How much is enough in a 529?

[StarTrekDoc]

I spent over a million to put 4 kids through college. I put all the money in taxable, which worked out well for me. Probably not the most tax efficient , but in all reality I probably did not think about it too hard back then. Though I can say , every year I paid for college with the good stock market returns I was actually ahead of the game and had money left over. Usually I would use some of my bond allocation for the school payments and let the index funds keep growing. At the end , I had my million dollars and my kids had their education paid for.

So why couldn't that be accomplished in a 529 and reap the tax efficiency benefits?

Kamban - same philosophy with us. We prioritized education in our discretionary budget.

#1 - fund retirement first
#2 - fund 529
#3 - rest of life spend.

[GasFIRE]

So why couldn't that be accomplished in a 529 and reap the tax efficiency benefits?

If “taxable” was the entire portfolio rather than a designated segregated education account, just spending bond money and letting the rest ride is really changing the AA while taking advantage of a bull market. If this shovel is much bigger than even a superfunded 529, there may not be enough bond money in the 529 to pay expenses without dipping into the equity portion.

[VentAlarm]

We get a tax incentive up to 10k/y. We just divide that evenly among our kids in a 100% equity portfolio.

Our state institutions are pretty cheap. We’ll likely get somewhere near 50-75% of cost then supplement the rest with some mix of scholarships, child working and cash flow.

We didn’t really do a high level analysis.

[uksho]

We have approx 300k for 2 kids , with 6-7 years to go for older one . Plan is to reach 400 K ( hopefully in 3-4 years) and then stop contributing

[wideopenspaces]

500k sounds like way too much op. I'd shoot for some amount you're comfortable with and then reasses as kid hits hs. I have a much better idea of my 13yo's likely college attendance now than at age 1! We had him in med school so obviously didn't superfund anything 😅 But we'll be able to pay for whatever school he gets in to and chooses to attend in a few years with a combination of 529 money and cash flow (and he'll contribute with a job as well).

[FIREshrink]

Many many threads on this subject.

Potential tax savings are substantial and chances of non qualified withdrawals are low. If I'm going to spoil my kids or future grandkids it will be first and foremost by paying for college.

Go big or go home.

[StarTrekDoc]

If “taxable” was the entire portfolio rather than a designated segregated education account, just spending bond money and letting the rest ride is really changing the AA while taking advantage of a bull market. If this shovel is much bigger than even a superfunded 529, there may not be enough bond money in the 529 to pay expenses without dipping into the equity portion.

eh? Didn't follow.
when is taxable better than 529 for funding education? You can replicate nearly any traditional AA and management with 529.

We aimed for 300k for kid to be able to cover 4 year private college+some post grad with the knowledge to child - it's their $ to manage on education. If they blow it all in private undergrad, then they have to figure our grad school coverage (of course we'll help postgrad, but they don't know that as same for starting out and inheritance - they don't know any of that).

[wideopenspaces]

Many many threads on this subject.

Potential tax savings are substantial and chances of non qualified withdrawals are low. If I'm going to spoil my kids or future grandkids it will be first and foremost by paying for college.

Go big or go home.

My 5 yo insists he wants to have several babies . . . with me. Despite me telling him repeatedly it's not happening. Not sure that one's going to college-- or having kids. You see why I don't want to overfund?

[GasFIRE]

eh? Didn't follow.
when is taxable better than 529 for funding education? You can replicate nearly any traditional AA and management with 529.

We aimed for 300k for kid to be able to cover 4 year private college+some post grad with the knowledge to child - it's their $ to manage on education. If they blow it all in private undergrad, then they have to figure our grad school coverage (of course we'll help postgrad, but they don't know that as same for starting out and inheritance - they don't know any of that).

My interpretation of Random1s post was that college was paid with bonds from the entire taxable account, not some subset designated for education. Say for example the taxable account was $2M, AA 90:10. Up to $200K of bonds would be available to spend on college without tapping the equity portion. If instead the taxable account was $1.7M plus a $300K 529 and same AA only $30K would be available from the 529 before you have to start spending the equity portion. That's what I meant by a bigger shovel, the full taxable portfolio is larger than funds set aside for education whether kept in a 529 or separate designated taxable account. In a bull market not having to spend from the equity portion allowed for greater portfolio growth. If I misinterpreted the post my apologies.

[Antares]

It was hard enough for the first years of our kids lives to fund 10K/year per kid in our state 529 plan, let alone superfund. We were committed from the beginning to funding private universities for both kids as we both went to same and rightly or not place a high value on that.
Our second is six years younger than the first. What we didn’t anticipate is that the first kid would get a half scholarship, and the second less but enough to help. We were able to discontinue contributions for the last few years prior to college for the second child.
The result is that we will end up with a 30-50k surplus in the 529s at the end of the second child’s college. Not the worst problem to have especially since the reason was paying less tuition than anticipated. If there had been no scholarships, I think we would have had to come up with a manageable amount to cover. Haven’t decided yet whether the surplus will go to (the possible but as yet unresolved) grad school for child number two. The first is basically launched in his own business, no grad school. If there is no grad school, either let it ride for (currently nonexistent) grandkids, or pay the penalty and recoup the remainder.
if I had it to do over again, I would have underfunded somewhat and made sure I had the remainder in taxable to be used if necessary, or reallocated if not. But Big Picture, it worked out fine.

[orthodds]

It’s difficult for me to fathom the vanity it would take to decide it’s worth 100s of thousands of dollars to send my kids to private school over a good public school.

If your kids are truly intelligent and motivated they can get a scholarship to a good public school. If they are smart they will quickly find and associate with other “smart” kids if that’s a priority (as has been stated by those who desire private for their kids).

I don’t get it at all. Rare is the case that attending an expensive private school will lead to a superior long term result compared to a good public school and that’s especially true for the pre-professional undergrad.

There’s another thread about getting to a 10mm net worth by age 50. Putting ridiculous amounts of money into 529s in order to cover the cost of private education instead of putting that toward other investments is one way to ensure you won’t hit big net worth numbers by age 50.

[DamageInc]

It was hard enough for the first years of our kids lives to fund 10K/year per kid in our state 529 plan, let alone superfund.

I always wonder where these recommendations come from - who just has 100k plus (after taxes, retirement, living expenses, loan repayments) in their early career (the most likely timing for young children) to superfund a 529? It might make the most financial sense but it's simply unfeasible for most.

[StarTrekDoc]

My interpretation of Random1s post was that college was paid with bonds from the entire taxable account, not some subset designated for education. Say for example the taxable account was $2M, AA 90:10. Up to $200K of bonds would be available to spend on college without tapping the equity portion. If instead the taxable account was $1.7M plus a $300K 529 and same AA only $30K would be available from the 529 before you have to start spending the equity portion. That's what I meant by a bigger shovel, the full taxable portfolio is larger than funds set aside for education whether kept in a 529 or separate designated taxable account. In a bull market not having to spend from the equity portion allowed for greater portfolio growth. If I misinterpreted the post my apologies.

Thanks for this. I see the argument. The counter is One is still paying taxes for those earnings being thrown off. One can do the exact same within the 529 with less initial capital and management of anticipated gains to fund education.

The hard party is how much to fund and guessing what the need is on a child who one has no idea where they will be 18years let alone the next week.

Same arguments for retirement. Only the parents truly know the wants and desires and priorities. The guidance here is purely financial.

Save for retirement first and that gets the feeding trough fully first. Then if there is an education funding identified, utilization of 529 to fullest anticipated needs is the right financial play on tax efficiency.

[ObgynMD]

Our plan is 200k per kid (we are funding 30k/yr per kid until that is reached since we can’t cash flow a $150k superfund). If they don’t use it for undergrad/grad school, we are keeping the option open to transfer the account to them at 24yo+ if there is anything left. Theoretically they can then use it as a legacy 529 for their kids if they choose, or they can sell it and use it for their wedding/down payment on their house (and pay the capital gains at their marginal tax bracket). In our minds, this might be the way to make a clean and fair break from the bank of mom and dad.

This is all theoretical. A lot can happen in 20+ years.

[Antares]

It’s difficult for me to fathom the vanity it would take to decide it’s worth 100s of thousands of dollars to send my kids to private school over a good public school.

If your kids are truly intelligent and motivated they can get a scholarship to a good public school. If they are smart they will quickly find and associate with other “smart” kids if that’s a priority (as has been stated by those who desire private for their kids).

I don’t get it at all. Rare is the case that attending an expensive private school will lead to a superior long term result compared to a good public school and that’s especially true for the pre-professional undergrad.

There’s another thread about getting to a 10mm net worth by age 50. Putting ridiculous amounts of money into 529s in order to cover the cost of private education instead of putting that toward other investments is one way to ensure you won’t hit big net worth numbers by age 50.

Call it vanity if you wish. My education at a private university with tremendous resources set the stage for my own life of friendships, scholarship and meaning. My kids might well get that from a public university, but I want to offer them something that was among the most valuable things I received as a young person. People clearly differ on this point, as they have on every other similar thread we’ve had on the topic.