What savings scheme do you use for a kid?

[SaucyJack 3500]

On 6/30/2022 at 7:59 PM, gmr548 said:

It's pretty easy to make pyramids with kids, so probably that kind. 

[wild_turkey 3181]

I have a newborn so this topic is now relevant to my interests. I would like to open a 529 account for her, which I've browsed different options and I'm leaning towards the Vanguard 529 Plan for Nevada. It's appealing because it has low fees and because I already have accounts with Vanguard, so there's a simplicity factor.

A couple questions I have:

1. They have options for an Individual 529 Portfolio (where I can pick investmest like a Vanguard Total Stock Market Index Fund) or the Targeted Enrollment Portfolio (where I determine their year of enrollment and Vanguard adjusts the diversification for me over time). For my personal Roth IRA, my strategy is more in line with the first option. For a college fund that's needed in ~18 years, I'm more inclined to pick the TEP so I can set it and forget it and trust Vanguard to make good decisions. Is that reasonable here?

2. The effective annual contribution "limit" is $17,000 for 2023 to stay within the gift tax exclusion limit. Is there any reason I shouldn't front load it with that amount this year, then my future yearly contributions could be lower and still be on pace for the final goal? Assuming my other tax-advantaged retirement accounts are maxed out yearly and that $17,000 would otherwise end up in a brokerage account or savings.

Thanks for any input.

[Trey3216 15352]

1 hour ago, wild_turkey said:

I have a newborn so this topic is now relevant to my interests. I would like to open a 529 account for her, which I've browsed different options and I'm leaning towards the Vanguard 529 Plan for Nevada. It's appealing because it has low fees and because I already have accounts with Vanguard, so there's a simplicity factor.

A couple questions I have:

1. They have options for an Individual 529 Portfolio (where I can pick investmest like a Vanguard Total Stock Market Index Fund) or the Targeted Enrollment Portfolio (where I determine their year of enrollment and Vanguard adjusts the diversification for me over time). For my personal Roth IRA, my strategy is more in line with the first option. For a college fund that's needed in ~18 years, I'm more inclined to pick the TEP so I can set it and forget it and trust Vanguard to make good decisions. Is that reasonable here?

2. The effective annual contribution "limit" is $17,000 for 2023 to stay within the gift tax exclusion limit. Is there any reason I shouldn't front load it with that amount this year, then my future yearly contributions could be lower and still be on pace for the final goal? Assuming my other tax-advantaged retirement accounts are maxed out yearly and that $17,000 would otherwise end up in a brokerage account or savings.

Thanks for any input.

If you can cash roll it, you can do a 1 time contribution of up to 5 years limits in one year, but you can’t contribute again until year 6.   I’d go with the index fund and reevaluate at year 12 and year 15.  

[SaucyJack 3500]

7 hours ago, wild_turkey said:

I have a newborn so this topic is now relevant to my interests. I would like to open a 529 account for her, which I've browsed different options and I'm leaning towards the Vanguard 529 Plan for Nevada. It's appealing because it has low fees and because I already have accounts with Vanguard, so there's a simplicity factor.

A couple questions I have:

1. They have options for an Individual 529 Portfolio (where I can pick investmest like a Vanguard Total Stock Market Index Fund) or the Targeted Enrollment Portfolio (where I determine their year of enrollment and Vanguard adjusts the diversification for me over time). For my personal Roth IRA, my strategy is more in line with the first option. For a college fund that's needed in ~18 years, I'm more inclined to pick the TEP so I can set it and forget it and trust Vanguard to make good decisions. Is that reasonable here?

2. The effective annual contribution "limit" is $17,000 for 2023 to stay within the gift tax exclusion limit. Is there any reason I shouldn't front load it with that amount this year, then my future yearly contributions could be lower and still be on pace for the final goal? Assuming my other tax-advantaged retirement accounts are maxed out yearly and that $17,000 would otherwise end up in a brokerage account or savings.

Thanks for any input.

$17k is per person, if there is a spouse or others they can gift also.  I am not familiar with the Nevada plan as far as its annual max contribution, if any.

[52-80 19231]

None of my existing brokers allow opening a second margin or even cash account under my name (and earmarked for kid)

One of them offer a joint-account ‘with rights of survivorship’….but turns out the other joint owner must be 17+

Ended up opening a ‘Custodian account’ instead where i manage the money now, and kid automatically inherits full control at the age designated by me between 18-24. All post-tax so theres no real advantages. Bought kid some SPY with open limit order for TSLA should it hit

[Wally Pryor 5262]

On 7/3/2022 at 7:25 AM, CooterBrown said:

Each state is different. Utah and Colorado are considered the best and nearly identical to each other. We use Utah. All plans can be used for almost any school worldwide. We just went with the age based investment plan. There are other selections available like picking a retirement plan.

Plus 1 on the Utah plan. My first dollar and every dollar since has went to it. 

[CleverNickname 1321]

I do Ohio's 529. It's just vanguard. And fwiw, the new tax changes allow for 529 to $35k rollover into your kiddos Roth. Needs to be a 15 year old account. Just think of what $35k could be worth after 45 years. 6x is very reasonable. 

[52-80 19231]

On 1/24/2023 at 12:48 AM, 52-80 said:

Bought kid some SPY with open limit order for TSLA should it hit

Update: kid has best-performing portfolio in existence. 

[BehoId, The Underminer! 11669]

11 hours ago, CleverNickname said:

I do Ohio's 529. It's just vanguard. And fwiw, the new tax changes allow for 529 to $35k rollover into your kiddos Roth. Needs to be a 15 year old account. Just think of what $35k could be worth after 45 years. 6x is very reasonable. 

man, this is the first i've heard of this.  googled it and it is great.  the fifteen years happens to be about the time between me starting one for my kid and the expected end of college, too.

[BehoId, The Underminer! 11669]

my highest balance in the utah 529 was on jan 4, 2022.  obviously much lower since then. 13 months worth of monthly contributions and today may finally be the day that i establish a new high.

[CleverNickname 1321]

4 hours ago, BehoId, The Underminer! said:

man, this is the first i've heard of this.  googled it and it is great.  the fifteen years happens to be about the time between me starting one for my kid and the expected end of college, too.

It's not clear to me if the $6500/yr rollover has to be limited to the kiddos earnings or what. More clarity should emerge soon. If it is limited to earnings, it's not a huge help (rich people have been putting up to annual limit in a roth under their kids name since their first job at the country club since roths began).

[Dbeasy 15085]

My daughter is trying to figure out the best way to save for her daughter’s college. Is a 529 plan still the best option?

[tx 3 putt 77344]

On 5/5/2022 at 6:08 PM, Brew said:

They are on the payroll at my office. If that’s not an option, once they start earning outside income then you can make the Roth contributions off of that.

As soon as they have income, start a Roth. Fidelity has great funds 

[Texas Jeff 1945]

6 hours ago, Dbeasy said:

My daughter is trying to figure out the best way to save for her daughter’s college. Is a 529 plan still the best option?

A 529 plan means that you just invest money and years later, if there is gain, you are not taxed on the gain.  The longer you have until college the more time you have for tax-free growth.  It's all about avoiding tax on the growth of the money between the time you invest it and the time you take it out.

In our case, the best part about the 529 was that we had an account ready to spend on college when the time came.  I am a saver and it is hard for me to spend down accounts.  However, in this case, we had invested funds long ago for this purpose and mentally it was easy to start spending it as college bills started to roll in.  We enjoyed the college transition much more so than if we were just writing checks from our funds.

There are a few wrinkles.  You want to plan a bit and try to put what you think the kid will need in there, but not a ton extra.  We planned for four years of in-state school and figured that we'd either hit it about right for in-state or at least not have to pay so much for a more expensive school.

Edited July 16, 2023 by Texas Jeff

[hornmpa96 2620]

One other benefit of the 529 account - Beginning in 2024, up to $35k in a 529 can be converted into a Roth IRA for the beneficiary which reduces some of the Rick that the $ aren’t ultimately used for college.

[Snake Diggity 4627]

Tonight my 4 year old took almost 90 minutes to eat 3 Oz of hamburger meat and 7 year old 100% refused to brush her teeth.  I just cancelled they 529 f these lil mf.

[BehoId, The Underminer! 11669]

17 hours ago, hornmpa96 said:

One other benefit of the 529 account - Beginning in 2024, up to $35k in a 529 can be converted into a Roth IRA for the beneficiary which reduces some of the Rick that the $ aren’t ultimately used for college.

excellent news.  i didn't know that.  i don't think i'm in risk of overfunding but sometimes wonder.

[Seasick Sailor 3747]

I opened a 529 for my 17 month old. Plan to invest $9k a year, which, with reasonable growth, should allow me to fully fund 4 years at a state school. Another benefit I haven't seen mentioned here it that you can use up to $10k per year on private K-12 education expenses if you choose to go that route. 

I am torn about opening a custodial account for him. I'd like to invest $100-$200 per month in a low-cost total market index fund for him, but that money becomes his at 18 without restrictions. It's hard not to think about how I would have spent that amount of money at that age and conclude that I'm actually doing him a favor by not doing this. Given there aren't any tax advantages to a custodial account, I guess I could just invest that money for him in my own brokerage account, but I am unsure if I would be able to transfer the account/money to him without realizing capital gains. 

I'll definitely open a Roth for him when he starts earing income. 

Edited July 19, 2023 by Seasick Sailor

[52-80 19231]

On 7/17/2023 at 3:20 AM, hornmpa96 said:

One other benefit of the 529 account - Beginning in 2024, up to $35k in a 529 can be converted into a Roth IRA for the beneficiary which reduces some of the Rick that the $ aren’t ultimately used for college.

whoa, this is huge.  essentially it is a backdoor for a child's IRA since contribution to that requires having earned income. 

[52-80 19231]

On 7/19/2023 at 4:23 PM, Seasick Sailor said:

Given there aren't any tax advantages to a custodial account, I guess I could just invest that money for him in my own brokerage account, but I am unsure if I would be able to transfer the account/money to him without realizing capital gains.

Not only that, but you might run into the gift tax when transferring lump sum back to the kid ($17k/yr). 

Why not just open the kids own custodial account.  It gets tax advantage through $2.5k of exception for unearned income (dividend, interest, etc).  Mine through Schwab has no fees for account or for transactions.

[Seasick Sailor 3747]

On 7/24/2023 at 7:27 AM, 52-80 said:

Not only that, but you might run into the gift tax when transferring lump sum back to the kid ($17k/yr). 

Why not just open the kids own custodial account.  It gets tax advantage through $2.5k of exception for unearned income (dividend, interest, etc).  Mine through Schwab has no fees for account or for transactions.

That was my original plan, and I may still do it. I am just concerned about him having immediate access to $25-$50k on his 18th birthday. I know what I would have done with that money when I was 18, and that's a scary thought as a parent. 

[52-80 19231]

1 hour ago, Seasick Sailor said:

That was my original plan, and I may still do it. I am just concerned about him having immediate access to $25-$50k on his 18th birthday.

In that case you can name my son as your recipient. 

[Damor 1237]

Not sure if I should ask this in the old 529 thread or maybe start a new one, but I've never seen much discussion on actually using 529 plans when the time comes.  So, stupid questions incoming.

Scenario: 
-- Boy is starting college this fall.  We have just about the right amount to cover 4 years tuition/reimbursable living expenses. 
-- He enrolled in a 5yr combo undergrad and MBA program.  I hope he loves it and sticks with it, but okay if he changes his mind.  We can make that fifth year happen from other sources if need be.
-- Because the last couple of years were crappy for his 529, we've been pumping some extra into it to get it to where we wanted it.
-- Younger brother is in the wings (3 years out) but due to the extra time and some better breaks, his 529 is looking just fine unless he picks somewhere ridiculous.

I had always just assumed that when he started, we'd stop contributing to the 529 and shift that monthly investment partially to spending money for him and other long term stuff.  But if he does this 5 year degree plan, I started thinking we'd keep contributing.  I don't think that it's going to necessarily grow that much over the next few years, but it seems that gives a little more tax-free growth and would then cover his fifth year.  Since we're in Texas, we don't get any further tax benefits, whereas I'd seen some other sites recommend to keep contributing while your kid is in college primarily for the state income tax break if available.

So now I'm thinking we'll just keep contributing for the next year or two and then re-evaluate.  I figure by that point it will become more clear if he sticks with his 5y program or if he wants to do some other kind of grad school, so that will give him some extra flexibility.  If he decides to just do a 4 year degree we'll roll anything left into a Roth for him or start saving for future grandkids.  If it takes him 5y to get his undergrad degree we're not pissed at him and he doesn't feel bad.  If he decides to drop out and become a ski bum/whitewater guide we'll take the penalty and buy ourselves something cool and lord it over him.

Anybody have any experience in this regard or thoughts?  I am a financial idoit and not good with teh monies.

[Texas Jeff 1945]

19 hours ago, Damor said:

So now I'm thinking we'll just keep contributing for the next year or two and then re-evaluate.  I figure by that point it will become more clear if he sticks with his 5y program or if he wants to do some other kind of grad school, so that will give him some extra flexibility.  If he decides to just do a 4 year degree we'll roll anything left into a Roth for him or start saving for future grandkids.  If it takes him 5y to get his undergrad degree we're not pissed at him and he doesn't feel bad.  If he decides to drop out and become a ski bum/whitewater guide we'll take the penalty and buy ourselves something cool and lord it over him.

Anybody have any experience in this regard or thoughts?  I am a financial idoit and not good with teh monies.

Hmmm, I don't know all the rules but it's true that you don't have to stop contributing just because they have started school.

If there is money left, you can do the Roth thing, but there are rules on that.  Something like the account has to have existed for 15 years and you can't roll over money you contributed in the last five years, and I think you are still limited to yearly Roth contribution limits.  You can't just dump $35k into a Roth for the kid on one day, you have to stay under the limits, currently $6,500 per year.  Here's a post with more on this: 

You can change the beneficiary of a 529 plan to a "qualified family member", who can then use that on education.  So you could let an excess sit there for a generation and pay for college for grandkids, or another one of your kids, or even yourself.

[Dbeasy 15085]

I was digging around Surly on the best current 529 plan and holy crap, seeing the Edward Jones 3.5% fee made me ragey.  What an incredible rip-off.

[kmac30 416]

I was digging around Surly on the best current 529 plan and holy crap, seeing the Edward Jones 3.5% fee made me ragey.  What an incredible rip-off.

Thats not an Edward Jones fee. It’s the fee for the mutual fund family. Advisor sold 529 are going to have that expense. You want no fee use Nevada for Vanguard. If you have a business and want to use American Funds (for whatever reason), you can set up an employer sponsored 529 and avoid the upfront costs with them (still advisor sold).

[BehoId, The Underminer! 11669]

On 7/14/2022 at 10:06 AM, BehoId, The Underminer! said:

I have 3 kids.  I did the Utah 529 for 1 and Maryland 529 for 2.  The Utah is supposed to be conservative and Maryland is T Rowe Price and actively managed and aggressive.  Both were rated as the best for what they are.  I'm 7 years in on them.  Utah is outperforming Maryland and has been since day one.

I'm now into my 9th year doing this and starting to see some separation.  The hands-off Utah one is starting to pull away from the actively managed Maryland.  Up by about 1.5%.