Page 1 of 1

How to handle 529

Posted: Mon Aug 06, 2018 10:36 am
by Xan
Hi folks,

We're considering the possibility of sending kids to a private school. Because 529s can now be used for private school tuition, this brings up some interesting questions.

We're planning to put money away a few years ahead of needing it, both as a trial run to see whether we can afford it, and to build up some buffer.

I haven't been particularly keen on 529s for college, because of (in general) high fees, poor investment options, locking up the money for a very long time, and only being able to deduct the gains rather than contributions. Also they don't fit in with a PP, and I'd like to be flexible about what our long-term savings are for. Maybe they are in fact worthwhile for college; I'd be glad of a discussion of that too.

Now that 529s can be used for elementary through high school tuition, I'm considering using them as a vehicle for shorter-term savings. Basically, instead of putting the money in a high-interest savings account for use in a few years, I'd put it in a cash 529 vehicle, which would then grow tax-free.

I'm focusing on Utah because they have the lowest fees and the best investment choices. Utah's cash vehicle (they call it "FDIC Insured") consists primarily of deposits in Sallie Mae Bank. Its current one-year return, net of fees, is 1.98%. That's pretty good, and if the spreadsheet I whipped up is correct, it's equivalent to 2.75% in a taxable account. Way better than the 1.8% I get at Marcus.
https://my529.org/performance-returns/

Another way to look at it is this: since the primary purpose of saving now is to simulate paying for school, and since when school comes we'll pay for it out of income, this could be considered long-term saving rather than short-term saving. It would end up being used for college or possibly the very end of high school. Would it make more sense to take more risk with this? They have age-based funds as well as a 70/30 stock/cash and a 20/80 stock/cash. Or should I just do a savings account to maintain maximum flexibility?

Pretty much in any case, this would be a VP of some sort. I don't believe there's any 529 that allows gold.

What are others here with small children doing for college savings?

Re: How to handle 529

Posted: Mon Aug 06, 2018 11:35 am
by whatchamacallit
I came to personal conclusion that they are not worth the trouble until we maxed out our Roth space.

The only advantage I see over Roth account is the state income tax deduction on some states 529 plans but you don't have as many years to take advantage of tax free growth. So if you have the deduction option, you might be able to wash it through 529 for quick tax deduction. Only would be about $250 per kid in my tax case.

You have to question whether that 1% extra earnings is worth your trouble. Extra 1000 earned per 100k and I suspect you would not have 100k in cash for a year in 529 so it would be much less.

Might be worth just keeping it simple.

Re: How to handle 529

Posted: Mon Aug 06, 2018 11:55 am
by Xan
That makes sense.

The "keeping it simple" option actually does allow this to be part of the PP: it could be considered part of the overall cash allocation.

Re: How to handle 529

Posted: Tue Aug 07, 2018 8:25 am
by ochotona
My daughter didn't use up all of her 529. I'm trying to figure out what to do about that.

I'm going to gift $1000 to a grand-nephew. I guess I could use it for myself from any kind of training I might want to take. I could always eat it in the future and pay the penalty and taxes.

Re: How to handle 529

Posted: Tue Aug 07, 2018 9:05 am
by jhogue
I came to a similar conclusion: don’t contribute to a 529 until you have fully funded every possible tax-deferred vehicle for retirement. You can always pull money from a retirement account later to pay off college loans, even after the child graduates from college. You can’t pull money from a 529 to fund retirement.

Right now, I think my short term vehicle of choice for funding private school would be 1 year T bills. They have the safety of US Treasury. They currently yield 2.48%-- better than almost any savings account. And while I would try to hold them to maturity, they are super-liquid and can be easily bought or sold in a brokerage account.

Re: How to handle 529

Posted: Wed Aug 08, 2018 1:33 pm
by Jack Jones
> What are others here with small children doing for college savings?

I'm happy w/ the ESA we opened at Schwab. Doing a PP within the account is a breeze. Wish I could say the same about my own retirement savings.