529 plans, negative experiences? Alternatives?

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photohause
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Post by photohause »

gladI have pets.............
If you drink, don't drive. Don't even putt.The trouble with jogging is that the ice falls out of your glass.

Casual
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Post by Casual »

Legio, perhaps I was vague with the 529, because if you didn't know what it was. Perhaps not the best advice would be garnered.


I know the 529 gets hammered at 10% for money you end up not using and withdrawal it. And with death of beneficiary too. Etc...

So in 18-20 years of trickling in the equivalent of say 50k$ into a 529 with risks of it going up and down due to market fluctuations and a 10% fee if you want a withdrawal for non authorized spending.....

Why not just have 50k in a brokerage account? Same risks no penalties.....

Fl-mike
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Post by Fl-mike »

Fidelity 529s for all the grandkids. More flexible than the prepaid. The previously posted comparison chart summarizes the advantages. I do wish there were more investment options, but I like that the recipients can be changed and the funds do not count in financial aid calculations, for now anyway.

Qualified expenses are pretty liberal.

For the first years of birthdays and Christmas, the gift money went into the fund. I try to contribute monthly or so to dollar cost average. Other people can also contribute through an account dashboard, but I found most adults are not that forward thinking! It ain’t a lot, but I’m sure it will help.

Taco
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Post by Taco »

Casual wrote:
Tue May 19, 2020 5:20 pm
Why not just have 50k in a brokerage account? Same risks no penalties.....
You are comparing tax free funds against taxed funds.

S&W collector
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Post by S&W collector »

I thought I heard somewhere that you can deduct any amount the child might get from scholarships

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joel
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Post by joel »

The penalty on premature or non-educational withdrawals does NOT apply to YOUR money, only applies to the growth in the account.

There is no penalty on withdrawing your own money. It's your money.

The fund grows tax-free and the withdrawals for educational expenses are taken tax-free.
Only those withdrawals, attributed to the growth in the account, taken for non-educational expenses are subject to tax + penalties.


(and, NO, you can't just "take out your portion of the money and leave the earnings in there" LOL ~ it's all proportionate distributions)

These things are usually set up by grandparents for their grandkids since "Mom and Dad" are usually "35 cents shy of a quarter broke" or blowing their money on the latest electronics, newest SUV or wasteful vacations to "keep up with the Jones" (ask me how I really feel.. LOL)

Taco
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Post by Taco »

joel wrote:
Wed May 20, 2020 10:40 am
These things are usually set up by grandparents for their grandkids since "Mom and Dad" are usually "35 cents shy of a quarter broke" or blowing their money on the latest electronics, newest SUV or wasteful vacations to "keep up with the Jones" (ask me how I really feel.. LOL)
Thats a good point- recently (past 3-5 years) some of the higher end universities have been including 529 funds held by non-parents as student assets for determination of financial aid packages. If you are not a parent, it is generally better to name yourself or someone else as the named beneficiary for the first year at an institution (when you are likely to get the most generous package to get you in the door). You are free to change the designation once per year.

braknek16
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Post by braknek16 »

We started a 529 plan for my daughter when she was born. Any and all gift money that she recieves from birthday party or christmas goes straight into it also we limit what gifts are given on said holidays not that the family listens but most do and they instead will go by and deposit into her account anonymously instead of buying toys that will hardly get played with. My wife and i also deposit into it periodically. Nice thing about the 529 is once she reaches college age if she decides not to use it i can take it out and put it into a retirement fund for her so she cant just blow it

neverenoughguns
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Post by neverenoughguns »

We went the pre-paid route as tuition really seemed to be increasing quite rapidly when my kids were born..

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ABOC
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Post by ABOC »

Taco wrote:
Tue May 19, 2020 3:31 pm
Go to Clark Howard's web page, read the 529 plan guide, get yourself a Utah or Arizona plan... We have no income tax, so no need to worry about the potential for credits if you go in your own state plan.
I have no idea who Clark Howard is but I went to his site and checked the 509 page https://clark.com/education/clarks-529-plan-guide/
The first of the plans he considers best of breed is the Fidelity Arizona 509 https://www.fidelity.com/529-plans/arizona
Their financial report can be found here https://www.fidelity.com/bin-public/060 ... Report.pdf

I know nobody ever reads those but I do. A quick look reveals a return of 3.1% for 2019 and an average return of 3.09% for the past 5 years.
The official rate of inflation for 2019 was 2.3% and the High Education Price Index stood even higher at 2.5%.

So the overall purchasing power of your money while invested in this "top" plan grew by 0.8% and 0.6% as far as purchasing tuition and the like.
Tax free or not, how can locking in your money for decades while being exposed to market fluctuation for such dismal returns look appealing to anyone?

Another thing you might want to consider: 50 or 60 years ago very few people held University degrees.
Today every last idiot has one -and a lot of them happen to be women with extremely "average" IQs.
That should give you a clue about what kind of value University degrees will have in a not so distant future.
"Tuez-les tous, Dieu reconnaîtra les siens" - Arnaud Amaury 1209

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