choosing 529

[RB]

Hi, this might have been asked here before but I still couldn't find the best answer for us yet.

we live in Minnesota where there's no tax break for 529 plan. our son is turning 2 soon and I feel we should start a college fund for him but I really don't know what to choose since my state is not gonna benefit us in taxes. I looked up the plans on www.savingforcollege.com and I'm still a little confused on how to choose... any specific recommendations you can give us please? and also how much should we contribute at this point of his age if we want to cover at least his college tuitions.

thanks

[PhysicianOnFIRE]

Nevada is popular for the Vanguard options / low fees. I believe Utah and New York's plans are popular as well.

How much to give? You've got about 16 years to fund it. There are too many variables to give you a right answer, but in my opinion, it's better to overshoot when starting early. You can always stop contributing at some point if you've reached or exceeded your savings goal. I put in $10,000 a year for each of two boys; I started at $5,000 each but have upped it in an effort to meet our savings goals for the 529 accounts prior to retirement.

Best,

-Physician on FIRE

[RB]

thank you for your answer in fact both Ny and Vanguard were the two plans I was comparing and trying to figure out if one is better than the other! I think I'm leaning more towards NY for the higher ranking it has.

[DarrVao777]

I went with Nevada just for simpler access within the Vanguard website.

Like PoF, I am funding ~$1000/month ($12000/year) until it gets to a point where I feel the 529 is overfunded.

I am probably too conservative to rely solely on the 529 for education so will likely err on the side of underfunding it and continuing to work (hopefully in a part time capacity) come college / graduate school age.

[Docbeans]

If you have the ability to do so, frontloading the 529 is a good option since the money gets some time to compound. You can put up to 5 yrs worth at a time.

[deeppizza]

We went with the Utah plan.  It offers both Vanguard as well as DFA funds which typically must be bought through a broker.  I also liked that it was much more customizable compared to other plans.  We typically contribute ~ 10K/year/child as well as any gifts from grandparents, family, etc...

[The White Coat Investor]

Utah is my favorite default for those with no state tax break. But Nevada and New York are also excellent plans. Morningstar ranks Utah, Nevada, and Virginia as gold plans this year. New York is a silver, along with Ohio, another perennial front-runner.

 

http://news.morningstar.com/articlenet/article.aspx?id=775806

[slo]

I have been using Utah's 529 since my oldest was born. They have a nice mix of Vanguard and DFA funds.

Recently, I was alerted by someone who told me that my 529s may be vulnerable to creditors in a med Mal suit. This source went on to tell me that some states protect these assets from creditors.

I've never been sued, but it's obviously a concern when practicing medicine. I've been trying to figure out how states differ in asset protection, and it's not easy to find. I'm a resident of California, so if I'm sued in CA, but my 529s are held in a state, like Alaska, that protects 529s from creditors, will those assets be protected?

Have any of you WCI readers factored this into your choice of 529 plan? I've been happy with Utah and don't want to switch plans, but if those assets are indeed at risk, perhaps I should move them.

Any thoughts on this?

[kabobjs]

Choosing a 529 plan if you do not get state tax breaks is kind of difficult.  Many people, including on this thread, mention Utah as a popular choice, since it offers a variety of investment options that are relatively low cost.  What I would add is if you have an investment strategy already in mind (i.e. you want to invest in a target fund, or have a specific allocation in mind), I would compare 10 or so of the cheaper plans, and figure out what your annual expense would be given the expense ratios of the funds you would chose and the annual administrative fee.  You often have to read the fine print to figure out the latter, but each plan has one.  To compare apples to apples, I would calculate the 1 year cost of a $10,000 investment.

Based upon this analysis (assuming you want to invest in index funds) I found California to have the lowest cost if I wanted to invest in a target fund or have a static stock/bond mix.  You can't customize the mix of investments like you can with Utah's, but they have a good variety of investment mixes.  If you're like most investors who want a basic portfolio of domestic/international equities and bonds, California's plan can give you this. I know everyone sings high praises for Vanguard (including myself), but California's plan is the cheapest.  Am I wrong about this?

[TheGipper]

MA (lowest fees, fidelity index funds) > NY (lowest cost Vanguard fund plan) > UT (slightly higher fees but access to VG and DFA and more customizable).

[VagabondMD]

As my high schoolers approach college age, I have been using the Colorado Stable Value 529 plan.

[TheGipper]

What is the CO 529 Stable Value Fund guaranteeing these days. I remember thinking it was an attractive option to rollover into when kids approach college age. I think it was giving 2.6% when the finance buff wrote about it back in 2015.

What is it guaranteeing for 2017?

[ENT Doc]

I think your approach to which 529 should depend on what you want the 529 to do for you/your child.  Some might want to only cover college and contribute just up to that amount.  I view it as a tax-efficient wealth-transfer mechanism that can span generations.  In that respect it is more unique than most other traditional investment options.  I fully expect estate tax limits to decrease in the future.  That being said, the more I can transfer now the better.  Education just happens to be a side benefit.  I fully expect to keep contributing to it once education funds are used.  Annual gifting of $28,000 per couple has the potential to exceed $1.5 million over the course of your lifetime for 1 child alone.  That's $1.5M that you just avoided adding to your estate - per child.  That means that four things matter to me - expense ratios, tax breaks, underlying investment options, and contribution limits.  Some states have very low contribution limits and other states have sums that are nearly $200K higher.  I prefer the latter because I can keep contributing.  You are able to transfer 529 funds to other states, which I am willing to do if superior options exist elsewhere in the future.  Likewise, some states offer tax breaks but may have higher ratios.  You need to find the right balance for yourself.  The savingforcollege website is excellent to start research, but you really need to go to each state's 529 page to get information.  Create a spreadsheet.  Pulled up some of them for you all here:

Utah:  https://uesp.org/wp-content/uploads/2016/09/UESPProgramDescription_dest.pdf

NY:  https://www.nysaves.org/home/why-ny-529-direct-plan/out-of-state-savers.html

NV:  http://www.nevadatreasurer.gov/CollegeSavings/CSP_Home/

 

There are other hidden treasures that may be superior depending on the state.  For example, I was in RI and as a resident, and I was able to get a Vanguard Total Stock Market Index fund for 0.04% asset management fees + 0.04% state fees.  That was the lowest I could find anywhere for an equity fund, plus their contribution limit was reasonably high at $395,000.  I'll likely switch that to another state in the future if they don't increase it.  Sometimes states offer tax breaks even for 529 contributions in other states.  Best of luck in your search - it's a lot of work, but it's worth it.  With another one on the way and not being in RI any more I've got my own research ahead of me again.  But if possible I recommend starting early and maxing out the gift contribution every year.  I don't advise a lump sum 5 year payment - not only from an investment strategy perspective, but you forgo certain tax breaks (limits imposed) I believe (not to mention it's a lot harder to come up with nearly $150,000 in cash).  The benefit of being able to use 529 money for education - college or beyond - and the ability to have that money grow and pass on tax-free to the next generation are invaluable, especially to high earners who can't expect to benefit from any socialist "free" education program should that ever come to pass.

[VagabondMD]

TheGipper wrote:

What is the CO 529 Stable Value Fund guaranteeing these days. I remember thinking it was an attractive option to rollover into when kids approach college age. I think it was giving 2.6% when the finance buff wrote about it back in 2015.

What is it guaranteeing for 2017?

Click to expand...

2.59% in 2017. Last year was 2.54%.

[GXA]

We also use Nevada.  I have been contributing $500 a month since soon after birth for each of our kids.  We are probably under-saving - I am a little leery of putting too much into these and having funds left over.  Each child should have 120,000 - 140,000 if their accounts by the time they are starting college.  A nice start that can be supplemented if it runs short.

We benefitted from dollar cost averaging through the downturn of 2009, and continuing to contribute all the way up to where we are now.