Source
r/personalfinance•
whatim

Case against 529s?

Saving

Okay, here goes:

Husband and I make about $250k (combined). Cars paid off, no student loans, five years left on the mortgage. We both have 401(k)s and IRAs that we are maxing out, plus an HSA and some various investment vehicles. One child, she is six.

Our financial advisor is suggesting we will need $750k to send our daughter to college. He is suggesting a 529 plan through his institution, that we begin contributing to aggressively, as we are 'already behind.'

Is this really the best plan? I understand the tax advantage if she uses that money for school. However, if she has the money in her name, won't that ruin her chances for financial aid? Is she screwed anyways, because we earn too much? Is three quarters of a million dollars a ridiculous savings goal for college?

Posted Mar 9, 2019, 9:34 PM UTC

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[deleted]•

750k? Is she going to spend 7 years at an Ivy League earning a PHD?

8
whatimOP•

He asked me where I went to school (private but not an Ivy) and typed the name of the university and her expected high school graduation year into the wizard.

It was like $739k, but close enough.

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[deleted]•

My biggest fear in you telling me that is you’ll save $750k and college will cost $300k and you’ll have a ton of money stuck under the 529 umbrella.

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whatimOP•

Can the 529 balance be rolled into an IRA? Or is there still a tax cost for that?

-1
[deleted]•

I forget without going to google (sorry too lazy) but I didn’t think that was an option. Again double check yourself. The easy option was designating it for someone else like another child or yourself etc.

2
shadracko•

Inflation projecting 12 years in the future is party of it.

3
[deleted]•

I get that but Yale is like 50k? So tuition doubles to 100k by then (personally I don’t think tuition can keep escalating - people will find alternatives - the bubble will burst) but anyhow. I also think people need to be smarter about where they go to school. 250k invested would still be a very generous number to properly educate the child.

4
shadracko•

You must be getting old like me. Yale is ~$73k full cost. Something like ~$600k in 12 years is what people are quoting. You get there with 5% increases (so lower than they have been).

Yeah, smarter about where you go has value. But parents have enough money. They can do this if it's a priority. They're not talking about saddling the kid with lots of loans. And if you live in a state without a good state university, the inexpensive choices are limited. Yeah, if you're in Michigan, Virginia, Wisconsin, it's pretty damn hard to justify out-of-state, on a financial ground. If you live in Arkansas, it's a different thinking.

3
[deleted]•

I was only counting tuition from whatever google told me. :)

1
shadracko•

With that income and only one child, I would proceed assuming you won't be eligible for any aid.

4
feathers4kesha•

That’s an absolutely ridiculous figure and I’d find a new advisor.

We have a traditional brokerage account for our babies college. Our goal is to get $100k by 18 and she can figure the rest out-if there is more-herself. I only spent 80k on a Bach AND masters degree. We chose not to do 529 bc it can ONLY be used for school or there’s a penalty.

3
whatimOP•

This is similar to what my BIL suggested.

He basically thought that this guy wants to get another account from us with some fat fees.

My concerns are similar to yours - I don't think a free ride is necessarily a good thing. Thanks!

3
budl•

Firstly what state do you live in (are there any benefits for contributing to one). Secondly $750k is probably based upon escalation on tuitions and inflation accelerating. And is an overshoot. They may also be accounting for private school grade and highschool... But 750 is a huge number.
Thirdly, you may need a new financial advisor as they are doing a shit job and are pressing you to over invest in their product so they can make a buttload of money off of you.
Also is this person from a major institution? Or a small firm?

3
whatimOP•

  1. We live in NH and work in MA.

  2. I'm not sure what the wizard he was using took into account. He said it covered the estimated cost for tuition, room and board, and fees for the institution we picked.

  3. This is what I started thinking, after my heart stopped pounding.

  4. He works for a large banking and investment group.

1
budl•

Went back to look up new Hampshire. Apparently there's a $500k value limit which blocks new contributions. Nothing to stop it from growing to $750k. New Hampshire doesn't have a state tax deduction. But Massachusetts does... A bit complicated.
Anyway, savingforcollege.com listed out $312k for 4 years of a private college at 4 years for a 0yr old.
Maybe this was for 2-3 kids?
Shoot for the moon sure. You can always do a few funky things with 529's. Transfer them to a different kid or even keep them for the grandkids. Hell, you could probably even create a fund for 5 generations of kids if you wanted.
But just an FYI, if they don't spend that money... It would be tricky to actually use it. You would pay income tax and a 10% penalty.
So, some political risk would be like if for instance, Bernie Sanders gets elected and somehow makes college free. Then you'd be like ?!?!?! What I do??

2
whatimOP•

Thanks for the information!

This is way more than the financial advisor was willing to give and I got lost in details and terrified that myself kid was "already behind" in savings.

1
budl•

Glad to be of help! The fact you're even financially capable of socking away money for their college... They are miles ahead. Most students go to college with $0 from their parents.
And you really only need to take care of tuition and room and board. Food/books/misc. Expenses can be covered if the kid takes a part time job. Which is what happened to me personally. Helped teach me financial responsibility in an incubated environment. Also having something on the resume beyond school is huge. It's even more important than focusing on studying at getting straight A's in my opinion. (Unless you're trying to be a doctor or lawyer) If you took that approach, it would definitely come in at a lot less.

1
zhenya00•

Yes, $750k for one child is insane. Nobody pays that, and if it gets to that point by the time she is ready for college, nobody will be able to afford it.

No, you aren’t likely to get much if anything in financial aid at your income, don’t count on it. Given that, a 529 is the best way to pay for college, assuming you are maxing out your other tax-advantaged space, which you are.

2
whatimOP•

I'm not counting on financial aid, but his guidance seemed crazy high.

Thanks.

1
lovejazz17•

I would echo the others, 750k is not what should be planning for and I would reconsider your advisor. Currently using 529 for my child’s college expenses, it was definitely a worthwhile investment (tax free) for us. Also the fund can be used for other things, recent changes in last couple of years include private high school costs etc. You may want to see the flexible that is offered, each state has different plan.

2
whatimOP•

Thank you. My sensors were tweaking between this and his recommendation for moving my recent stock windfall into an annuity.

1
lovejazz17•

Tweaking sensors should always be listened too! Good luck finding a new advisor that will grow with you. Annuities have there place but as part of an overall financial plan. I have Lifetime annuities to supplement social security as I do not have a pension and I am concerned about saving lasting if I am lucky enough to live to 100. But would not get annuities unless fits into what you need.

2
mromaine•

This thread has an interesting dialog on FAFSA and strategies to avoid negatively impacting financial aid optionality: https://www.reddit.com/r/personalfinance/comments/ayfizv/i_am_soon_to_become_a_grandfather_i_would_like_to/

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