[Groundsize]

They don't.

Just surprising that someone has more than $50,000 to put away. I feel that putting money in the 401k's and Roth IRA's are more important than saving for a kids college education.

We saved our kids college fund in a brokerage account, invested in mutual funds. We haven't sold anything in 20 years....so we only have to pay taxes on the dividends over the past 20 years. By saving their college money in a brokerage account....we have had a lot of options over the past 20 years that we wouldn't have had in a 529.

Totally agree. 529s are so limited. Way more options with a brokerage account.

 

[CrawlerHarness]

I remember looking up 529 plans back when they came out.....maybe around 2000?

The only way to get a tax credit in Illinois is you had to use their investment provider. Fund fees were 2.5-3.0% at the time, and only had about 8-10 fund options to choose from. You could have went with a real provider like Fidelity or Vanguard, but you would have lost the Illinois income tax credit. I can't remember if you were required to use the $$ on an Illinois college. It was easy to see this was an insider scam by the state of Illinois.

And as someone else stated, you did not receive any Federal tax benefits at the time.

 

[kroppe]

It seems like the programs work mostly the same today @CrawlerHarness . Main features today seem to be what they were 10-20 years ago:

- state income tax deduction
- guaranteed tuition coverage commensurate with the investment, subject to conditions
- no Federal tax deduction
- no income or capital gains tax on qualified withdrawals? My memory is fuzzy on that one.

 

[Far Beyond Driven]

FAFSA counts 529's in the student's name as an asset. Custodial ones not.

CSS which is required at the more prestigious schools takes all of them into effect, the change in your pocket, the value of the sperm you will create in three years.


We take $10k (the max) out of a 529 to pay private K-12 tuition, then back fill. Try to pay high back fill low. Then get $425 in state tax credit for the contribution.

My oldest starts college and instead of offering to pay $5k in tuition each year, I am putting $5k in a Roth for her and she can pull from it as needed. Will show up as an asset but in the scheme of financial aid it just doesn't matter in our situation.

 

[ih772]

My oldest starts college and instead of offering to pay $5k in tuition each year, I am putting $5k in a Roth for her and she can pull from it as needed. Will show up as an asset but in the scheme of financial aid it just doesn't matter in our situation.

Does your daughter need to have an earned income at least equal to your ("her") Roth contribution?

 

[Far Beyond Driven]

Supposedly. She worked all last summer at a resort in Colorado, is planning on that again this summer as well as a Federal Work Study while at school. So she's made / is making more than the $6k max Roth annual contribution.

Thanks for pointing that annoying little detail out since I forgot it.

 

[ih772]

Supposedly. She worked all last summer at a resort in Colorado, is planning on that again this summer as well as a Federal Work Study while at school. So she's made / is making more than the $6k max Roth annual contribution.

Thanks for pointing that annoying little detail out since I forgot it.

I couldn't remember if that was the case or not and I was too lazy to do a google search.

If it wasn't for that "annoying little detail" many kids could be set up to have half a million dollars in a Roth by their early 20's.

 

[Dantana]

I couldn't remember if that was the case or not and I was too lazy to do a google search.

If it wasn't for that "annoying little detail" many kids could be set up to have half a million dollars in a Roth by their early 20's.

I would have started a Roth for my 2 year old the day he was born if that was the case! As such, as soon as he "earns" income (via a 1099) I will match every penny (up to 6k of course) in his Roth.

I still enjoy the looks on the faces of people who I show the Roth calculator too and how much more money they could have at retirement if they had invested earlier.

 

[Gamekeeper]

I would have started a Roth for my 2 year old the day he was born if that was the case! As such, as soon as he "earns" income (via a 1099) I will match every penny (up to 6k of course) in his Roth.

I still enjoy the looks on the faces of people who I show the Roth calculator too and how much more money they could have at retirement if they had invested earlier.

I’ve been listening to people say that for 40 years.

Life doesn’t work that way.

Dollar for dollar, contributions to a Roth IRA represent a decrease in lifestyle.

Our economy, at least since the Carter administration, has had steadily declining purchasing power, steady declines in real wages, and social/employment disruption across-the-board.

In other words, you work harder to make less today and get less for it, then you did 40 years ago.

If the Roth IRA had been invented 40 years ago, which it wasn’t, only people who had incomes that exceeded their lifestyle choices, and were piling up cash in the bank would have participated in the program anyway.

 

[ih772]

It's all about choice. Live on less than you make and stop worrying about what other people think of you. When you do that you can participate in those investment vehicles.

Many people chose to live for today and are up to their eyeballs in consumer debt. Then they makes lame excuses that they can't afford to invest for their retirement. Again it's all about choice.

 

[Far Beyond Driven]

Exactly. Daughter's friend's dad makes a quarter million a year and lives paycheck to paycheck. Guy could be living easy but a rash of bad decisions has left him poor.

I take home less than $40k a year after all the stuff is skimmed off my paycheck and invested, and over half of that goes to tuition.

If we both lost our jobs today, he'd be screwed. I'd go on a bender.

 

[DirtySteve]

How does an IRA or 401k fund college tuition?

It can. There are always exceptions to every rule. For instance just last year the govt allowed anyone who had covid or was furloughed at work to take 100k out penalty free. They even allowed you to spread the taxes out over 3 years.

If you put into a roth ira you can take out your principle for college. Or just take the penalty on a traditional ira or 401k The 10% really isnt that bad considering the amount of money we have all made the past 12 yrs.

My kid started college in 2016 and is graduating in a few months. I had 2 in college at the same time and they qualified for federal interest free loans. I took full advantage and let my money stay invested. My networth has doubled in 5 yrs. I am way ahead by holding out on paying. If I had to take that out of 401k and take the hit I am certain I would come out ahead. Biden extended the o onterst on all loans until oct. I am still holding out.

Now the govt is talking about paying off those loans!

 

[DirtySteve]

FAFSA counts 529's in the student's name as an asset. Custodial ones not.

CSS which is required at the more prestigious schools takes all of them into effect, the change in your pocket, the value of the sperm you will create in three years.


We take $10k (the max) out of a 529 to pay private K-12 tuition, then back fill. Try to pay high back fill low. Then get $425 in state tax credit for the contribution.

My oldest starts college and instead of offering to pay $5k in tuition each year, I am putting $5k in a Roth for her and she can pull from it as needed. Will show up as an asset but in the scheme of financial aid it just doesn't matter in our situation.

We filled out the CSS for ND and UM. Nd wanted to know if grandoarents had a 529 as well as the parents.

 

[Far Beyond Driven]

Yep.

Ran the numbers and taking out a mortgage to fund track days in an Audi R8 would get my daughter more aid. Paying off the house and investing heavily to retire early, nope.

Just heard back from Sewanee and they didn't offer up nearly enough. Daughter may be headed out to Denver, which would break her heart. Her grad school is out there so she'd just move out full time as she already spends summers out there, and get the resident credit.

 

[Sasquatch Lives]

It can. There are always exceptions to every rule. For instance just last year the govt allowed anyone who had covid or was furloughed at work to take 100k out penalty free. They even allowed you to spread the taxes out over 3 years.

If you put into a roth ira you can take out your principle for college. Or just take the penalty on a traditional ira or 401k The 10% really isnt that bad considering the amount of money we have all made the past 12 yrs.

My kid started college in 2016 and is graduating in a few months. I had 2 in college at the same time and they qualified for federal interest free loans. I took full advantage and let my money stay invested. My networth has doubled in 5 yrs. I am way ahead by holding out on paying. If I had to take that out of 401k and take the hit I am certain I would come out ahead. Biden extended the o onterst on all loans until oct. I am still holding out.

Now the govt is talking about paying off those loans!

Right, I'm in a similar situation. Seems many liberal policies reward poor decisionmaking. Also what about the kids who went to work instead of college cause they didn't want to incur huge debt, now they are getting screwed.

 

[mbirdsley]

So what happens in a 529 account if your child decides not to go to college? Or maybe they end up going to a trade school or ends up getting a certificate at community college instead and all of the money is not used? Can you roll it into something else? would I take a tax hit by taking the money or excess money out if my children did decided not to go to traditional college


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