Opinions on a 529 Plan

[GetSomeMoney]

So I am thinking about opening a 529 plan for my child but I have a few reservations

-Can only be used for education and I bring this up because with technology how much will post secondary education really cost in the future, I have heard it may not be worth opening for any child younger than 5

-Limited investment opportunities, pretty much stuck with funds and etfs (would like the option to invest in individual stocks for improved returns if you know what you are doing)

-Concerns about these plans being taxed more in the future (maybe partially taxed instead of federally tax free in the future)

Any thoughts on these plans, any alternatives you all do instead?

 

[Truefan31]

So I am thinking about opening a 529 plan for my child but I have a few reservations

-Can only be used for education and I bring this up because with technology how much will post secondary education really cost in the future, I have heard it may not be worth opening for any child younger than 5

-Limited investment opportunities, pretty much stuck with funds and etfs (would like the option to invest in individual stocks for improved returns if you know what you are doing)

-Concerns about these plans being taxed more in the future (maybe partially taxed instead of federally tax free in the future)

Any thoughts on these plans, any alternatives you all do instead?

529s in general are really good vehicles for education savings....remember though you have a choice of 529s to choose from, from different states. Some are better than others, like giving tax breaks for contributions/choice of investments/etc.

I wouldn't worry about getting taxed more in the future, seeing how you're funding the 529 w/post tax dollars that have already been taxed, similar to a Roth IRA. The 10% penalty for withdrawals outside education may increase, but if you use it like planned it's not an issue...if your child decides on some other life choice, then you can still allocate it to other family members.

I wouldn't look to individual stocks if you're doing a 529, the purpose of the plan is sustained growth w/contributions. Alternatives would be an education savings account (ESA) and/or just doing a Roth IRA. Think of the Roth IRA as a super savings account, you can withdraw the contributions penalty and tax free, it's the earnings that get penalized/taxed...

Of course that's assuming you don't have one already and/or you meet the qualifications for a Roth.

what state do you live in? How's their 529?

 

[NeilCartwright]

A 529 plan caught my attention but i was going to look at it more as i got closer to having children and a wife etc

The main thing is its for education only, but if you want to withdraw and use it for something other than school (ie down payments, starting a business etc) theres only a 10% tax penalty?

Personally (right now) im a fan of stocks. For your kid you can put 60 month for 18 years in the total stock market ETF, assuming growth of 20%, and it'll grow to about 60k. When its time to withdraw they'll hit you with that 15% tax rate and you'll have 51k(someone correct my math if im wrong)

Compare that to 25-30k in a 529 plan putting away that same $60 a month for 18 years.

Im a youngin but i could see maybe 10 years ago a 529 plan wouldve been the way to go, but now with it being so easy to trade stocks, (i use Robinhood) my 2 cents is on stocks and ETFs, even if you'll have to pay the tax on the back end

 

[Truefan31]

A 529 plan caught my attention but i was going to look at it more as i got closer to having children and a wife etc

The main thing is its for education only, but if you want to withdraw and use it for something other than school (ie down payments, starting a business etc) theres only a 10% tax penalty?

Personally (right now) im a fan of stocks. For your kid you can put 60 month for 18 years in the total stock market ETF, assuming growth of 20%, and it'll grow to about 60k. When its time to withdraw they'll hit you with that 15% tax rate and you'll have 51k(someone correct my math if im wrong)

Compare that to 25-30k in a 529 plan putting away that same $60 a month for 18 years.

Im a youngin but i could see maybe 10 years ago a 529 plan wouldve been the way to go, but now with it being so easy to trade stocks, (i use Robinhood) my 2 cents is on stocks and ETFs, even if you'll have to pay the tax on the back end

yeah it's a 10% penalty for withdrawals outside of education expenses..... 529s are still really good vehicles for saving for education, there's plenty of different ones out there, and some states give additional tax breaks for contributing to a 529.

There's also the ESA (education savings account), which can be used for basically any education K-12 thru college. It's capped at 2000 a year but generally there's more flexibility in investments and how you want the money to be invested. If you start early when you first have a child, it'll grow and be plenty good by the time they're ready to go to college...and it might be a better idea to do that because you'll be less likely to overfund it w/the cap vs a 529 which basically has no cap at all...

Again a good combo may be a ESA w/ a Roth IRA......People overlook Roth IRAs as a tool to pay for college.....up to 5500 a year, grows tax free, and you can withdraw the CONTRIBUTIONS when it's time for college with no penalty and no taxes. It's a great vehicle, again I call the Roth IRA the super savings account.

A good idea in your case is find out if your state gives tax breaks for 529s, if they do, then do a 529, realistically calculate what you think you'll need, then go a little below that......then you and your wife both max out Roth IRAs, that's 11k a year toward retirement/misc......fast forward to when your kids go to college and/or trade school etc, you know the 529 has a base amount that you'll know you'll use all of it, if you need more then take it from you Roth IRA w/no penalties.......and all those years you get the state tax breaks from the 529 too.

Doing this way will allow you to invest how you want typically too, just be aware going w/stocks is risky.....I suggest just picking a nice fund that tracks the S&P 500 which averages about 8-10% annually....key is to find the fund w/low fees/expense ratios.

Keep doing your thing w/robinhood no doubt, if you come up big, then stop contributing to the 529, but until then have that nice foundation that's reliable.....don't ever stop the Roth IRA though lol.....shyt if you don't have one go do a Roth IRA asap, get it started

 

[DeuceZ]

Just opened one of these for my son. Figure 14-15 yrs of investing in the market should have him not sweating (too much) about post secondary costs.

 

[Rawtid]

It’s definitely a good move. Also know up to $10k per year/per 529 plan can it can be used at certain K-12 schools, and also for apprenticeship programs if your child(ren) decide not to go the college route. Here is a recent article that details what I mentioned. I just leaned about the apprenticeship thing today. I thought it was just “college”.

What Are Qualified 529 Expenses and What Can It Be Used For?

What can - and can't - you pay for with money from a 529 plan? Qualified expenses generally include anything a student needs to enroll in and attend an accredited college or university, vocational or technical school. Recent rule changes have expanded the definition of qualified 529 expenses.

www.merrilledge.com