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Is overfunding a 529 plan enabling?

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  • The White Coat Investor
    replied
    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.

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  • molar roller
    replied
    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

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  • FIREshrink
    replied
    "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.

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  • loeffy
    replied
    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.

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  • Kamban
    replied


    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.
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    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.

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  • triad
    replied


    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.

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  • molar roller
    replied
    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?

    Leave a comment:


  • loeffy
    replied
    I'm not sure if I'm the only one having a hard time deciphering what you're trying to ask.  It seems you're asking 2 questions: 1. whether extra funds should be placed in 529 vs something like a taxable and 2. whether paying for your kids schooling is not giving them "skin in the game."  For the latter, I've never seen that to be the case, anecdotally or otherwise.  As for the former, I think funding a 529 to cover your kids or your own education up to your preferred amount is fine and well, but overfunding, either as an inheritance or to withdraw later (and take a penalty on), I'm not so keen on.

    Leave a comment:


  • ZZZ
    replied
    "I actually think the Adams quote is very appropriate here."

    Interesting. So, you expect your daughters are going to earn more than you such that their own children will never have to work a day in their lives, but rather, will live the life of aristocracy? Because that's what Adams was envisioning. Guess I should have given public health more thought, I didn't see that as a common path to generational wealth such that my grandchildren could pursue a life of leisure on par with that of European royals.

    I guess our ideas of limitless resources and 'overfunding' 529 are different. As Kamban pointed out, what you currently have in 529's won't fully cover the expected cost of attendance for your two kids. I don't doubt you can cash flow the shortfall. It's you money, you can spend it how you see fit.

    I was just interested, given your own stated skepticism, as to how the discussion regarding school selection, cost, and pursuits while there went with your family. Interested to learn what opportunities you anticipate as being available to someone with a 65k/yr public health degree that would be better than those with such a degree from 20k/yr state U plus putting 180k towards grad school or buying the kid a house. It's a discussion many readers here will probably have at some point, since you're already been there, your thoughts are probably insightful.

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  • molar roller
    replied





    The older child is majoring in public health at a private liberal arts school in the Northeast, with a $65K price tag. 
    Click to expand…




    With 1 out of 8 years done, we have $150K in older child’s 529, 
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    If the same argument is raised when she starts looking at grad programs – the tax savings will be irrelevant. And if we pay for grad school – are we really doing her a service? She’s a great kid and totally immaterial and not spoiled, but she’s never had financial concerns in her life 
    Click to expand…


    After all, this is a financial forum, so….

    You have not saved enough in 529 for your elder daughter’s undergrad and you are talking about paying for her grad school. She has 3 years left at $65K = $195K and you have only $150K in her 529. Assuming no major decline or increase in the value over the next 3 years that is an extra $45K from your pocket with after tax dollars. Maybe a similar situation for the younger one in 2 years time.

    You may have the money and fund her grad school too but that is another chunk of money. Being a great kid and not into material things is nice but not instilling financial sense now and paying for courses fully means that she might be set up for failure down the road.

    I am also an immigrant and can afford to fully fund my daughter’s undergrad and grad education but have made it clear that it will be in fields where the return is good, like business / finance, medical, engineering etc. If she wants to do 15th century Italian Art at a tony liberal arts college, it will be on her own dime.
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    I think we saved just about enough for it.  We are continuing to fund it to 529 limits ($10K/yr for 2), and with interest should cover it exactly.

    I'm also anticipating kid #2's school to be quite a bit less.

    And I am debating whether to contribute in my in-laws' name as well, while they are still working and getting tax deduction.

     

    As for the "talk", we have had it too.  She was always interested in science, and her plan was to study bio/ virology/ epidemiology, and go into research.  While not the most financially rewarding profession, it's still one with a decent return. She is still on track for that.

    Leave a comment:


  • Kamban
    replied


    The older child is majoring in public health at a private liberal arts school in the Northeast, with a $65K price tag.
    Click to expand...




    With 1 out of 8 years done, we have $150K in older child’s 529,
    Click to expand...




    If the same argument is raised when she starts looking at grad programs – the tax savings will be irrelevant. And if we pay for grad school – are we really doing her a service? She’s a great kid and totally immaterial and not spoiled, but she’s never had financial concerns in her life
    Click to expand...


    After all, this is a financial forum, so....

    You have not saved enough in 529 for your elder daughter's undergrad and you are talking about paying for her grad school. She has 3 years left at $65K = $195K and you have only $150K in her 529. Assuming no major decline or increase in the value over the next 3 years that is an extra $45K from your pocket with after tax dollars. Maybe a similar situation for the younger one in 2 years time.

    You may have the money and fund her grad school too but that is another chunk of money. Being a great kid and not into material things is nice but not instilling financial sense now and paying for courses fully means that she might be set up for failure down the road.

    I am also an immigrant and can afford to fully fund my daughter's undergrad and grad education but have made it clear that it will be in fields where the return is good, like business / finance, medical, engineering etc. If she wants to do 15th century Italian Art at a tony liberal arts college, it will be on her own dime.

    Leave a comment:


  • molar roller
    replied




    “Does it matter?  That is the beauty of family wealth and the ability to fund a fat 529.”

    Well, the title of the post asked about enabling, so seems relevant. Also, I’d just be interested to know the OPs thoughts, he’s obviously a smart guy that has done well financially…and given that his own post stated, “I wonder if that’s worth it though,” I suspect he has some thoughts on the matter.

    The John Adams quote is nice, but this situation actually seems to be starkly different than the one he was describing. He wrote that to his wife in 1780, as an ascendant man interacting with the royalty and rulers of his day, as his son did the same. He recognized he was on the path to generation wealth and power such that if young John Quincy continued to achieve as he had (he would soon leave for St. Petersberg to work alongside the US Emissary), that his grandkids would end up the beneficiaries of limitless resources akin to the children of the aristocrats and powerbrokers with whom he spent his days…who’d never have to work a day in there lives.
    Click to expand...


    I actually think the Adams quote is very appropriate here.  My wife and I come from similar backgrounds.

    Our parents abandoned their middle class lifestyle in their home country to start from the very bottom in their mid-40s, having to learn new skills in a new language to provide for their families.

    I was interested in history and anthropology and my wife loved acting and design, but chose dentistry/nursing instead because these were "real" jobs.

    And now my daughter is taking her 3rd semester of Ancient Greek as part of her language requirement, at a cost of $6k/per course.

    So.. umm.. yeah, I do wonder.

    Dentistry has been good to me and we are essentially FI in our mid/late 40s.  We are both planning to return to school to study subjects we were originally interested in... wife left her RN job and is starting an interior design course, I'll be taking Anthro class on my day off, so we understand following one's interests.  But I do wonder if my kids are, in fact, ending up with "limitless resources" at least when it comes to education..

    Leave a comment:


  • ZZZ
    replied
    "Does it matter?  That is the beauty of family wealth and the ability to fund a fat 529."

    Well, the title of the post asked about enabling, so seems relevant. Also, I'd just be interested to know the OPs thoughts, he's obviously a smart guy that has done well financially...and given that his own post stated, "I wonder if that’s worth it though," I suspect he has some thoughts on the matter.

    The John Adams quote is nice, but this situation actually seems to be starkly different than the one he was describing. He wrote that to his wife in 1780, as an ascendant man interacting with the royalty and rulers of his day, as his son did the same. He recognized he was on the path to generation wealth and power such that if young John Quincy continued to achieve as he had (he would soon leave for St. Petersberg to work alongside the US Emissary), that his grandkids would end up the beneficiaries of limitless resources akin to the children of the aristocrats and powerbrokers with whom he spent his days...who'd never have to work a day in there lives.

    Leave a comment:


  • triad
    replied
    what would you do with the money otherwise?   nothing wrong with taking care of the education costs of other family members with excess 529 money.

    Leave a comment:


  • molar roller
    replied
    @G and ZZZ,

    Good points both!  My wife and I are both immigrants, came here in our late teens.   Neither one had much interest in dentistry/nursing respectively, but it seemed like these were good careers that always had demand.   Self-realization was not high on our list.  Hard to instill the same hunger in a kid who grew up in an upper-middle class household...

    Leave a comment:

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