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What percentage of NW should be the 529?

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  • StarTrekDoc
    replied







    529s should be viewed as an asset split between your child (liability – accounts payable) and yourself (equity). The vast of majority of the asset will be offset by the liability side since from an expected value perspective it’s expected that this will go to your child. Of course situations exist whereby a scholarship occurs or the child doesn’t go to college. To the extent that this is possible the current assets should be discounted to that likelihood as well as the tax hit and this will be your equity (net worth). On your child’s balance sheet they have an accounts receivable and equity. It’s a bit ridiculous IMO to boast a net worth of X+Y when there is little expectation that you’ll have claim to Y in the future, despite the fact that you legally own it. That may make you feel better keeping it on your net worth as 100% equity, but it doesn’t speak to the reality of the situation.
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    I agree with this. If adding your 529 account value (and that of the resale value your baby grand piano) to your NW makes you feel better, by all means do so. Just do not expect it to be usable money for other purposes. Actually, ten years from now, I am more likely to have monetized the value of the baby grand than the 529 for personal use, so perhaps the baby grand should be included in my net worth.
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    Not disagreeing that certain items within one's net worth is difficult to monetize.  Nevertheless, it is part of NW.  A $8M Picasso may be pretty hard to move in a day, but it's still part of that person's NW as is that Baby Grand and that 20 year beater car.  They are all assets and part of NW.

    Again, using NW as part of one's retirement planning is using the wrong financial tool for the wrong purpose.  It's a good tool to assess one's entire estate, but is a poor marker for one's retirement planning.  eg:  Single life pension plan has no part of NW yet can play a significant portion of one's retirement plan.

    Once we start parsing out what the definition of NW is, then it's not really NW anymore.  It's like my PT isn't your PT or the other's PT values.   INR finally resolved this. Common lexicon matters.

     

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  • FIREshrink
    replied
    529 as percentage of NW has varied without rhyme or reason.

    HSAs are committed to future health care spending, still part of NW.

    401k and IRA are fractionally owned by government, still part of NW.

    See no reason 529s should be different, still my money and I can spend it however I want. Only good argument for opposing viewpoint is that IRS considers it completed gift, however it is a strange bird as can claw back the gift at will. Hence its unique estate planning attributes and one of many reasons we did not hesitate to fully and possibly overfund. Would not make sense if no longer considered money mine.

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  • q-school
    replied
    now we can use 529s for private school pre college.  some states offer tax break.  it may make sense to consider your likely qualifying opportunities as you contemplate the total allocation to 529.

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  • VagabondMD
    replied










    529s should be viewed as an asset split between your child (liability – accounts payable) and yourself (equity). The vast of majority of the asset will be offset by the liability side since from an expected value perspective it’s expected that this will go to your child. Of course situations exist whereby a scholarship occurs or the child doesn’t go to college. To the extent that this is possible the current assets should be discounted to that likelihood as well as the tax hit and this will be your equity (net worth). On your child’s balance sheet they have an accounts receivable and equity. It’s a bit ridiculous IMO to boast a net worth of X+Y when there is little expectation that you’ll have claim to Y in the future, despite the fact that you legally own it. That may make you feel better keeping it on your net worth as 100% equity, but it doesn’t speak to the reality of the situation.
    Click to expand…


    I agree with this. If adding your 529 account value (and that of the resale value your baby grand piano) to your NW makes you feel better, by all means do so. Just do not expect it to be usable money for other purposes. Actually, ten years from now, I am more likely to have monetized the value of the baby grand than the 529 for personal use, so perhaps the baby grand should be included in my net worth.
    Click to expand…


    kids could find middle ground for example by attending public university. ...
    Click to expand...


    They could, but that’s not my world.

    Leave a comment:


  • FIREshrink
    replied







    529s should be viewed as an asset split between your child (liability – accounts payable) and yourself (equity). The vast of majority of the asset will be offset by the liability side since from an expected value perspective it’s expected that this will go to your child. Of course situations exist whereby a scholarship occurs or the child doesn’t go to college. To the extent that this is possible the current assets should be discounted to that likelihood as well as the tax hit and this will be your equity (net worth). On your child’s balance sheet they have an accounts receivable and equity. It’s a bit ridiculous IMO to boast a net worth of X+Y when there is little expectation that you’ll have claim to Y in the future, despite the fact that you legally own it. That may make you feel better keeping it on your net worth as 100% equity, but it doesn’t speak to the reality of the situation.
    Click to expand…


    I agree with this. If adding your 529 account value (and that of the resale value your baby grand piano) to your NW makes you feel better, by all means do so. Just do not expect it to be usable money for other purposes. Actually, ten years from now, I am more likely to have monetized the value of the baby grand than the 529 for personal use, so perhaps the baby grand should be included in my net worth.
    Click to expand...


    kids could find middle ground for example by attending public university. the money left over would then be available for my gratuitous spending, net of taxes and fees, or gifting to nephews or grandchildren, without taxes or fees. in that case i have benefitted from the funds as surely as the taxable money i use to buy them birthday presents, or which is used to fund annual charitable donations.

    Leave a comment:


  • Bmac
    replied
    I agree with above posters who recommend choosing an amount rather than percentage goal for finding 529s. At the same time, although it seems unlikely given current college tuition and expenses, there is the concern about overfunding a 529. Once we hit our target 529 amount we switched to funding UTMAs for our children. Those allow more flexibility and are part of our generational transfer strategy too.

    Leave a comment:


  • ENT Doc
    replied







    529s should be viewed as an asset split between your child (liability – accounts payable) and yourself (equity). The vast of majority of the asset will be offset by the liability side since from an expected value perspective it’s expected that this will go to your child. Of course situations exist whereby a scholarship occurs or the child doesn’t go to college. To the extent that this is possible the current assets should be discounted to that likelihood as well as the tax hit and this will be your equity (net worth). On your child’s balance sheet they have an accounts receivable and equity. It’s a bit ridiculous IMO to boast a net worth of X+Y when there is little expectation that you’ll have claim to Y in the future, despite the fact that you legally own it. That may make you feel better keeping it on your net worth as 100% equity, but it doesn’t speak to the reality of the situation.
    Click to expand…


    I agree with this. If adding your 529 account value (and that of the resale value your baby grand piano) to your NW makes you feel better, by all means do so. Just do not expect it to be usable money for other purposes. Actually, ten years from now, I am more likely to have monetized the value of the baby grand than the 529 for personal use, so perhaps the baby grand should be included in my net worth.
    Click to expand...


    I might be interested in helping you monetize the baby grand.  :-)

    Leave a comment:


  • Larry Ragman
    replied




    Assuming you want to pay the whole enchilada.Yes there are different factors which include age of child, how many kids, if you/they are set on private college, is professional/graduate school likely? But what’s a good ballpark percentage? Or should it just be more of a function of target amount? Get as much in as possible because of it’s taxed advantaged status?
    Click to expand...


    Burritos, all this discussion about net worth aside, back to your original question: definitely agree it should be a target amount and not a percent of whichever tracking metric you use. Pick your goal (e.g., in state public, out of state public, private) and then check on line for future cost projections. I funded college educations for both kids with 529s. My last graduated in 2018. In each case my loose goal was $100k by freshman year, but I think Vagabond MD probably has a realistic goal given increased costs. Between scholarships and my 529 savings, the first (private college) was $125k and the second (out of state public) $150k out of pocket.

    By the way, there are at least two other important considerations: how much risk take in the portfolio, and tax planning on withdrawal.

    Leave a comment:


  • bean1970
    replied
    how much you save for college in a 529 should be based on how much you want to save for college...not what your NW is..

    for me, i include the 529 in our NW...1) it's not gobs of money 2) it's overfunded even with that  3) it's just another kid expense and it didn't subtract out pots of my NW for the first 18 years 4) it is my money..i'm the owner ...using the 529 all it does using it lowers my NW...and since it's use is for housing (and this year a summer class)....pulling out $540/month rent x 10 plus $100 summer storage x 2 = $5600 does't move the NW barometer much each year..... so whether i include it or not really doesn't matter....  Kid's UTMA...that i don't count.

    That said..is it nice i'm using tax free money? Sure.

    Leave a comment:


  • VagabondMD
    replied




    529s should be viewed as an asset split between your child (liability – accounts payable) and yourself (equity). The vast of majority of the asset will be offset by the liability side since from an expected value perspective it’s expected that this will go to your child. Of course situations exist whereby a scholarship occurs or the child doesn’t go to college. To the extent that this is possible the current assets should be discounted to that likelihood as well as the tax hit and this will be your equity (net worth). On your child’s balance sheet they have an accounts receivable and equity. It’s a bit ridiculous IMO to boast a net worth of X+Y when there is little expectation that you’ll have claim to Y in the future, despite the fact that you legally own it. That may make you feel better keeping it on your net worth as 100% equity, but it doesn’t speak to the reality of the situation.
    Click to expand...


    I agree with this. If adding your 529 account value (and that of the resale value your baby grand piano) to your NW makes you feel better, by all means do so. Just do not expect it to be usable money for other purposes. Actually, ten years from now, I am more likely to have monetized the value of the baby grand than the 529 for personal use, so perhaps the baby grand should be included in my net worth.

    Leave a comment:


  • ENT Doc
    replied
    529s should be viewed as an asset split between your child (liability - accounts payable) and yourself (equity). The vast of majority of the asset will be offset by the liability side since from an expected value perspective it’s expected that this will go to your child. Of course situations exist whereby a scholarship occurs or the child doesn’t go to college. To the extent that this is possible the current assets should be discounted to that likelihood as well as the tax hit and this will be your equity (net worth). On your child’s balance sheet they have an accounts receivable and equity. It’s a bit ridiculous IMO to boast a net worth of X+Y when there is little expectation that you’ll have claim to Y in the future, despite the fact that you legally own it. That may make you feel better keeping it on your net worth as 100% equity, but it doesn’t speak to the reality of the situation.

    Leave a comment:


  • StarTrekDoc
    replied
    Common lexicon matters. If we dont get that down, meaningful advanced conversations become hard to interpret.

    For the OP, the question could probably be better phrased into different parts....to which I'm still not quite sure what the intent of the question is.

    . 1. How much of my current savings rate should be going to 529 vs retirement.
    2. Which bucket should take precedent in savings and by how much?
    3. To what level do folk fund their 529s?

    Leave a comment:


  • StarTrekDoc
    replied
    Totally understand the mindset and agree that is what is needed for retirement.....but that's not the definition of net worth. Net worth really is simple asset minus liability. It's a blunt instrument that simply tells you where you are at that point of time. Nothing else. that's not very good at predicting retirement at all.

    It's like saying you want to use a machete for an appendectomy. Sure, you can but not really the best choice of knife to use .

    All folk are saying is net worth, by definition, is what it is. And that nw is less than ideal tool to use for retirement planning.

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  • Lordosis
    replied
    Everyone has multiple financial goals. The largest for most people is retirement. College savings is usually next. Then after that smaller things like saving for a down payment or a new car or large vacation. Your net worth encompasses all these things. It is the whole enchilada. Don't confuse net worth with retirement savings. That is just a part of it.

    Leave a comment:


  • ZZZ
    replied
    One thing is clear. Most people on this forum don’t understand the definition of “net worth" -orthodds

    And right on cue on post later...'I use my own made up definition for things that is inconsistent with the commonly understood and plain meaning of them, just to confuse the issue.'


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