Is overfunding a 529 plan enabling?

[G]

ZZZ wrote:

Of interest, what sort of ROI do you anticipate for spending $65k/yr on a public health degree?

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Does it matter?  That is the beauty of family wealth and the ability to fund a fat 529.

Or as John Adams put it:

"I must study politics and war, that our sons may have liberty to study mathematics and philosophy. Our sons ought to study mathematics and philosophy, geography, natural history and naval architecture, navigation, commerce and agriculture in order to give their children a right to study painting, poetry, music, architecture, statuary, tapestry and porcelain.”

I loved that quote even before I had a child....

[ZZZ]

Of interest, what sort of ROI do you anticipate for spending $65k/yr on a public health degree?

[MnSaver]

MPMD wrote:

gumption

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Amongst our peers, the people making this argument are those that didn't save enough.

[SLC OB]

My daughter (briefly) was talking about going to school for free, having all four years paid for by an employer, and then working for them afterwards (She's now not interested in that field and I am not sure it is actually "real" anyway).

However, during the conversation she asked me "What would we do with my 529 $$?" I said "We'd keep it in your name and you would never have to save penny for your kids, due to compounding interest!"  She was very excited about that!

I, personally, think you should fund them both the same. We are in the same boat with twins older than the youngest kid, so the twins have more in the funds but we have been contributing equally since birth. I would keep doing what you are doing and not worry about where the kids end up in school.

Congrats on getting them both on the way to college!

[MPMD]

We've lamented the cost of higher on dozens of threads.

I think if you have the means and your kid is getting a marketable degree you should get them through school debt free.

Having had a quarter million in student loans I don't really feel like they did anything for me other than hamper my wealth building and stress me out.

Frankly I think the argument (which I know you are not making) than loans lead to gumption is a little weird.

[MnSaver]

There is no shame in growing a large taxable account...

if you overfund the 529, it can be used by other beneficiaries down the line. As long as it is extra money you won't need for retirement, I don't see the harm in overfunding.

We also have one that will spend less for a degree, and one that will spend more for a degree plus grad school. For grad school, you can consider a fixed bucket or a loan repayment plan. For example, say that you will pay for XX% or a fixed amount for grad school with the rest covered by a loan. As long as your kids are responsible and motivated, I don't seem the harm in paying for their education. Graduating from school debt-free gives them a tremendous advantage.

[molar roller]

Our older child is starting her sophomore year in college, and younger is a junior in high school.  The older child is majoring in public health at a private liberal arts school in the Northeast, with a $65K price tag.

The younger one is not as strong a student, and want to stay home for college.  She will likely go somewhere more locally.  One possibility is very local to us, with roughly $40K tuition.

We've always funded their 529s to the max.  In several years, we funded the accounts in grandparents' names as well.

With 1 out of 8 years done, we have $150K in older child's 529, and $137K in younger one.

I am currently maximizing all possible qualified strategies - 401k, safe harbor, profit sharing, cash balance, HSA, backdoor Roths, Roths for children.  I still have substantial funds left over that are currently going into after-tax accounts.

I've discovered that 529's biggest benefit is not the tax deduction, but tax-free growth.  The older child's $150K is $70k principal, $80K earnings.  At 20% LTCG, it would be $16K, which is 3x more than all annual tax savings combined (7% of $70k is $4900).

So I even though we have almost enough saved on paper, I am wondering if I should over-fund the plans on purpose, for tax reasons, as personal investment and estate planning tool.

In addition, my RN wife is changing careers and is starting an interior design course at a local state college.  I also plan to take anthropology classes there.  The funds could be used for that.

I wonder if that's worth it though.

There was very little discussion about the financial aspects of attending a top private university, because we had enough saved.  I raised the question at the dinner table but was quickly overruled by other members of the family collective.  The reason given was "we have the money, we want her to go to the best school possible".

Currently we don't plan to pay anything for kid#1's inevitable grad school.  If the same argument is raised when she starts looking at grad programs - the tax savings will be irrelevant.  And if we pay for grad school - are we really doing her a service?  She's a great kid and totally immaterial and not spoiled, but she's never had financial concerns in her life.  And frankly, I don't want to pay for grad school, but if the funds are there, I may end up doing so.

 

Does overfunding 529s make sense?  Or do the funds end up being "wasted"?