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people's thoughts on when to put more into 529 instead of retirement

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  • Avatar JBME 
    Participant
    Status: Spouse
    Posts: 533
    Joined: 03/26/2018
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    instead of the timeless question of invest or pay off debt, I’m interested in people’s thoughts on when to prioritize 529s over retirement, if ever. I’m one of those who wants to let my kids go to school wherever they want, even though I’ll be sure to communicate that a degree from a fancy private school doesn’t give you many edges over those who get a degree for the public U across town.

    I’m contributing to 529s up to the state tax deduction, which is low dollar amount. We’re saving 40x+ that for retirement. At the same time the kids are getting older. At what point, if ever, would you contribute more to 529s and less to retirement? Once you’ve reached 15x anticipated retirement expenses? more? less? I think we’ll be at 15x when my oldest is around 13. The other thing I personally struggle with is we don’t contribute to a taxable account so it’s not like we can dip into that for college. We don’t need taxable at this time because we have access to enough retirement vehicles like Roth IRA/401k/401a/457/mega backdoor Roth to save 30-35% of our incomes there. Hope to FIRE (or seriously cut back to less than 50%) once the youngest goes to college, so we’re still paying college expenses for a few years.

    #239847 Reply
    Avatar ajm184 
    Participant
    Status: Other Professional
    Posts: 637
    Joined: 07/14/2017

    Retirement savings imo has to take precedence.  Given your savings rate/expected spend multiples in retirement, a couple questions come to mind for your situation.

    a.  How much would you need to contribute monthly/annually to be comfortable to send you child/children to ‘school wherever they want’ versus what is being contributed today.

    b.  Based on the amount of a. above, what is the impact of current retirement savings, if any.  For example if an extra $5k year to 529 was calculated, does the needle move to 14.5x expected retirement spending.

    Though others are better versed in the whole college financial aid, I have heard that the contribution of taxable account by parents is estimated at 20%.  For example if you have $10K in a taxable, a college assumes $2k can be used for tuition for a child.

    My approach/mindset differs a bit; we contribute a set dollar amount each month since our kids were born.   Also kids are expected to put forth effort in school to enable them to compete for merit based scholarships/grants when applying to school.  The money contributed/generated in their 529’s will be available as long as they are getting good grades in college (529 is actually owned by me).

    #239873 Reply
    Hank Hank 
    Moderator
    Status: Attorney
    Posts: 1408
    Joined: 03/27/2017

    Put on your own oxygen mask before helping others.  Take care of your own student loans and retirement before funding college for others.  Your kids can get a loan for college, you can’t get a loan for retirement.  (Sure, you could get a reverse mortgage or take a loan against permanent life insurance, but you shouldn’t have to do either of those things.)

    I like your idea of taking advantage of the state 529 deduction.  Keep maxing out qualified accounts, then if you are able to save more on top of that, use a mix of taxable and 529 contributions.

    #239879 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1863
    Joined: 02/11/2019

    It is hard to guess how much to save when you do not have a specific target.  It is hard to estimate the cost of what college will be 10-20 years into the future.  It is even harder to estimate what retirement will cost by a factor of 10. So that alone would lean me towards over funding retirement.

    We decided to save an amount that would let them get a 4 year degree at the state U we went to.  I looked at what it cost when I went and what it cost now and what the projections suggest and made as good of a guess as I could.

    If they go someplace more expensive they will have loans.  If they go to grad school they will have loans.

    If they go someplace cheaper/get a scholarship  they can use it on grad school or I will give it to their kids.

     

    Pick a reasonable amount and shoot for it.

     

    “Never let your sense of morals prevent you from doing what is right.”

    #239890 Reply
    Avatar jz 
    Participant
    Status: Physician
    Posts: 672
    Joined: 01/09/2016

    ( have not read above ) Retirement uber alles.   At 4% withdrawal, you’ll need x25 retirement budget to fill your nest egg.   Do not  burden your children with your retirement failure.

    #239939 Reply
    Liked by Lordosis
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1316
    Joined: 02/15/2016

    If you’re only filling up tax-advantaged space and not starting a taxable, then I think you can just bankroll college when you get there. There’s always the chance of scholarships. With a shortish time horizon, you won’t have time to recoup any losses.

    #239943 Reply

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