kelleymauck
mind freak
What's everyone's opinion about these? I'm starting something for my daughter..either a regular savings account or a 529. Maybe both. But I really don't know much about the 529....any help?
529 college savings plan
- Thread starter kelleymauck
- Start date
Happy birthday, Kelley!
We didn't save a dime toward our kids' college and our daughter is going to NYU (read: $$$). College loans are so cheap that it made more sense to put that money toward something else and get a PLUS loan for the tuition, room and board, then just write a check for books, etc.
You're better off getting rid of any credit card debt, paying more toward the principal on your house and paying off any other debts because THOSE cost you a fortune in interest and it's WAY more expensive money than college loans. Plus the interest you'd earn on savings isn't that impressive AND it's considered an asset and will affect her chances for financial aid.
To me, a 529 is letting someone else use your money for free. You could use that money yourself to pay down your current debt and be in a better position come college time.
We didn't save a dime toward our kids' college and our daughter is going to NYU (read: $$$). College loans are so cheap that it made more sense to put that money toward something else and get a PLUS loan for the tuition, room and board, then just write a check for books, etc.
You're better off getting rid of any credit card debt, paying more toward the principal on your house and paying off any other debts because THOSE cost you a fortune in interest and it's WAY more expensive money than college loans. Plus the interest you'd earn on savings isn't that impressive AND it's considered an asset and will affect her chances for financial aid.
To me, a 529 is letting someone else use your money for free. You could use that money yourself to pay down your current debt and be in a better position come college time.
C
czygvtwkr
Guest
US savings bonds can be tax free if used to pay for higher education, their interest rate is hard to beat also.
I agree with the loan part, I am 4 years out of school and paying off my loans but what they did for me was incredible. While most people a year out of college had a piss poor credit rating and had a hard time buying a house, car etc etc I managed to have a higher credit score of over 800.
You can always pay them off for the kid if they do well, if they screw up make them pay them themselves.
I agree with the loan part, I am 4 years out of school and paying off my loans but what they did for me was incredible. While most people a year out of college had a piss poor credit rating and had a hard time buying a house, car etc etc I managed to have a higher credit score of over 800.
You can always pay them off for the kid if they do well, if they screw up make them pay them themselves.
Triggerfish
New Member
You do realise that you that 529 plans can get you tax benefits, don't you? Possibly federal and state. I didn't use saving bonds because their interest rate were not as high as the Education Savings account CD I got for my daughter but the I later found out that money put into 529 plans made more money than the ESA CD. Also 529 plans are usually more flexibe than ESA or saving bonds. Like any long term investment you start off with higher risk investments when you start. As you get closer to using it you move the investments more conservative accounts.
Pros of 529
You own the account not the beneficiary, so if that child doesn't go to college you can change the beneficiary to any siblings, cousins, yourself, etc. With the ESA the beneficiary owns the account and when they become an adult they get control over the account.
If you can afford it you can put a lot more a year in a 529 than an ESA. You can set up as many 529 plan accounts as you like. The individual accounts usually have a cap of maximum amount you can have of abour $250,000. ESA does not have a max amount you can have in the account but you can only put $3000 a year.
If you set up a program set up for your own state you can usually get tax breaks.
Pros of 529
You own the account not the beneficiary, so if that child doesn't go to college you can change the beneficiary to any siblings, cousins, yourself, etc. With the ESA the beneficiary owns the account and when they become an adult they get control over the account.
If you can afford it you can put a lot more a year in a 529 than an ESA. You can set up as many 529 plan accounts as you like. The individual accounts usually have a cap of maximum amount you can have of abour $250,000. ESA does not have a max amount you can have in the account but you can only put $3000 a year.
If you set up a program set up for your own state you can usually get tax breaks.
Triggerfish
New Member
czygvtwkr said:
How did you manage to have a credit score of over 800 one year out of collge when until very recently the max was 800? Also unless you have multiple account with a history of several years it's very difficult to get a very high score.
designerxboi
New Member
What about www.upromise.com? I dont know much about them but I know that you are earning a small percentage back when you use your cards at different locations. You could check them out. I think you have to start really early though.
itsbob
I bowl overhand
Triggerfish said:
Set up an IRA through a viable mutual fund (like Vanguard or Fidelity) make 3 times the interest of a 529, and you are allowed tax free deductions for purpose of education for you or any of your chitlins.. Your money gets subtracted from your taxable iincome, and grows tax free. Retirement accounts aren't counted against you as an assett when it comes time to qualify for aide. Retirement is protected in case of bankrupticy, divorce etc.. (probably differs state to state) so is an even more protected account. Anything with the name Bond or CD is probably making someone else a LOT of money, while it pays you a measly 3 or 4%.. Anything less then 10% is Poor to medicore interest.
If you are young, go big.. Go agressive in your investing
Was going to add any ed savings count against financial aid.. but you've covered that.. GOOD job!!
Triggerfish
New Member
I have a 529 plan that's run by Vanguard currently. I have an IRA CD by Navy Federal. This year is maxed out. Next year I plan to set up a IRA from Vanguard.
Triggerfish
New Member
designerxboi said:
I have a upromise account that puts money into a 529 plan. I don't get that much money from them but anything is better than nothing.
C
czygvtwkr
Guest
Triggerfish said:
I have had two lines of credit my student loans, that I started paying off while I was in grad school and a credit card that started off with a $500 limit my sophomore year of college. I really doubt the credit card had much to do with it since I only used it on rare occasion.
So one year out of college I had been paying off my student loan for 4 years.
Checked my credit rating on freecreditreport.com and it came back then as an 803. Checked it just this past summer through a mortgage company and it had only moved to 805, after buying a car and making all the payments too.
JabbaJawz
Be about it
I have savings accounts for my daughters and also use Upromise. Haven't thought 100% about rolling the $$ into a 529 or other plan just yet. The way I look at it at this point, anything can happen. My parents got fairly lucky with me as I got my AA through community college while working at a preschool - tuition was affordable and there was no room/board to consider. I ended up at UMUC to earn my BS and was working full-time for a contractor and they paid for my schooling and books. Pretty sweet deal. 
I only ended up with a couple thousand dollars in student loans at the very end b/c I took more classes my last 2 semesters and went over the limit that my company would pay for. I support whatever school my kids would like to attend, but also expect that if they choose some high dollar institution that they be prepared to earn scholarships, get the good grades, etc... Never know, they could end up like me and work while they attend school, but if not, there are several avenues that I could use to pay for it.
I only ended up with a couple thousand dollars in student loans at the very end b/c I took more classes my last 2 semesters and went over the limit that my company would pay for. I support whatever school my kids would like to attend, but also expect that if they choose some high dollar institution that they be prepared to earn scholarships, get the good grades, etc... Never know, they could end up like me and work while they attend school, but if not, there are several avenues that I could use to pay for it.
Big picture
529 savings plans are nice because of the tax benefits. My financial advisor is a big fan of 529s but we're not using them.
If you haven't already, you should develop savings priorities and plan. For example, if it's 1- maintaining an emergency fund 2- savings for retirement and 3 - savings for kids college, you might not want to use a 529. If you aren't maxing Roth IRA for retirement, you can use the IRA as a savings vehicle for college.
We scraped together 15K and socked it into Roths when our kids were born and earmarked the $ for college. That investment is growing to cover the full cost of college tuition at a public university. Of course we keep up retirement savings through various means as well (401k, TSP, SEP). Because we'll bringing home a pension shortly in addition to salaries, we don't expect to have to use the Roth funds to pay for college but it's nice to know it's there. And because Roth is the investment vehicle, we'll be able to use those funds which were initially earmarked for college for anything we want.
The bad thing about the 529 is you'll take a hit if you use the funds for other-than-education. We might not pay for the kids education so we don't want to park $ in 529s. That is, we're going to bribe our kids to finish college. The kids will be instructed to take out student loans for school. If they graduate, we will pay off their loans in full. If they don't graduate, they must pay the loans.
529 savings plans are nice because of the tax benefits. My financial advisor is a big fan of 529s but we're not using them.
If you haven't already, you should develop savings priorities and plan. For example, if it's 1- maintaining an emergency fund 2- savings for retirement and 3 - savings for kids college, you might not want to use a 529. If you aren't maxing Roth IRA for retirement, you can use the IRA as a savings vehicle for college.
We scraped together 15K and socked it into Roths when our kids were born and earmarked the $ for college. That investment is growing to cover the full cost of college tuition at a public university. Of course we keep up retirement savings through various means as well (401k, TSP, SEP). Because we'll bringing home a pension shortly in addition to salaries, we don't expect to have to use the Roth funds to pay for college but it's nice to know it's there. And because Roth is the investment vehicle, we'll be able to use those funds which were initially earmarked for college for anything we want.
The bad thing about the 529 is you'll take a hit if you use the funds for other-than-education. We might not pay for the kids education so we don't want to park $ in 529s. That is, we're going to bribe our kids to finish college. The kids will be instructed to take out student loans for school. If they graduate, we will pay off their loans in full. If they don't graduate, they must pay the loans.
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That's a good ideamarianne said:
529 trick
While most of these posts talk about 529 in the mindset of SAVINGS for college when the kids are young because that's what started this thread, I just wanted to thow in some 2 cents about using 529s when your kids are in or almost in college.
You can use 529 plans to launder $ spent on college tuition and expenses. Launder is not quite the right word. Let me explain - let's say you're saving $500/month so that you can put $3000 per semester into college tuition or expenses. Rather than writing a check for $3000 to the school and transferring the $ straight from your bank account to the college, do this: put the $3K from your bank account into a 529 plan (either $500/month or a $3K lump sum). Then, make the school payment from your 529 plan (distribution). If you use the 529 plan this way, you get a tax deduction on the $3K. If you just write a check to the school, you're not getting a tax deduction. You can use the 529 plan (and get the deduction) for Tuition and fees, Books, supplies, and equipment, Academic tutoring, Room and board, Uniforms, and Transportation.
While most of these posts talk about 529 in the mindset of SAVINGS for college when the kids are young because that's what started this thread, I just wanted to thow in some 2 cents about using 529s when your kids are in or almost in college.
You can use 529 plans to launder $ spent on college tuition and expenses. Launder is not quite the right word. Let me explain - let's say you're saving $500/month so that you can put $3000 per semester into college tuition or expenses. Rather than writing a check for $3000 to the school and transferring the $ straight from your bank account to the college, do this: put the $3K from your bank account into a 529 plan (either $500/month or a $3K lump sum). Then, make the school payment from your 529 plan (distribution). If you use the 529 plan this way, you get a tax deduction on the $3K. If you just write a check to the school, you're not getting a tax deduction. You can use the 529 plan (and get the deduction) for Tuition and fees, Books, supplies, and equipment, Academic tutoring, Room and board, Uniforms, and Transportation.
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Just to qualify my suggestion - you can deduct certain educational expenses on your 1040, although there are more stringent rules as to what are considered allowable expenses on the 1040 (for example, no room, board or book costs are eligible) and there's a cap of $3K/year (vs. a 529 plan which has a much higher cap). I also wanted to put in some fine print - I'm not an accountant and you should consult with your financial advisor to discuss your specific situation.marianne said: