Menu

What percentage of NW should be the 529?

Home Personal Finance and Budgeting What percentage of NW should be the 529?

  • Avatar DCdoc 
    Participant
    Status: Physician
    Posts: 604
    Joined: 06/14/2016

    529 balances should be based on expected cost of college, not a fixed % of net worth

    #231632 Reply
    Liked by bean1970
    Avatar Mednole 
    Participant
    Status: Physician
    Posts: 12
    Joined: 05/15/2016

    Any thoughts on over funding a 529 and then using it as a vehicle to transfer wealth to your kids so that they can use it to fund your grandkids’ education?

    #231635 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8348
    Joined: 01/09/2016

    Any thoughts on over funding a 529 and then using it as a vehicle to transfer wealth to your kids so that they can use it to fund your grandkids’ education?

    Click to expand…

    Yes – the same rules for gifting between generations still hold. Personally, I think it is a weak estate planning strategy given the lack of flexibility with a 529.

    Johanna Fox Turner, CPA, CFP: I am not your financial advisor; any responses are for general purposes only
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #231645 Reply
    Vagabond MD Vagabond MD 
    Participant
    Status: Physician
    Posts: 3486
    Joined: 01/21/2016

    The 529 is my money.  It is to make it easier for me to pay for college when the time comes around.  I could put the money in taxable and mentally keep track of it but then I would lose the tax free growth.

    If I was gifting money to my children I would put it in a savings account in their name or in a UGMA.  Then it would not be part of my NW.

    The 529 is a not a guarantee.  I want to pay for my kids college but in no way am I forced too.  I can change my mind at any time.

    Click to expand…

    I have never considered the 529 in my net worth. If there is any money left after all educational expenses are paid, I can always add it back to my column. Spoiler alert: there probably won’t be any left.

    #231646 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 3567
    Joined: 01/14/2017

    Lordosis, what do you think the odds are that the 529 money will be retained by you? Multiply that by the balance and by 90% and that’s your net worth from the 529. But from an expected value standpoint there’s no way it should all be included.

    #231648 Reply
    Avatar Infinity 
    Participant
    Status: Physician
    Posts: 101
    Joined: 05/25/2019

    To me, 529 is not a great tax saving strategy, unless you plan to be in it for a very, very long time.

    If you put in $100K over 10 years and it grows to $200K, it only saves $25K tax if you use all of it for education, or you will have to pay 10% penalty ($20K).

    I think it should be the last bucket to fill after all other tax benefit accounts.  However, if you plan to do it, the sooner, the better.

    #231650 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 2141
    Joined: 02/11/2019

    I fully expect to use every penny of it. It is still part of my net worth until I do.

    I think we are getting into the net worth vs retirement portfolio argument again.

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

    #231654 Reply
    Liked by StarTrekDoc
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 3567
    Joined: 01/14/2017

    What do you mean that you expect to use every penny of it? That’s true of any 529 more broadly, but do you personally plan on using every penny on yourself for retirement or having every penny spent on college?

    #231657 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 2141
    Joined: 02/11/2019

    I plan to use it for college expences. Sorry for the confusion. I really hope that I would not need to use it on anything else. Unless the reason is because all my kids get full rides. I doubt that.

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

    #231664 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 3567
    Joined: 01/14/2017

    Well in that case I hope you’re not including it in your net worth, at least a large part of it.

    #231667 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 2141
    Joined: 02/11/2019

    Don’t worry I know how to subtract it out of my portfolio when planning for other financial goals 😉

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

    #231669 Reply
    Liked by Tim
    Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 2130
    Joined: 01/15/2017

    Agree with lordosis. Nw is a simple assets minus liabilities calculation at a point of time. 529 are assets under your control. So is your primary home. They belong in NET worth.

    Budgeting and planning and views for retirement…..all different things. One can use Net worth as a starting point for budgeting, but it’s not the one I would use as it’s too blunt of a measurement.

    #231673 Reply
    Liked by Lordosis
    Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 2130
    Joined: 01/15/2017

    OP. The goal is your goal. Like asking how much high school funding. Some anticipate private some others public. Let that be your guiding light on the amount.

    Also part of the whole PLS. know your income set your goals and determine the path forward on priorities. imho, you need to do both retirement and 529 simultaneously and wouldn’t recommend sacrificing your retirement dates to fund a 529….plan prudently

    #231674 Reply
    Liked by Tim
    Avatar Kamban 
    Participant
    Status: Physician
    Posts: 2573
    Joined: 08/01/2016

    I think we are arguing over semantics.

    Technically and legally 529 are part of your net worth. But with rising college tuition and other expenses anyone who thinks that any money put in a 529 will somehow come back to them in the future is having a bit of daydream. Unless the kids are extraordinarily bright and get full ride scholarships all the way or not bright to get into college or any education where the 529 can be used.

    I personally don’t include in my net worth. If my kid does not use all of it let it go to her kids.

     

    #231692 Reply
    Liked by Scopemonkey
    Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 2130
    Joined: 01/15/2017

    So if one doesn’t do any 529. But decides to fund college. The money still comes out of your funds….your net worth. The bucket may have save for college or 529 or misc expense….but all of that is.ypur dollars….part of your net worth.

    #231700 Reply

Reply To: What percentage of NW should be the 529?

In case of a glitch or error, please save your text elsewhere, clear browser cache, close browser, open browser and refresh the page.

Notifications Mark all as read  |  Clear