Which state's 529 plan should I use?
I am not a fan of 529 plans. Many people arent. If you move around, you should be aware of penalties also. I read a good book about college planning. Very interesting. They said to put yourself first. Max out your 401K, your IRA, and your wife's spousal IRA each year. After that work on paying off all debt, such as car loans and even the mortgage. The reason for all this? As you might know the FAFSA does not look at how much debt you owe. The least you have in your taxable accounts and college accounts the more grants and aid she can get. Also note. You can make loans for college, you can't make loans for retirement. I would prefer you to do all this and open a custodial account at a discount brokerage such as schwab or fidelity (you probably have an account with a broker already). Buy her some stocks that can grow so she can have some cash for college. 529' plans have many drawbacks. I don't like their investment choices. And in most you can only change those choices once or twice a year. Their mutual funds have high expense ratios. And what if that little girl gets really smart and gets scholarships for everything? Then she has to pay penalties for taking the money out. Or worse yet, she decides to go with the circus and never go to college.
Can you promise funds from your 529 plan as collateral for a loan?
My gf and I ran into some bad luck recently and as a result have spent the better part of the last 2 months homeless. My gf has a 529 college Plan with 6 figure value but has to wait one more year until she turns 21 to be given access. We are hoping to use the college plan as collateral to get a 5000$ loan. Enabling us to pay 3 months of rent up front to make up for the fact that our credit is lacking. As I am a veteran could I possibly use that and leverage it with a VA home loan? Thanks!
Can a grandparent deduct contributions to a 529 plan for state taxes.?
I set up a 529 college savings plan for each of my two daughters. I decided on the South Carolina Future Scholar Direct Sold plan due to low fees and state tax deduction for contributions. My question is this: If my parents (children's grandparents) contribute to the plan that I set up, can they deduct thier contributions from state taxes?
How do 529b plans work?
529 and 529b refer to the same legislation; “b” is just a subsection of Section 529 of the IRS code that defines a Qualified Tuition Program. A 529 plan is a tax-advantaged investment account designed to help people save for a higher education. The plans are sponsored by a state, state agency, or educational institution(s). There are two flavors of 529 plans:Savings - Savings plans work similar to a 401(k). The investor selects from a menu of portfolios which invest in underlying securities such as mutual funds or ETFs with corresponding returns.Prepaid - If savings plans are like 401(k)s, then prepaids are like pension plans. The investor is guaranteed a particular rate of return set by the plan. Sometimes this is tied to college inflation in the respective state, other times it is a guarantee that a dollar invested today will be worth an inflation-adjusted dollar in the future at participating school(s).Withdrawals used at eligible higher education institutions are completely tax-free at the federal and state level if used for qualified higher education expenses. These include tuition, fees, room, board, computers & peripheral equipment, and special needs services. It does not include transportation, sports, or other expenses not required for attendance or enrollment at the school.This is a very broad overview. You can read a more in-depth guide to 529 plans from the IRS here: An Introduction to 529 Plans. If you need more in-depth information, almost any question you have about 529 plans can be answered in the following document from the IRS: Publication 970 (2017), Tax Benefits for Education.
What's 529 plan? and why do we need it?
In simplest terms, this is a college savings plan that with tax duductible earnings. I only contribute to this when family give my child cash gifts. Otherwise, you are better to contribute extra money to your retirement. Your children will have a much easier time gaining financial aid and have many years beyond graduation to pay back the loan. When you reach retirement, you will be hard pressed to get a loan to offset poorly funded 401K's and other retirement savings. Suze Orman has an excellent theory about this which made me think twice about feeling the need to fully pay for my children's college tuition.
State tax benefit for 529 Plan?
We live in ILLINOIS (IL). Both couple AGI is 100K If we start a 529 college savings plan for our kid ( 8 years old) Contribute around 10K every year for next 10 years towards 529 plan ( IL college savings ) Currently in 25% federal tax bracket. IL does give tax deduction if you pick there IL 529 plans. Just wondering how much of tax savings will I be getting every year if we choose IL 529 plan ? This will help me decide whether to choose IL 529 plan or some other out of state plan.
What are your thoughts on 529 plans? Should I get one for my child's education?
Vin thank you for the question.In a couple of words: “I don’t like them.” In a single word: “No.”Here is the problem: 529 plans are designed for everyone else and not the client.First, the insurance company takes its cut; then the salesperson takes the next cut, then the mutual fund gets its cut, and the expenses continue to come out every year. You get the leftovers only if the mutual funds perform well enough to make you money does anything good happen for you!No Vin, I would tell you not to use this method of savings for your child. I would also tell you that earmarking savings for your son’s/daughter’s college is a bad idea if for no other reason than you don’t know if they are going to go to college. You want to think they are, but I have worked with plenty of parents who want to know what to do with the 529 plan now that their grown son or daughter isn’t going to university.I would also counsel you not to pay for all of their education. A child learns a lot more when their money and their work is at stake as well as yours!Save money yes. Save it in an after-tax brokerage account. The least expensive way is to create a DRIP Plan for yourself. Google it. DRIP Plan. Look at EQ or Computershare. You buy one share of stock. The reinvestments of the dividends are free. The cost is low. Once you have purchased one stock, you add another and so on and so on. Look at AT&T (T) or at Altria Group (MO - the old Phillip Morris) they are paying over 5% and are now better diversified than in the past.If I can help you further, please let me know. I am putting up a website, called thelaughingretirement.com. One of the things that will be covered; there is a DRIP Plan.I do wish you well.AW Stites retired CFPHelping people to understand money and markets. Teaching people how to create an empowered, transformative ‘retirement.’ and how to work online anywhere in the world there is an internet.
How does a 529 plan work?
It is never too late. The maximum in most states is up to $300,000 total per beneficiary. The minimum also depends on the plan. I wrote an article for smart people like you that need help building thier financial IQ. My latest article is about 529 plans. http://familymanfinance.blogspot.com/
What are the best 529 plans? How do you predict the cost of educational expenses to decide on the current contribution to 529 plan?
Plans exist in each state, so if you have a way to chart them out with a plan from Missouri ranking higher than a plan from Michigan (or New York), please refer to that.Otherwise there is no chart like that for public’s use - each plan has investment options within it, and unless you’re asking someone to dive into comparing each and every product from each plan from each state, there is doubtful to be any takers (it will take too much time and the reward being one upvote, well, it’s not much of a reward to speak of).Estimation of future expenses can be done using many calculators which are online, though it will only be an estimate.If you absolutely need a guarantee, then there is something different - you can, if you want, prepay education based on today’s rates, and have a guarantee that this will remain the same no matter what happens in the future (in the future, to be clear, education can be more expensive, or it can be less expensive - you’re literally gambling here, and I don’t know how lucky you feel today).Your limits are what you want them to be - there is no minimum (technically, there is one, but it’s a very low amount), and each plan will dictate if there is a maximum to contributions.Please make sure that you can pay your bills AND fund your retirement plan first, before going “all out” on that 529 plan - some people prepay all 4 years of in-state tuition when a kid is born, some save up over the years (you can transfer balances from one qualifying plan to another one, it does not create a taxable event).