Announcement

Collapse
No announcement yet.

Is overfunding a 529 plan enabling?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • #16
    Sorry if I'm being unclear.  Let me phrase it another way.

    I have about $300K and 6 years of college costs ahead of me.

    Assuming regular withdrawals and conservative 4% return, this amount will grow to about $330K.

    Kid #1 will need about $180K, definite.

    Kid #2 is staying at home and will need $150K, at the most.

    Which means that any further contributions will result in overfunding.

    My choices are to contribute $0, $10K in our name only, or $20K if I add to grandparents' account.  I can easily afford either choice.

    If I do choose to overfund, and potentially extend the life of the plan, I would change the allocation of the new assets to more aggressive.

    On the plus side, it would allow my wife and I to pay for our own college expenses which are likely to be minimal, as well as place unneeded funds in a tax-efficient vehicle.

    But I worry that doing so might mean paying for more schooling just because the money is "there", and do little to help my kids understand the financial ramifications of their education.

     

    Is that a bit clearer?

    Comment


    • #17


      But I worry that doing so might mean paying for more schooling just because the money is “there”, and do little to help my kids understand the financial ramifications of their education.
      Click to expand...


      hasn't this already happened?  If you didn't have the 65k/yr available she probably would have gone somewhere else.

      Comment


      • #18


        But I worry that doing so might mean paying for more schooling just because the money is “there”, and do little to help my kids understand the financial ramifications of their education.
        Click to expand...


        Please don't take this the wrong way.

        Be honest with yourself. Was that $260K liberal arts college education for public health worth its money. Could she not have gotten the same education in the state university at $100K or less per year. Maybe even much less if she is a bright student and got scholarships, that are merit based. It is not as if people are clamoring to get into public health and it is a difficult field to get into and you have to pay more for it. She probably can go to the same grad school for public health / virology whether she graduated from the liberal arts college or State Univ. Only that in the latter instance she might have saved $160K or more that could have helped with grad school or even fund her children's education, so that she does not have to contribute much to the 529.

        If you have the money and want to spend the it so that you don't end up being the richest person in the graveyard, there is nothing wrong with the 65K /year degree. But if you want to teach her financial ramifications of education, you might have already missed the boat.

        Comment


        • #19
          Thanks for clarifying.  As for enabling, we could argue that you've already done so by paying for a private college degree in public health.  However, I don't think that's really the case. I'll stick with what I said earlier, anecdotally I've seen no difference in financial aptitude between those had "skin in the game" vs those whose parents paid the way.  I'd even venture to say that quite a few folks I know whose parents paid their college are financially astute, and many of them understand the financial sacrifice their parents made and feel obligated to pay it forward to their kids.  In a roundabout sort of way, possibly this desire to pay it forward encourages them to learn about money and savings for their kids sake.

          Comment


          • #20
            "over-fund the plans on purpose, for tax reasons, as personal investment and estate planning tool."

            Not enabling.

            "There was very little discussion about the financial aspects of attending a top private university...The reason given was “we have the money, we want her to go to the best school possible”."

            Enabling.

            Comment


            • #21
              So this is not quite public health.

              It's this .

              Bachelor of Science in Health: Science, Society and Policy (HSSP)


               

              That's not quite what our plan was.  She was always interested in studying diseases, but from a non-clinical standpoint.  Our plan was for her to be a research scientist.  I believe that is still the plan.  It's a little difficult to figure out exactly what the plan is, because she has really bad genetics.  One of her parents at 19 knew everything there was to know about everything, and didn't feel the need to consult anyone much less his parents.  I am afraid she inherited his traits.  But he turned out OK so all is not lost just yet

              Comment


              • #22
                In general, money that won't be spent on education shouldn't go into 529s due to the penalty to get it out. You're usually better off in taxable. But you can just change the beneficiary to the next generation.
                Helping those who wear the white coat get a fair shake on Wall Street since 2011

                Comment


                • #23




                   

                  That’s not quite what our plan was.... Our plan was for her to be a research scientist.
                  Click to expand...


                  Does she care what your plan was? I know I didn't care what plan my parents might have had for me and I doubt my kids care what my plan for them is.
                  Helping those who wear the white coat get a fair shake on Wall Street since 2011

                  Comment


                  • #24




                    In general, money that won’t be spent on education shouldn’t go into 529s due to the penalty to get it out. You’re usually better off in taxable. But you can just change the beneficiary to the next generation.
                    Click to expand...


                    that's the general wisdom, I know.

                    But there are caveats to that.

                    One, scholarships allow for a tax free withdrawal of that amount, which in my case is $20K for kid #1.

                    Two, it is true that non-qualified withdrawals are subject to income tax, state recapture tax, and a penalty.  But is it as bad as it sounds?

                    The withdrawals are taxed at the beneficiary's rate, not the contributor.  So taking out unused funds when the beneficiary's income is low can be actually mor advantageous than paying cap gains for the contributor, even with the penalty.  In fact, one can probably make himself the beneficiary, use the funds in retirement for non-qualified withdrawals, and still come out ahead.

                    Obviously not what the plans were designed to do, but then again, HSAs weren't designed to be used as quasi-Roths either...

                     







                     

                    That’s not quite what our plan was…. Our plan was for her to be a research scientist.
                    Click to expand…


                    Does she care what your plan was? I know I didn’t care what plan my parents might have had for me and I doubt my kids care what my plan for them is.
                    Click to expand...


                    sorry, I should have said "her plan".  She wanted to be a research scientist.  I would loved her to be  a dentist but that was not to be.

                    Comment


                    • #25


                      One, scholarships allow for a tax free withdrawal of that amount, which in my case is $20K for kid #1.
                      Click to expand...


                      Good to know!  Time to prep the little one for the PSAT..

                      Comment


                      • #26




                        Our plan was for her to be a research scientist.
                        Click to expand...


                        Be careful of all the grad students, PhD students and post docs working in labs waiting for the all important prize of tenured faculty position. And those old tenured professors refuse to retire or die.?




                        One of her parents at 19 knew everything there was to know about everything, and didn’t feel the need to consult anyone much less his parents.
                        Click to expand...


                        At least you knew at age 19. My daughter at age 15 thinks she knows her what her future map is and refuses to take any advice from us. She is set on the financial world and refused to take Honors / AP biology courses even though there is a teacher available to her at home.

                        Comment


                        • #27


                          One, scholarships allow for a tax free withdrawal of that amount, which in my case is $20K for kid #1.
                          Click to expand...


                          I think you get out of the 10% penalty but still need to pay the taxes on the gains.

                          Comment


                          • #28





                            One, scholarships allow for a tax free withdrawal of that amount, which in my case is $20K for kid #1. 
                            Click to expand…


                            I think you get out of the 10% penalty but still need to pay the taxes on the gains.
                            Click to expand...


                            yes, you're right

                            "

                            2. You can avoid the penalty if you get a college scholarship.


                            There are a few special exceptions to the 10% penalty rule, including when the beneficiary becomes incapacitated, attends a U.S. Military Academy or gets a scholarship. In the case of a scholarship, non-qualified withdrawals up to the amount of the tax-free scholarship can be taken out penalty-free, but you'll have to pay income tax on the earnings. As Savingforcollege.com founder Joe Hurley likes to say, "the scholarships have turned your tax-free 529 investment into a tax-deferred 529 investment"."

                            Comment


                            • #29
                              I do not know what is fair with paying for my kids college.

                              Suppose kid #1 works his butt off and gets a scholarship and it cost less.

                              Kid #2 does not and it cost more.

                               

                              Or

                               

                              Kid 1 goes to state school

                              Kid 2 goes to private school

                               

                              Is it fair that I pay for them to get a degree no mater the cost?

                              Or should I give equal amounts to both kids?  For example they both get 150K and if that is not enough then they take out loans/work.

                              What if they miraculously get through school and have extra money?  Do you give it to them?

                               

                              I am sure everyone can have a different answer and no one is right.

                              Comment


                              • #30




                                Or should I give equal amounts to both kids? For example they both get 150K and if that is not enough then they take out loans/work.
                                Click to expand...


                                This would be the fairest way.

                                Pick a number and they get the same amount. Whether they go to a private or public state Univ and get or not get scholarships is up to them. Teaches them financial management and fairness at an early age.

                                Only exceptions are if one attended a private school for which you spent more than the other or one is disabled and needs extra financial help.

                                Comment

                                Working...
                                X