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Old 15 July 2018, 11:43 PM   #1
Pw92676
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529 plan regrets?

Doing my research about 529 plans and getting my ducks in a row etc. Just curious to see if any folks here have ever regretted a certain 529 plan based and regretted some aspect of the choice (ie state chosen, amount contributed, etc etc).

Not looking for any specific financial/tax advice/implications. Hindsight is always 20/20 and just wanted to see if anyone has some they would share.

Thanks!
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Old 15 July 2018, 11:54 PM   #2
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I put it in cause my company matches. And I only put up to the amount matched. Don’t have huge selection but matching = 100%
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Old 16 July 2018, 12:22 AM   #3
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I put it in cause my company matches. And I only put up to the amount matched. Don’t have huge selection but matching = 100%


Your company has a matching 529 program? That’s interesting, and kind of cool.

I have never done them for my kids. We lived in a state that did not have a good program for many years. Horrible investment choices and knew we would not stay there to use pre paid tuition plans. My kids have always been wishy washy at best on traditional college. I know they can be used for a lot of things and not just 4 year universities but I have always been of the mentality that my income will allow me to pay for college for my kids if they choose to go. Both are relatively good academically/athletically and will also likely get some sort of scholarship. I choose to use the allocated tax deferral portion of my overall plan in my 401k where the company matches me. The rest I do in Roth 401k and other non qualified investment choices including heavily funded variable life insurance. Am a big believer that with $21 trillion in debt and Medicare and SS in their current state that taxes in the US are going up in the future and my income won’t go down.

But I do like the idea of 529 plans if you are certain your kids will somehow use them. You can transfer them to other kids/grandkids I believe. Worst case scenario, you cash in and pay tax on the gains. Just watch the investment choices in the state sponsored plans where you live and only use the prepaid tuition if you know they will attend a state university where you live.


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Old 16 July 2018, 01:46 AM   #4
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Brandon, many thanks for your perspective. I share your thoughts complete! Appreciate you chiming in :)
If I had an employer matching 529 program, I would be one happy camper lol.
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Old 16 July 2018, 04:09 AM   #5
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My broker likes the Virginia plan. The returns haven’t been anything crazy, but they’ve matched the market so can’t complain too much.
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Old 16 July 2018, 07:41 AM   #6
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When choosing a state, first check if you get a state tax deduction on contributions where you currently reside. That can override other considerations if you can automatically save 5% or more in taxes. Then look at the offerings.

I’m strongly biased against age-based allocations. I also steer away from funds with high fees. In general compare the funds offered to Vanguard’s Total Stock Market Index Fund. If they haven’t beaten if for at least 3 out of every 5 years and for 5 and 10 year periods, skip it. Most won’t. Therefore, I looked for states that offered Index funds and used those.

I’m also not a fan of prepaid tuition. I used 529’s so my kids could go anywhere, and they both did. Be sure to learn all of the qualified expenses to take the absolute maximum out when that time comes. Might as well maximize the tax benefit by paying 100% of what’s legal. I’ve had friends underestimate by a lot to “stay out of trouble.” Just follow the rules exactly, don’t trick yourself out of benefits “to be safe.”

Good luck.
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Old 16 July 2018, 10:03 AM   #7
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Awesome advice. Many thanks guys!
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Old 16 July 2018, 10:08 AM   #8
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I like the plan here in ny, it’s a easy way for me to dump and forget it’s there until the time comes
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Old 16 July 2018, 10:56 AM   #9
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No tax deduction in CA but no cap gains. The only downside is $1k+ per month per kid to pay for college.
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Old 16 July 2018, 11:11 PM   #10
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No tax deduction in CA but no cap gains. The only downside is $1k+ per month per kid to pay for college.
That's very inexpensive though, the kids K-12 was more than that.
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Old 16 July 2018, 10:16 AM   #11
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I’ve been looking at the prepaid, lump sum option. Wife likes the idea of paying it now and forgetting about it. We plan to make the call this fall.
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Old 16 July 2018, 01:21 PM   #12
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Michigan guy here. I used it some, but thought my kids would get some scholarships-- and they did. So, I lucked out a bit, but used the funds for R&B for them.

I'd say use the 529, but don't overdo it... though they are flexible enough that one can change the bennie to a grandchild or any other fav. you may have. For these investments, I'm in the index camp and yes, do it with the market. Over just about any long term period, the numbers are in ones favor by doing so.

FWIW, we just had a granddaughter and we opened up a 529 for her, so yeah, I guess you can say that I'm a fan.
Good luck and way to plan.
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Old 16 July 2018, 02:25 PM   #13
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529 is a no-brainer for college savings. Tax free growth, no contribution limits, self-directed, use American funds. Ok I’m clocking out now....
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Old 16 July 2018, 03:27 PM   #14
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For our non-us members who may have clicked wondering this was a Illuminati code thing.


A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.
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Old 16 July 2018, 10:50 PM   #15
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The deduction is a not terribly large in most cases, limits your choices to certain plans or plans of reciprocal states, and is subject to recapture if you change plans in the future. I would ignore the deduction and focus on the best plan. I went with Vangaurd that allows a lot of investment choices. You can also contribute 5 years of contributions up front without gift tax consequences.
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Old 16 July 2018, 11:28 PM   #16
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The deduction is a not terribly large in most cases, limits your choices to certain plans or plans of reciprocal states, and is subject to recapture if you change plans in the future. I would ignore the deduction and focus on the best plan. I went with Vangaurd that allows a lot of investment choices. You can also contribute 5 years of contributions up front without gift tax consequences.
thats what we did as well. Very happy with it.

With college expenses rising at the rate they are you need a good investment vehicle and a traditional savings account which my parents did for me isnt cutting it anymore. My oldest at 5 years old has more in his 529 than my entire college cost but IMO we are not that far ahead of the curve with what it will cost when he gets there.
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Old 16 July 2018, 11:10 PM   #17
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I did the Florida pre paid for mine and it worked well. So they had their choice of about a dozen state schools to choose from if they wanted me to pay. Many of these schools are very difficult to get in. In fact, one friend didn't get into the Univ of Fla but did get into Notre Dame.
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Old 17 July 2018, 08:36 AM   #18
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Thank you all! Definitely doing this and it’s very reassuring to hear nobody said “I wish I did x,y,z instead”. Appreciate you all sharing your input, TRF and it’s members are awesome!
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Old 17 July 2018, 11:14 AM   #19
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I asked my mom about this, she's a very good tax attorney, employee benefits, and etc. She testifies before congress several times per year and has written large parts of laws like the Roth IRA.

She had a few thoughts:

1) She doesn't think employers can make direct contributions to 529 plans, it's compensation and taxed as earned income, if I understand her correctly.

2) High-management fees can offset the potential gains.

Her final thoughts could be summed up as "meh" and thought other vehicles were better.
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Old 17 July 2018, 12:18 PM   #20
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I'm very happy with the 529 that I set up for my kids college years ago. Her college is almost pain free for me!
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Old 17 July 2018, 12:41 PM   #21
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Advice from someone who did not save...SAVE!!!! Paying interest on college loans is ridiculous and hard to get the principle down. I did pay off mine and my daughters loans for it but it set back my own plans quite a bit. Good luck!!! And remember...SAVE!
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Old 17 July 2018, 11:37 PM   #22
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I have one for both my kids. Not really the best vehicle for savings in my opinion. I think college costs within the next 15 years or so are going to be insane and the traditional college education as we know it will have to adapt. That said, I am not counting on a 529 plan to solely fund their education. I would rather fund it with real estate investments.
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Old 18 July 2018, 09:58 AM   #23
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I have one for both my kids. Not really the best vehicle for savings in my opinion. I think college costs within the next 15 years or so are going to be insane and the traditional college education as we know it will have to adapt. That said, I am not counting on a 529 plan to solely fund their education. I would rather fund it with real estate investments.
So what is a better vehicle? You can immediately put 140k into a 529 and have it grow tax free without tax consequences. After 5 years you can continue to put 28k in each year without gift tax consequences. Not sure what else is out there that is better. My SEP IRA allows a larger contribution each year tax free but that is an entirely different animal and cannot be withdrawn for education without adverse tax consequences.
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Old 18 July 2018, 11:31 PM   #24
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So what is a better vehicle? You can immediately put 140k into a 529 and have it grow tax free without tax consequences. After 5 years you can continue to put 28k in each year without gift tax consequences. Not sure what else is out there that is better. My SEP IRA allows a larger contribution each year tax free but that is an entirely different animal and cannot be withdrawn for education without adverse tax consequences.
I personally don't like the idea of limited investments/having to follow certain rules as to what the money can be used for. I do put money away in them but that said, it will be enough to cover undergrad not further education. That money is tied up in other investments.

I have been getting better returns in real estate. I am both in the multifamily and single family space. In a nutshell, multifamily investments (apartment complexes) seem to get around a 16-18% internal rate of return once you factor the refinance/disposal after a 5 year hold. Apartment investments have a somewhat controlled return as they are valued based on Net Operating Income. The idea is to get a distressed property and turn it around or to get one that is stabilized and decrease the expenses (thereby increasing the income). I do this completely passively as I am not looking to buy another job. As a limited partner I just put money in a syndication and get quarterly distributions without all the headaches.

I have a single family in an A+ area that I am currently getting 7% return on not factoring in potential appreciation. All real estate with current tax laws gives you the benefits of depreciation so your cash flow can be offset by depreciation and be considered "tax free" until you sell/or 27.5 years, whichever comes first. When you sell you have the option to do a 1031 exchange and go into another property. I personally haven't done that as there are rules you need to follow with time limit constraints. That said, even having to pay capital gains taxes, I still think I will come out ahead since I am limited in the funds that I invest can invest with in the 529.

I will add the caveat that everyone has different risk tolerances. I know my kids education will be covered one way or another so in the meantime I tend to take somewhat non-traditional methods to investing. Sorry if this is confusing, I wrote it pretty quick...
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Old 19 July 2018, 12:07 AM   #25
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I personally don't like the idea of limited investments/having to follow certain rules as to what the money can be used for. I do put money away in them but that said, it will be enough to cover undergrad not further education. That money is tied up in other investments.

I have been getting better returns in real estate. I am both in the multifamily and single family space. In a nutshell, multifamily investments (apartment complexes) seem to get around a 16-18% internal rate of return once you factor the refinance/disposal after a 5 year hold. Apartment investments have a somewhat controlled return as they are valued based on Net Operating Income. The idea is to get a distressed property and turn it around or to get one that is stabilized and decrease the expenses (thereby increasing the income). I do this completely passively as I am not looking to buy another job. As a limited partner I just put money in a syndication and get quarterly distributions without all the headaches.

I have a single family in an A+ area that I am currently getting 7% return on not factoring in potential appreciation. All real estate with current tax laws gives you the benefits of depreciation so your cash flow can be offset by depreciation and be considered "tax free" until you sell/or 27.5 years, whichever comes first. When you sell you have the option to do a 1031 exchange and go into another property. I personally haven't done that as there are rules you need to follow with time limit constraints. That said, even having to pay capital gains taxes, I still think I will come out ahead since I am limited in the funds that I invest can invest with in the 529.

I will add the caveat that everyone has different risk tolerances. I know my kids education will be covered one way or another so in the meantime I tend to take somewhat non-traditional methods to investing. Sorry if this is confusing, I wrote it pretty quick...
I understand and most of my money is invested in my business. I was more referring to traditional tax deferred vehicles that can be invested in the broader market indexes.
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Old 19 July 2018, 06:05 AM   #26
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So what is a better vehicle? You can immediately put 140k into a 529 and have it grow tax free without tax consequences. After 5 years you can continue to put 28k in each year without gift tax consequences. Not sure what else is out there that is better. My SEP IRA allows a larger contribution each year tax free but that is an entirely different animal and cannot be withdrawn for education without adverse tax consequences.
I had a client who did this the day his twins were born. He and his wife maxed out the 5 year gift.
I think his wife's parents (who were also loaded) also dumped some serious cash into those accounts.
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Old 18 July 2018, 11:09 PM   #27
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I have one for both my kids. Not really the best vehicle for savings in my opinion. I think college costs within the next 15 years or so are going to be insane and the traditional college education as we know it will have to adapt. That said, I am not counting on a 529 plan to solely fund their education. I would rather fund it with real estate investments.
They're already insane, and after hiring several recent grads, apparently not worth the price in some cases.
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Old 17 July 2018, 11:52 PM   #28
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The worst case is that it either underperforms or you over fund it. Neither will break me. There are tax benefits both on earned income and state deductions for contributions, so I put money in there. So far a years tuition each, if things do well it should double to 2, I’ll add some more anyway. If I stay at my current job, there are generous tuition reimbursements for my kids. So I should be 100% funded for their undergraduate degrees. If I leave my job it will almost certainly be for more money, so I won’t miss the tuition benefits.
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Old 17 July 2018, 11:56 PM   #29
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529s are rare gifts from the IRS.
Are they the best savings vehicle? Maybe not, but for college they are tough to beat. Why not take advantage of their benefits, as well as/in addition to taking advantage of other vehicles.

Always weigh your state options. Here in GA, you get a deduction for contributions of up to $4k per child per year if you are in the GA plan. With three kids and a 6% rate, that saves you $720. Not a huge amount and would likely be better to go out of state to a different plan with better investment options and lower costs, but you will need to do some research to find out.

Anyone with young kids going to school down the road should look into 529s as part of their savings strategy. Anyone who doesn't is missing out on some benefits.

If your kids are already in high-school, the benefits will obviously be significantly less.
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Old 18 July 2018, 02:34 AM   #30
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The good thing about the Florida Pre Pay was that it locked the tuition cost the day I signed them up for it and began funding it. Tuition has sky rocketed during that time.
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