community college for the first couple of years and then transfer to a 4 year institution, you could do it real cheap. At the same time, their degrees would be just as good as someone who went to the four year the whole time.

Community college can be less than 10 K a year and will give them the first 60 credits that can easily transfer to a 4 year institution. These are all the basic General Education type classes. They key is to really plan things out properly.

stamfordmike said:   I've read these boards on college savings and what I'm missing is actually mom and dads giving examples of how 529 plans turned out bad for them. My impression after reading all these threads is that 529 plans are not great if taken out by the parent, so my question is what about having the grand parents put the 529 plans in, will that help. I know there's not a perfect answer to pay for college but my situtation is I have a 3 and 6 year old and I haven't started saving at all. I jut found out about the Coverdell and will start doing that as they will most likely be going to private middle/high school. But with college 10 years away and me not having saved a penny (HSA and 401K is maxed and no mortgage on house were the priorities first). I now am focused on making the right decision today for 10 years from now but reading these threads have me doubt setting up the 529 plans as it sound like I make too much money (approx $250,000 anually). But it being tax free seems like too good an option to pass up. Still financial aid/tution help is better than 529 advantages so I don't want to make a mistake that costs me financial aid in the future. I've always benefited from the advice given on these boards but this is the first time it's been counter (don't do 529 plans) than what I've heard or read elsewhere. I'd appreciate fathers and mothers who have gone (recently) or are going through the process to weigh in on 529 plans on give advice on what one should do in my circumstance (38 years old)

Thanks in Advance

Not everyone lives near a community college.

OP, I would think that without a mortage and having an income of 250k+ you should be able to start saving shortly prior to your childrens college and/or be able to cashflow most of it. If your child selects a quality state school you shouldn't have too many problem coming up with 20-25K/year.

problem is in 10 years it's 65-75k/year for a state school and it's 100+k for a private. But having a FW DNA, I'm trying to plan the best for those expenses and not be in a position in 10 years where I say to myself, "well you should have never put $500 (or $x) a month away for your kids college because, that cost you $xplus in aid or low interest loans or something that would have me wish I never opened a 529 plan.

What do the experts here thinks about state sponsered prepaid program like the GET program here in WA?

it's currently selling for $197 per unit (1 unit is defined as 1/100 of annual tuition rate). 100 units will pay for a year regardless of hikes in tuition.

stamfordmike said:   problem is in 10 years it's 65-75k/year for a state school and it's 100+k for a private. But having a FW DNA, I'm trying to plan the best for those expenses and not be in a position in 10 years where I say to myself, "well you should have never put $500 (or $x) a month away for your kids college because, that cost you $xplus in aid or low interest loans or something that would have me wish I never opened a 529 plan.

I imagine if median wages remain stagnant, the entire educational system would be in a pretty serious state of collapse if it really gets to 65/75/100k per year as you expect.

ZenNUTS said:   What do the experts here thinks about state sponsered prepaid program like the GET program here in WA?

it's currently selling for $197 per unit (1 unit is defined as 1/100 of annual tuition rate). 100 units will pay for a year regardless of hikes in tuition.

One of the main problems with GET is the premium. The current payout value for a unit is much less than $197 (havent checked lately but believe it is about a 40% premium). So it will take several years to even break even. The purchase price and payout value were quite comparable some years ago. In short, you are late to the party.
ETA: The GET unit price is $172. 1 GET unit is worth $117.82. You pay a 46% premium over current payout value to purchase a unit.

ZenNUTS said:   What do the experts here thinks about state sponsered prepaid program like the GET program here in WA?

it's currently selling for $197 per unit (1 unit is defined as 1/100 of annual tuition rate). 100 units will pay for a year regardless of hikes in tuition.
The last time I did the math on a prepaid plan, I boiled it down to a pretty straightforward analysis. You can predict future tuition costs by using an inflation rate of roughly twice the general inflation rate, say 6%. That's about as historically accurate as you can get, unless you want to do your own research on just the state of WA. Then you can calculate an internal rate of return on the investments that you make over time to purchase the guaranteed tuition contract, depending on how long you have to go until your child is in college. When I calculated it for Maryland a few years ago, I estimated the internal rate of return for their prepaid plan to be in the range of 1 - 1.5%. Based on that, I opted to go with the regular 529 instead, hoping to do a little better with the return on investment.

With a prepaid plan, make sure that you understand exactly what you get back if the money is not used for QHEE or if the money is used out of state.

dcwilbur said:   You can predict future tuition costs by using an inflation rate of roughly twice the general inflation rate, say 6%.

There will be a tipping point at which tuition inflation will not continue to be twice hte general inflation rate. Supply & Demand dictates the inflation rate (just like any other good or service). With so many kids going to college now and so many colleges available to choose from, I have to think that, unless there is a huge population boom or some other force to drive demand, this trend will not continue indefinitely. In theory, I agree that picking a number consistent with recent history for simple analysis is the way to go...but I don't buy that we will see 6% tuition inflation for the next 15+ years.

raringvt said:   In theory, I agree that picking a number consistent with recent history for simple analysis is the way to go...but I don't buy that we will see 6% tuition inflation for the next 15+ years.
I dont necessarily believe that either. But keep in mind that, in recent years, some state Univs. have had consistent double digit percentage increases (thanks to the recession and decrease in state support). But basing your decision on the recent 4-5 years may also not be wise.

raringvt said:   dcwilbur said:   You can predict future tuition costs by using an inflation rate of roughly twice the general inflation rate, say 6%.

There will be a tipping point at which tuition inflation will not continue to be twice hte general inflation rate. Supply & Demand dictates the inflation rate (just like any other good or service). With so many kids going to college now and so many colleges available to choose from, I have to think that, unless there is a huge population boom or some other force to drive demand, this trend will not continue indefinitely. In theory, I agree that picking a number consistent with recent history for simple analysis is the way to go...but I don't buy that we will see 6% tuition inflation for the next 15+ years.
I hope you are right, but as long as there is a prevailing thought in Washington that every child deserves a college education, we're in for more of same. Law of supply and demand doesn't apply. As long as the availability of student loans continues, tuition increases will continue unchecked. The day of reckoning will come when the collapse of student loans becomes the next banking crisis.

So appreicate the thoughts on college costs inflating but back to the OP. What are Fat Wallet parents doing to save for their kids college? Or what did they learn in going through the process. I live in Connecticut, where my state plan is run by TIAA-CREF and its options look severely limited when compared to a Vanguard or America Funds. Does the $600 tax break (10,000 limit for married couples) make it a no brainer to stay in state vs these other states (UT, NV, OH) that have lower cost plans or better investment options. Has anyone opened multiple 529 plans for their kids? one instate and one out of state? Again trying to get real life experencies of people, preferably with similar age/income characteristics as myself.

I am resigned to the fact that my kids won't qualify for need-based financial aid, so I am saving the maximum amount that I can deduct for state income tax purposes in my home state 529. The rest is in taxable investment accounts in my own name.

It also bears repeating the adage that you can borrow to finance your kid's education, but no one is going to loan you money to retire. Make sure you've taken care of yourself first.

stamfordmike said:   So appreicate the thoughts on college costs inflating but back to the OP. What are Fat Wallet parents doing to save for their kids college? Or what did they learn in going through the process. I live in Connecticut, where my state plan is run by TIAA-CREF and its options look severely limited when compared to a Vanguard or America Funds. Does the $600 tax break (10,000 limit for married couples) make it a no brainer to stay in state vs these other states (UT, NV, OH) that have lower cost plans or better investment options. Has anyone opened multiple 529 plans for their kids? one instate and one out of state? Again trying to get real life experencies of people, preferably with similar age/income characteristics as myself.

Unless you already have a bunch of money in American and are going to add to your American portfolio you are better of going with Vanguard. You only have 10 years left which is going to limit your time left to make up any fees and you are going to pay max fees unless you put significant $ in.

I would go with Utah or Nebraska (Vanguard) for low cost 529s if you are going to consider a 529 at all.

Full Disclosure: This is coming from someone who owns significant $ in 529 with American Funds.

stamfordmike said:   So appreicate the thoughts on college costs inflating but back to the OP. What are Fat Wallet parents doing to save for their kids college? Or what did they learn in going through the process. I live in Connecticut, where my state plan is run by TIAA-CREF and its options look severely limited when compared to a Vanguard or America Funds. Does the $600 tax break (10,000 limit for married couples) make it a no brainer to stay in state vs these other states (UT, NV, OH) that have lower cost plans or better investment options. Has anyone opened multiple 529 plans for their kids? one instate and one out of state? Again trying to get real life experencies of people, preferably with similar age/income characteristics as myself.

Yes you can have multiple 529 accounts from different state programs. You also should be able to transfer assets from one program to another.

Now whether you can contribute in state to get the deduction and then transfer to another state program of your choice? Comes down to the specific rules for your state on that tax break.

ZenNUTS said:   What do the experts here thinks about state sponsered prepaid program like the GET program here in WA?

it's currently selling for $197 per unit (1 unit is defined as 1/100 of annual tuition rate). 100 units will pay for a year regardless of hikes in tuition.


The problem is that states have significantly increased the cost of their tuition plans to cover projected increases in tuition costs. Florida's plan is now priced to anticipate an annual tuition increase of as much as 15 percent a year - which is why the cost to enroll a baby nearly doubled in 2010.

It's basically become a bet that tuition costs will go up at X rate a year - if the costs increase X+appreciable amount per year, parents win. If they increase X-appreciable amount, that money cannot be recouped and the prepaid group could actually end up paying more per credit hour than those who have regular 529s or no plan at all. Many state plans don't cover the "tuition differential" that most states have tagged onto their most prestigious state schools.

Plus, you need to be sure of the terms under which state-backed plans can be transferable to other states' colleges and universities, or cashed in.

(Edit because I had a mistake about Florida's plans. They are transferable to other states, though not under very good terms.)

If you've paid off the mortgage and maxed out tax-advantaged accounts... It comes down to investing in taxable acct vs 529 (or prepaid state plan). If you know you are using the money for college, the 529 seems like the obvious choice as earnings can be used tax-free. Both accounts would be assessed at 5.6% toward expected family contributions.

dcwilbur said:   ZenNUTS said:   What do the experts here thinks about state sponsered prepaid program like the GET program here in WA?

it's currently selling for $197 per unit (1 unit is defined as 1/100 of annual tuition rate). 100 units will pay for a year regardless of hikes in tuition.
The last time I did the math on a prepaid plan, I boiled it down to a pretty straightforward analysis. You can predict future tuition costs by using an inflation rate of roughly twice the general inflation rate, say 6%. That's about as historically accurate as you can get, unless you want to do your own research on just the state of WA. Then you can calculate an internal rate of return on the investments that you make over time to purchase the guaranteed tuition contract, depending on how long you have to go until your child is in college. When I calculated it for Maryland a few years ago, I estimated the internal rate of return for their prepaid plan to be in the range of 1 - 1.5%. Based on that, I opted to go with the regular 529 instead, hoping to do a little better with the return on investment.



In WA the GET payout is based directly on U. Washington tuition. (maybe technically the most expensive state school which is UW) UW tuition has been growing >10% for a bit and is expected to grow ~10% annually for the next few years. WA state has been defunding state college and the cost has been passed on in tuition increases. But eventually it will stop as the state funding will dry up almost altogether so state cuts won't hurt the UW tuition rates much more, but thats a few years off. UW gets a relatively low % of its money from the state as a share of total spending.
UW can withstand some tuition increases as they turn away a lot of students. Plus they guarantee aid for students with financial need.

see:
$20K in-state tuition may not be far off in Washington

Every states prepaid plan is different so you have to look at them individually.

GET is guaranteed by the state by law. They can't just yank the rug on everyone. They may stop new applicants at some point but the money will be guaranteed for those already in.

If you're only a few years away it probably doesn't make sense to pay $172 today for $117 tomorrow. If your kid is relatively young and you've got 10 years or more then it may work out for you especially if tuition keeps going up at the current rate. But its not so great of a deal nowadays.

I think OP summed up the plus and minuses of 529 Plans. It's tax-deferred investment which in OP's tax bracket range are not many outside of 401k but they'll count towards parents' assets of financial aid calculations.

For OP, unless he plans on earning much less at the time the kids are in college, whether child assets are high or not is moot considering parents' income. Kids will not get need-based financial aid anyway based on parent income in the EFC calculation.

For lower income brackets, then it becomes more difficult to answer considering the FAFSA requirements can change quickly. The problem of waiting until 8th grade to decide is that by then, it's too late to start saving in the vehicles you think will not be counted towards the child's assets 4 years later. Putting money in house and planning to tap with HELOC is a good option since rates are likely gonna be lower than regular student loan. You're just not earning much on that money while it's in the house. Currently, you're probably breaking even or possibly losing vs. inflation so not a great growth option.

Another perspective is how dubious an advantage financial aid may become in the future. The trend currently is to decrease the number of grants and to increase the number of loans. If you end up sacrificing saving potential for the off-chance to qualify for a loan, I don't know if it'll end up being worth it. 10 years ago grants represented about 50% of student aid. In 2011-12 year, grants are now only about 40%. And that trend is not likely to reverse itself.

Of course the best solution may be ... marriage to get the kids to independent status.

1) Marry
2) Profit

Won't see that on FWF too many times lol but for finaid it may be worth it.

lotusgardener said:   Not everyone lives near a community college.

If there's not a community college nearby, there's not likely to be a traditional 4-year university either. And sending a kid away to attend a community college is still likely to be significantly cheaper than sending a kid away to attend a big university.

The nation's community college system is the true unsung hero of higher-ed in this country, especially as many transform themselves into four-year colleges.

stamfordmike said:   problem is in 10 years it's 65-75k/year for a state school and it's 100+k for a private. But having a FW DNA, I'm trying to plan the best for those expenses and not be in a position in 10 years where I say to myself, "well you should have never put $500 (or $x) a month away for your kids college because, that cost you $xplus in aid or low interest loans or something that would have me wish I never opened a 529 plan.

This is just not sustainable.
Education is a bubble. When it will pop, I don't know.
Spending $200,000+ for a degree in sociology will fail.
There already is a private school (can't remember the name) that just randomly cut tuition by 20-30% or so, "because they can."

The economy won't support 50k/year tuition for forever, and once loan programs change (as they did in housing...) This will all crumble.

PS: Another big shout out for community college. It saved me a lot of money prior to med school.

I don't have kids OP, but as an an academic if I was in your situation I would worry more about how to encourage your kids to do well in school and qualify for merit-based aid than any other type of financial strategy. Your income is so high there is no chance of need based aid beyond loans. The only thing I would encourage you to consider is pre-paid tuition plans, although in most states they have become insanely priced at this point.

I am of the opinion that the higher education landscape will change quite a bit in the next 10 years, but only in ways that would tend to favor the higher income - so thats good news for you if I am right. The United States has made it a matter of public policy that everyone should be able to get a college degree, and there are no signs that the student loan printing press is going to stop so long as people believe everyone should go to college and that a college degree in anything will get them a job (these things have not been true for at least 30 years, but most people still believe them). What I think you WILL see is a divergence in institutional quality between elite, highly selective, and expensive colleges (living off their endowments) and a vast underclass of "entitlement colleges" living off the student loan money they get from letting everyone in.

There is already a prestige gap between say ivy league and your local Podunk University, but I think it will widen and accelerate. The great unwashed masses will get their BA in Psychology using Stafford Loans from the local Podunk University, and the smart and/or rich will go to an all together different type of school. And I'm not talking about the ivy league and expensive private colleges of today. These more selective schools will grow to include top tier public schools I think, and they won't let you play the community college game like you can do now in some cases. You can already see the beginnings of this - many top end public/private schools are dropping letting people claim things like AP test credit and some of the top end publics are making transferring in from a CC so difficult that almost no one can do it.

OP I have one that's going to college in the fall, and I have a 3 yr old. Here is my plan - I'm in my early 40's.

For the one going in the fall..... He will get financial aid because his father doesn't have a dime to his name and will be doing the FAS report.

For my 3 year old I started a 529 when he was 1 year old. I "assumed" he would follow my foot steps and go to a community college for the first couple years and then go to an in-state university to finish his degree. I took the current cost of community college multiplied that by 6% per year and multiplied by 17 years. I also took the current cost of an in-state university multiplied that by 6% per year and multiplied that by 19 years. That gave me the "total" cost of college give/take a little. I want to be on the safe side, and history has shown about a 6% increase in tuition per year.

Then I figured out how much per month I would have to put into the 529 account for 3 years to have the "total" cost. I think I assumed an average rate of return of 8 to 9%. It's not a huge amount, but doing it sooner than later (just like retirement funding) will give the best results.

When you say you make $250K per year I would assume that you wont get any funding for college with that type of income. So if I were you I would plan accordingly.

When my 3 year old heads off to college I will easily have 7 figures in liquid assets so I'm not planning on any loans, financial aid or anything like that. My best hope would be that he gets a lot of scholarships, but if not he should be about covered. The last thing I want to see is for him to get out of school with $100K or more in debt.

By the way I would never do a prepaid plan...... because how do you know that the money will still be there (think of Social Security and all the other crap that the government spends "other" money on).

OP, you need to reduce your income in the years leading up to your children starting college. Are you a wage slave or a business owner? If the second, there should be some creative way to take lesser salary and leave the profits in the business in order to qualify for more financial aid. There are some on this board who have more creative ideas on how best to perform that function and not be in violation of any laws.

Interesting topic! I'm struggling with similar questions as well. I recently ran in to the Private Prepaid 529 plan run by Openheimer Funds. Here is the link:
https://www.privatecollege529.com/OFI529/home.jsp

Highlights of this plan:
- covers 270 colleges nationwide, not a state specific plan
- all money can be rolled over in to any other regular 529 plan
- no fees
- covers undergrad tuition only, no boarding or other costs.

I've read the brochure and FAQs and other material on the site. On the first look, the plan seems impressive given the astronomical rise in the tuition costs each year. I'm no expert on 529 plans. Does anyone on this forum contribute to this plan or care to share their opinions?

asterix007 said:   Interesting topic! I'm struggling with similar questions as well. I recently ran in to the Private Prepaid 529 plan run by Openheimer Funds. Here is the link:
https://www.privatecollege529.com/OFI529/home.jsp

Highlights of this plan:
- covers 270 colleges nationwide, not a state specific plan
- all money can be rolled over in to any other regular 529 plan
- no fees
- covers undergrad tuition only, no boarding or other costs.

I've read the brochure and FAQs and other material on the site. On the first look, the plan seems impressive given the astronomical rise in the tuition costs each year. I'm no expert on 529 plans. Does anyone on this forum contribute to this plan or care to share their opinions?


What happens when your child doesn't go to one of those schools? The answer to that question is a key to understanding whether a particular pre-paid should be considered or not. There is a very strong chance that one of those schools won't be the best for your child.


>>What happens when your child doesn't go to one of those schools? The answer to that question is a key to understanding whether a particular pre-paid should be considered or not. There is a very strong chance that one of those >>>schools won't be the best for your child.


You can roll over the money to a regular 529 account and use it that way.

Teach them to play some sport that has a low participant to available scholarship ratio. Like girl's hockey.

asterix007 said:   
>>What happens when your child doesn't go to one of those schools? The answer to that question is a key to understanding whether a particular pre-paid should be considered or not. There is a very strong chance that one of those >>>schools won't be the best for your child.


You can roll over the money to a regular 529 account and use it that way.


The question is how much money. You need to know the answer to this question before you open up a pre-paid plan.

If you invest $100,000 today and your child goes to school in X years, but doesn't go to a participating school, how much money will be available?

Let's assume that college costs increase by 6% and the underlying investments of the trust grow by 8%. Let's assume that X is 15 years. How much money is available for a non-participating college or for a non-qualified withdrawal?

$317,000? (8% compounded)
$239,000? (6% compounded)
Some other amount?

I'll answer the question for you if you don't know. The point that I'm trying to make is that everybody who opts for a pre-paid plan needs to understand this for their particular choice before opting to go that route.

ZenNUTS said:   What do the experts here thinks about state sponsered prepaid program like the GET program here in WA?

it's currently selling for $197 per unit (1 unit is defined as 1/100 of annual tuition rate). 100 units will pay for a year regardless of hikes in tuition.


I think the time to buy GET was when it was $35 or $70 per unit. It was $70 in 2007 and $76 in 2009. After that it went exponential; not a good deal any more.

If you make $250k and don't have three or four kids in school at the same time, you'll be paying full freight. Every dollar you can save will help. Once you've paid off your mortgage and maxed all retirement accounts including HSA and backdoor Roth IRAs, I have yet to hear of a net-net intelligent strategy that doesn't cost more in fees, expenses, and opportunity cost than what your EFC is going to be, if you do not run your own business. Big cash value life insurance policies, enormous primary residences paid for in cash, etc: I think it is just as cost effective and certainly more honorable to just save the money yourself and make a good, cost conscious decision when it comes to choosing the right college.

Brody is precisely right about I 529. It is not an option for most people. Look in the fine print what happens if your child does not attend a participating school.

What are the consequences of overfunding a 529? Not many. Once you understand the penalties are not that onerous, and once you realize the accumulation limit per 529 is typically almost $400,000, you start to see the possibilities 529s offer high income parents. I say this all the time, but 529s are wasted if used up for college; they are best thought of as tax free multi-generational family educational trusts.

Yes you can have multiple 529s. We own WA GET at $70-76 per unit, and four traditional 529s through Utah and Nevada.

What if a 529 is another relative's name instead of a grandparent? (an Aunt or other close relative) Same?

expired said:   What if a 529 is another relative's name instead of a grandparent? (an Aunt or other close relative) Same?

Correct.

Skipping 238 Messages...
BrodyInsurance said:    You could also play games like switching the beneficiary from yourself to your brother and then later switching it to your kid. Then the gift would be from your brother. Switching from you to your brother would have no gifting implications because the generation is the same.

I/Q]


Thanks. I and my wife have accounts in our own names (because Md. law provides exemptions that are on a per beneficiary basis and we had used up the tax deduction for our children. However, the intention was to use them for the education of our children. I am well enough off so that inheritance taxes could play a role.

Your idea of changing the beneficiary to a brother (or sister) culd be useful. However, I do not wish to hurt them. How likely is doing so likely to hurt them? I think this is only an issue only if it would increase the inheritance taxes for them. Am I right? Unfortunately, it is hard to predict which relatives may be affected by the inheritance taxes (both because predicting the future is hard and because we seldom know much about our relatives current financial situation).

I understand the annual gift tax exemption is on a pair basis (my brother could give $14,000 per year to each of my children). As a practical matter, except for low value gifts at Christmas or birthdays, such gifts are unlikely. Wikapedia says, "Note that each giver and recipient pair has their own unique annual exclusion; a giver can give to any number of recipients and the exclusion is not affected by other gifts that recipient may have received from others."

The potential here is large since I have 4 children and 3 siblings, which is 12 pairs. Thus, large amounts could be transferred each year. What is the best way to do this? Is the election regarding the gift tax automatic (for 5 years), or is it something that either I or they need to explicitly do.

One practical problem I believe would be getting the siblings SS numbers, although I suspect most relatives would be willing to help in this way, at least if there was little risk of substantial cost to them.

It seems that if any more accounts were to be set up, it might be best to make the beneficiary a niece or nephew. Then changing it to your own child is within the same generation.

There might be problems if you wanted to change the beneficiary to a grandchild at some point, but I suppose this might be done in two staqes, first to your child, and then to his child (or would this work).

As I understand it, the beneficiary could then be changed to one of our sons as needed. Am I right on this?

I have seen mention of the potentially bad effects on relatives of beneficiary changes involving them, but I have not heard of it actually happening. Has it happened, or is it just that the IRS has not known of cases where by the wording of the law (crazy) a gift tax might be owed, or a greater inheritance tax owed. It is easy to imagine who ever is doing the inheritance tax forms for someone would not even know that they have been made the beneficiary of a 529 plan.



Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

TRUSTe online privacy certification

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2014