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How much, and how will you use the 529 money

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  • Avatar Jenn 
    Participant
    Status: Physician, Retired
    Posts: 61
    Joined: 01/15/2016

    Did not read replies- anyway funded 529 minimally, but oldest kid had so many scholarships realised we might pay penalty on withdrawals rather than benefit from 529 (or end up giving it away elsewhere) with 2nd child. SO quickly used up both kids 529 funds for the little bit remaining due for 1st child, and have not regretted it esp. since we have GI bill still to use for 2nd kid (but if she is as cheap as 1st, we’re gonna save THAT for law/MBA school for one of them or maybe me or dad). So be sure if all the kids get free rides, you aren’t kicking yourself for funding a 529. (The more kids you have, and the closer to average they seem to be at school, the less risk to that.) Or require a few of them to go to professional schools just to use up the money.

    #71911 Reply
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1863
    Joined: 01/08/2016

    Did not read replies- anyway funded 529 minimally, but oldest kid had so many scholarships realised we might pay penalty on withdrawals rather than benefit from 529 (or end up giving it away elsewhere) with 2nd child. SO quickly used up both kids 529 funds for the little bit remaining due for 1st child, and have not regretted it esp. since we have GI bill still to use for 2nd kid (but if she is as cheap as 1st, we’re gonna save THAT for law/MBA school for one of them or maybe me or dad). So be sure if all the kids get free rides, you aren’t kicking yourself for funding a 529. (The more kids you have, and the closer to average they seem to be at school, the less risk to that.) Or require a few of them to go to professional schools just to use up the money.

    Click to expand…

    Hm…I believe there is no penalty if the child receives a scholarship, but what I am interested in, what is the time frame for requesting this reimbursement?  In other words, can you let the 529 sit for several years after your child is done with school so that it continues to grow, then go back and deduct the scholarship amount a couple decades later tax free–you’d hopefully still have a pretty big account.  With multiple children/generations, it could be a bit of temporal arbitrage….  I’m sure somebody in the IRS has thought of this?

    #71914 Reply
    q-school q-school 
    Participant
    Status: Physician
    Posts: 2640
    Joined: 05/07/2017

    If you move 529 down a generation there are tax implications.

    #71924 Reply
    Avatar Wister5 
    Participant
    Status: Spouse
    Posts: 39
    Joined: 06/17/2017

    Last year, we sent child #1 (of 3) off to state school with a combined total of $100k in the 529 and the words “Out in Four Years” practically tattooed on his head. Had planned to add another $16k during the year, but wound up only adding $5k. We used the fund to cover the cost of tuition, dorm, and one summer course. He paid for his books (out of income earned over the summer) and we cash-flowed food + other expenses via a monthly “allowance.”

    Since August – thanks to some gains and the money added – we have been able to pay 1st semester’s tuition, 4 months worth of rent (living in the fraternity house is cheaper than the dorm – yay!) and the 529 is still above $90k. Again, the plan is to add $16k between September and August (our state offers tax incentive for up to $3k per child.) In fact, that is the plan for the next 9 years.

    Next year, we will send son #2 off to college. He is looking ahead to medical school, so we made it clear that the undergrad years need to be spent at either a state college or equivalent. Hoping for at least a modest amount in scholarships, because every bit counts. Our plan is to cover the cost of undergrad via the 529 (tuition and rent; food + expenses via montly cash “allowance”) and then cash-flow medical school tuition/rent/food/expenses.

    Four more years until child #3 heads to college. Again, a state school or equivalent will be the expectation. This one is also thinking medical school…but a lot could change over the next 4 years. Should grad/medical school be in the picture, we would likely cash flow that, as well.

    #71959 Reply
    Avatar digitalcascade 
    Participant
    Status: Physician
    Posts: 1
    Joined: 11/02/2017

    I see about contributions to 529 plan in many threads, and sometimes people state their monthly contribution but most don’t post how much their expected amount to be when the child plans to use it.

    1. How much do you plan to contribute in total for one child.

    2. How much money do you expect to see at the end when the child is ready for college.

    3. Is it going to be used for just undergrad education or grad / professional school or both ?

     

    I will post my own thoughts later

    Click to expand…

    First to answer OP’s questions:

    1. $2k / month from birth until graduation from graduate school.

    2 & 3. Around $1M by graduation from graduate school.

     

    I honestly was surprised by how many users plan to use loans for graduate school. I fully support every parent’s autonomous decision, but this is my own thought process:

    1. Brand name schools objectively produce superior financial results (WPost via Dept. Education, 2015: https://goo.gl/Uw68tQ).

    2. Student loan debt objectively impacts life decisions, including specialty, probably in a negative way (Med Educ Online, 2014: https://goo.gl/Y7J2as)

    3. I really like being a surgeon. As one of the top 1-2% earners in the richest country in the world, I’d hope/expect myself to eliminate cost as a barrier to following in my footsteps, should my child so choose.

    4. Speculation: we are well past the point of our country’s workforce expecting a bachelor’s degree as a minimum requirement for a satisfactory job. I tend to expect that in 30 years, we’ll be that much closer to graduate degrees being expected.

    5. Goal: be able to pay for a bachelor’s degree & a graduate degree; best school the kid gets into, so the most expensive option should be feasible. Assume no scholarships (for instance, Ivy’s don’t offer merit-based scholarships).

    6. I really don’t want an entitled kid, but I figure the options to resolve that are more bountiful than the options to avoid loans if I didn’t save enough money. One idea may be to expect him to pay 1% of the tuition cost, perhaps attach strings to my financial support (academic performance, genre of study, similar to a STEM-based scholarship).

    7. Disclaimer: my parents paid for my private school college & high-end public medical school, so I guess I’m biased to repeat my own history.

     

    I realize I’m saving more than most, but I’m still trying to figure out if I’m saving enough for my goals. Since my only child was born, I basically put $1K / month into Utah’s 529, Age-based Moderate for college. I put another $1K into a regular taxable Vanguard account, in their 2030 Target Fund, for graduate school. All my tax-advantaged options are maxed. If graduate school doesn’t pan out, half the money is where it would’ve been anyway for me to use it. He’s currently 1 yo.

    If anyone is willing, my question is – will that be enough for my goals (#5) / how should I adjust if it’s not?

    I used a couple Internet calculators (collegeboard.org, savingforcollege.com), assumed that I beat tuition inflation by 2%, and it looks like I’m ok for the average private school, a bit behind for an expensive one (Stanford), assuming I’m paying for room, board, and fees too. I posed this question to Reddit’s personalfinance, and everyone thought it was a ridiculous question. Hopefully WCI will be more helpful.

    #71975 Reply
    Avatar FIREshrink 
    Participant
    Status: Physician
    Posts: 1027
    Joined: 01/11/2017

    i think you’re saving enough because you’ll have other money to use even if $2000 per month turns out to be too little. you’ll have other savings, or you’ll easily cash flow it.

    you might consider superfunding rather than spreading out $2000 monthly for 18 years. a dollar today is worth more than one dollar in eighteen years. why not put in $140,000 (if married; $70,000 if not) today and be mostly done?

    #71980 Reply
    q-school q-school 
    Participant
    Status: Physician
    Posts: 2640
    Joined: 05/07/2017
    Earnest refinancing bonus

    I see about contributions to 529 plan in many threads, and sometimes people state their monthly contribution but most don’t post how much their expected amount to be when the child plans to use it.

    1. How much do you plan to contribute in total for one child.

    2. How much money do you expect to see at the end when the child is ready for college.

    3. Is it going to be used for just undergrad education or grad / professional school or both ?

     

    I will post my own thoughts later

    Click to expand…

    First to answer OP’s questions:

    1. $2k / month from birth until graduation from graduate school.

    2 & 3. Around $1M by graduation from graduate school.

     

    I honestly was surprised by how many users plan to use loans for graduate school. I fully support every parent’s autonomous decision, but this is my own thought process:

    1. Brand name schools objectively produce superior financial results (WPost via Dept. Education, 2015: https://goo.gl/Uw68tQ).

    2. Student loan debt objectively impacts life decisions, including specialty, probably in a negative way (Med Educ Online, 2014: https://goo.gl/Y7J2as)

    3. I really like being a surgeon. As one of the top 1-2% earners in the richest country in the world, I’d hope/expect myself to eliminate cost as a barrier to following in my footsteps, should my child so choose.

    4. Speculation: we are well past the point of our country’s workforce expecting a bachelor’s degree as a minimum requirement for a satisfactory job. I tend to expect that in 30 years, we’ll be that much closer to graduate degrees being expected.

    5. Goal: be able to pay for a bachelor’s degree & a graduate degree; best school the kid gets into, so the most expensive option should be feasible. Assume no scholarships (for instance, Ivy’s don’t offer merit-based scholarships).

    6. I really don’t want an entitled kid, but I figure the options to resolve that are more bountiful than the options to avoid loans if I didn’t save enough money. One idea may be to expect him to pay 1% of the tuition cost, perhaps attach strings to my financial support (academic performance, genre of study, similar to a STEM-based scholarship).

    7. Disclaimer: my parents paid for my private school college & high-end public medical school, so I guess I’m biased to repeat my own history.

     

    I realize I’m saving more than most, but I’m still trying to figure out if I’m saving enough for my goals. Since my only child was born, I basically put $1K / month into Utah’s 529, Age-based Moderate for college. I put another $1K into a regular taxable Vanguard account, in their 2030 Target Fund, for graduate school. All my tax-advantaged options are maxed. If graduate school doesn’t pan out, half the money is where it would’ve been anyway for me to use it. He’s currently 1 yo.

    If anyone is willing, my question is – will that be enough for my goals (#5) / how should I adjust if it’s not?

    I used a couple Internet calculators (collegeboard.org, savingforcollege.com), assumed that I beat tuition inflation by 2%, and it looks like I’m ok for the average private school, a bit behind for an expensive one (Stanford), assuming I’m paying for room, board, and fees too. I posed this question to Reddit’s personalfinance, and everyone thought it was a ridiculous question. Hopefully WCI will be more helpful.

    Click to expand…

    how many graduate schools are you planning to pay for?  🙂

    we have a neurosurgeon still working at 68 who says the only reason he is still working is to pay for his kids business school.  georgetown undergrad, harvard law, now at some fancy dc business school.  this is kid #3.

    obviously the discussion of whether parents pay for grad school is colored on this website by the desire to retire at 45ish.  if you retire at 45 you need to set up your own nest egg, especially if the physician themselves started with couple hundred k of debt.  number of kids, annual income, savings rate obviously will impact decisions.

    #71988 Reply
    Avatar jlo 
    Participant
    Status: Physician
    Posts: 1
    Joined: 11/02/2017

    Me: 51 year old electrophysiologist FI but still working full time..I still love what I do and the 750k a year is hard to pass up right now

    2 daughters one a senior and the other a freshman.

    Have combined 400k in 529 accounts which we have funded somewhat late.  We lived in Washington state and pre-bought the GET program which was 4 years of instate tuition.  We moved and rolled that over to a 529.

    Daughter just went early decision to Tufts in Boston, tuition not counting incidental expenses, 70k/year for fall 2018.  No athletic scholarships as DIII and I just did the FAFSA and clearly not any need based coming our way.  She could have gone to state school for free with merit based scholarships but she really wanted to play her sport and go to a smaller school.

    Younger daughter very bright (except) she wants to be a trauma surgeon has her heart set on Hopkins.

    I think everyone’s philosophy on their kids education is individual as is how they live their financial lives…

    My wife and I strongly feel that we should pay for our kids education and keep them from having to go into debt.  Not sure about grad school but will probably pay for part if not all of it if need be.

    I went to UC Berkeley and was going to go to law school.  When I changed directions I went to Columbia to do my premed classes so I had experience with both large public and small Ivy Private education.  Hands down my education at Columbia and the support I got from the school and faculty was much better at Columbia.  Both have crappy football teams.

    I think public higher education can be great and is definitely cheaper, but I also think the small classes and individual attention/support at a private school cannot be overlooked.  As an example at UC Berkeley I was usually taught by TA and rarely interacted with my professors.  At Columbia my professors would take me out to lunch to work on my letter of rec.  I think every kid is different and as such planning just for a public state school and scholarships may be not the best.

    I feel like I underfunded my kids 529 but luckily my current cash flow is such that I can just write a check for the difference.   It seems crazy that we need over 1 million dollars in pre-tax dollars to pay for two kids private college.

    My advice: abstinence!!!

     

     

     

     

    #72021 Reply
    Liked by NJDoc, ENT Doc, childay
    Avatar Kamban 
    Participant
    Status: Physician
    Posts: 2569
    Joined: 08/01/2016
    I feel like I underfunded my kids 529 but luckily my current cash flow is such that I can just write a check for the difference. It seems crazy that we need over 1 million dollars in pre-tax dollars to pay for two kids private college.

    Click to expand…

    This is what we feel too. I have mentally prepared myself for 350K undergrad and 400K grad school expenses.

    #72206 Reply
    Avatar iradoc 
    Participant
    Status: Physician
    Posts: 68
    Joined: 11/10/2017
    Splash Refinancing Bonus

    I’ve got two young kids 1.5 and 3.5 y/o.  Funded max state income tax limit per year, so 529 is at 115k now.  Will probably just go to the 400k max and let it grow from there.

    #74982 Reply
    Avatar ifonlyFI 
    Participant
    Status: Physician
    Posts: 100
    Joined: 08/23/2017

    I see about contributions to 529 plan in many threads, and sometimes people state their monthly contribution but most don’t post how much their expected amount to be when the child plans to use it.

    1. How much do you plan to contribute in total for one child.

    2. How much money do you expect to see at the end when the child is ready for college.

    3. Is it going to be used for just undergrad education or grad / professional school or both ?

     

    I will post my own thoughts later

    Click to expand…

    First to answer OP’s questions:

    1. $2k / month from birth until graduation from graduate school.

    2 & 3. Around $1M by graduation from graduate school.

     

    I honestly was surprised by how many users plan to use loans for graduate school. I fully support every parent’s autonomous decision, but this is my own thought process:

    1. Brand name schools objectively produce superior financial results (WPost via Dept. Education, 2015: https://goo.gl/Uw68tQ).

    2. Student loan debt objectively impacts life decisions, including specialty, probably in a negative way (Med Educ Online, 2014: https://goo.gl/Y7J2as)

    3. I really like being a surgeon. As one of the top 1-2% earners in the richest country in the world, I’d hope/expect myself to eliminate cost as a barrier to following in my footsteps, should my child so choose.

    4. Speculation: we are well past the point of our country’s workforce expecting a bachelor’s degree as a minimum requirement for a satisfactory job. I tend to expect that in 30 years, we’ll be that much closer to graduate degrees being expected.

    5. Goal: be able to pay for a bachelor’s degree & a graduate degree; best school the kid gets into, so the most expensive option should be feasible. Assume no scholarships (for instance, Ivy’s don’t offer merit-based scholarships).

    6. I really don’t want an entitled kid, but I figure the options to resolve that are more bountiful than the options to avoid loans if I didn’t save enough money. One idea may be to expect him to pay 1% of the tuition cost, perhaps attach strings to my financial support (academic performance, genre of study, similar to a STEM-based scholarship).

    7. Disclaimer: my parents paid for my private school college & high-end public medical school, so I guess I’m biased to repeat my own history.

     

    I realize I’m saving more than most, but I’m still trying to figure out if I’m saving enough for my goals. Since my only child was born, I basically put $1K / month into Utah’s 529, Age-based Moderate for college. I put another $1K into a regular taxable Vanguard account, in their 2030 Target Fund, for graduate school. All my tax-advantaged options are maxed. If graduate school doesn’t pan out, half the money is where it would’ve been anyway for me to use it. He’s currently 1 yo.

    If anyone is willing, my question is – will that be enough for my goals (#5) / how should I adjust if it’s not?

    I used a couple Internet calculators (collegeboard.org, savingforcollege.com), assumed that I beat tuition inflation by 2%, and it looks like I’m ok for the average private school, a bit behind for an expensive one (Stanford), assuming I’m paying for room, board, and fees too. I posed this question to Reddit’s personalfinance, and everyone thought it was a ridiculous question. Hopefully WCI will be more helpful.

    Click to expand…

    good honest response.  I went to private undergrad and I’m sure that helped me in one way or another

    #74989 Reply
    Avatar iradoc 
    Participant
    Status: Physician
    Posts: 68
    Joined: 11/10/2017

    What are these implications?  Looking at our IL 529, Brightstart, this is what I’m finding:

    As the Account Owner, you may change the Designated Beneficiary at any time without adverse income-tax
    consequences if the new Designated Beneficiary is a Member of the Family of the current Designated Beneficiary.
    If the new Designated Beneficiary is not a Member of the Family of the current Designated Beneficiary, the change
    is treated as a withdrawal that is subject to federal and state income taxes and a 10% federal penalty tax.
    Member of the Family–IRS Publication 970 provides the following definition:
    Members of the beneficiary’s family. For these purposes, the beneficiary’s family includes the beneficiary’s spouse
    and the following other relatives of the beneficiary.
    1. Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them
    2. Brother, sister, stepbrother, or stepsister
    3. Father or mother or ancestor of either
    4. Stepfather or stepmother
    5. Son or daughter of a brother or sister
    6. Brother or sister of father or mother
    7. Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law
    8. The spouse of any individual listed above
    9. First cousin

    #75013 Reply
    Avatar Beginner MD 
    Participant
    Status: Physician
    Posts: 10
    Joined: 09/22/2017

    Many thanks to actuaryonfire for using me as a case study to help me figure out a minimum goal to strive for in regards to how much to invest in a 529 and how much equity.  Interesting findings! Looks like I need to start ramping up the contributions now!

    College Investing – Reader Case Study, Beginner MD

    eff frontier2

    #75971 Reply
    dimensionlessindex dimensionlessindex 
    Participant
    Status: Physician
    Posts: 8
    Joined: 04/10/2017

    What are these implications?  Looking at our IL 529, Brightstart, this is what I’m finding:

    As the Account Owner, you may change the Designated Beneficiary at any time without adverse income-tax
    consequences if the new Designated Beneficiary is a Member of the Family of the current Designated Beneficiary.
    If the new Designated Beneficiary is not a Member of the Family of the current Designated Beneficiary, the change
    is treated as a withdrawal that is subject to federal and state income taxes and a 10% federal penalty tax.
    Member of the Family–IRS Publication 970 provides the following definition:
    Members of the beneficiary’s family. For these purposes, the beneficiary’s family includes the beneficiary’s spouse
    and the following other relatives of the beneficiary.
    1. Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them
    2. Brother, sister, stepbrother, or stepsister
    3. Father or mother or ancestor of either
    4. Stepfather or stepmother
    5. Son or daughter of a brother or sister
    6. Brother or sister of father or mother
    7. Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law
    8. The spouse of any individual listed above
    9. First cousin

    Click to expand…

    Thanks for posting these. I’m very surprised that I haven’t seen anyone post the strategy of funding 529 plans for not only the kids, but also the parents to take advantage of the state tax deduction, and then changing beneficiary from parent–>child without penalty when the funds are needed for school.

    For example, let’s say your state tax deduction limit is 3k, and you have two children for whom you plan to save 6k each annually for college. Why not allocate 3k to each child and 3k to each parent? Over 18 years, that’s >100k of extra state tax deduction. It might also provide some flexibility to tilt the overall 529 portfolio to your liking.

    Many people discuss transferring the “leftovers” from child–>parent after college or grad school, using the monies for golf academy, culinary school, or study abroad in retirement, but the inverse is a legitimate way to reduce your state tax bill.

    #84592 Reply
    Avatar bean1970 
    Participant
    Status: Physician
    Posts: 562
    Joined: 07/12/2017

    We split savings between 529 and an UTMA in roughly an 80/20 split.  We did’t go crazy funding either as we can just cash flow. We have been paying private school since Kindergarten.  (K-7 was 25K/annually and grade 8-12 was 60K/annually)……college will be cheaper no matter what. Kid going to college next year on athletic scholarship so we are overfunded.  The UTMA will actually come in more handy at this point.

    #85802 Reply

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