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Is a single $150k frontload to a 529 enough?

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  • Is a single $150k frontload to a 529 enough?

    If you are lucky enough to frontload $150k to a 529 for a newborn (or 1 year old) or have grandparents or other family who contribute, do you think with compounding over 18-21 years, invested reasonably aggressively, do you think that should be enough to cover the costs of college without further contributions after year 5? Obviously depending on what the market does in those first 5 years?

  • #2
    i mean....this is a future value equation....
    plug and play.
    what does 150K for 18 years at 8% get you.....6%.....10%....
    and then is that # enough....

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    • #3
      At 5% you're looking at about $370k after 18 years. I'd think that would go pretty far.

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      • #4
        Exactly. Enough for what? For my alma mater? You could probably invest 1/10th that much at birth and cover the cost of attendance for four years.
        Helping those who wear the white coat get a fair shake on Wall Street since 2011

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        • #5
          Originally posted by The White Coat Investor View Post
          Exactly. Enough for what? For my alma mater? You could probably invest 1/10th that much at birth and cover the cost of attendance for four years.
          Thanks - for clarification, I'm looking to cover the cost of a 4 year private college, will see if public state school is a better option when the time comes, but want to keep options open, if he/she goes to public college, then there's room left over for grad school or we just pull it out and pay the penalties...I figured there would be a few people here who frontloaded a 529 at birth, and was curious if they planned on adding to it down the road....

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          • #6
            Originally posted by drbisco View Post

            Thanks - for clarification, I'm looking to cover the cost of a 4 year private college, will see if public state school is a better option when the time comes, but want to keep options open, if he/she goes to public college, then there's room left over for grad school or we just pull it out and pay the penalties.
            Not trying to start a private vs. public debate but public is almost always a better deal financially.

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            • #7
              I’ve had this debate myself. How much to put in a 529? Obviously there are several posts here on it as well. There are unknowns... rate of return (unknown) minus inflation of college tuition (unknown) equals real return, and that could probably be just about anything. Not including possible scholarships, etc.

              I have “max” front loaded my kids’ 529s and have debated adding more after the 5 years is up. If I underfund some expensive education then at least the 529 will make it less painful for me to pay when the time comes. If I overfund then they could use it for grad school or beyond, or I could transfer to someone else (niece/nephew, future grandkid).

              In short it’s a very personal decision and nobody knows if $150k now will grow enough to cover whatever an expensive school costs in 20 years. Use whatever numbers you want to make your decision.

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              • #8
                This is exactly the pro/con debate that's going through my head - part of the reason for posting was to hear what other people's thoughts are, and especially if there's people who are either coming up on year 6 after overfunding or are past that and what they've done. Lots of unknown, obviously....Thanks for the insight!

                Originally posted by abds View Post
                I’ve had this debate myself. How much to put in a 529? Obviously there are several posts here on it as well. There are unknowns... rate of return (unknown) minus inflation of college tuition (unknown) equals real return, and that could probably be just about anything. Not including possible scholarships, etc.

                I have “max” front loaded my kids’ 529s and have debated adding more after the 5 years is up. If I underfund some expensive education then at least the 529 will make it less painful for me to pay when the time comes. If I overfund then they could use it for grad school or beyond, or I could transfer to someone else (niece/nephew, future grandkid).

                In short it’s a very personal decision and nobody knows if $150k now will grow enough to cover whatever an expensive school costs in 20 years. Use whatever numbers you want to make your decision.

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                • #9
                  I think that 150K invested in the market for a newborn should be more then adequate to cover 4 years of tuition. With the cost of some 4 years of private school running about $240K for four years right now, assuming that your rate of return is higher then college inflation, you should have enough by the time that they are 18-22.

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                  • #10
                    Yes

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                    • #11
                      Originally posted by drbisco View Post

                      Thanks - for clarification, I'm looking to cover the cost of a 4 year private college, will see if public state school is a better option when the time comes, but want to keep options open, if he/she goes to public college, then there's room left over for grad school or we just pull it out and pay the penalties...I figured there would be a few people here who frontloaded a 529 at birth, and was curious if they planned on adding to it down the road....
                      Funny that you seem to have assumed my alma mater is public. It isn't. But it is cheaper than most state schools.

                      I suspect most people are like me. I simply didn't have $150K total much less $150K/kid when they were born. I was a resident for # 1, a military doc for #s 2 and 3 and barely a millionaire for # 4.
                      Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                      • #12
                        CAPE is 31 so let's predict 5% real going forward in a 100% equity portfolio. Over 18 years that is $361,000. That's 50% more than the current cost of private college. But you might not stay 100% equities for all years, you might want to fund grad school, etc. On the other hand you might not get 5%; could be more or less.

                        I think you're likely to have more than needed, but it's not guaranteed. If you're willing to overfund a little, I'd probably go for it. Also I'm pondering whether the SECURE act makes 529s relatively more attractive as a means of intergenerational wealth transfer. Since they don't have RMDs they can't force income into higher brackets. So I'm sort of happy if we overfund a little.

                        We put in half that amount per kid and did it over a few years (5-7 per kid). At ages 10&12 they have about $500k between them. Note the stock market was far cheaper 10-12 years ago than it is today, and subsequent returns have concomitantly been stellar: around 15% annualized. I wouldn't expect that from here.

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                        • #13
                          A lot can change in 18 years.
                          college could be free or markedly reduced cost.(fat chance)

                          Your kid could get a scholarship or decide not to go to college.

                          They could decide military route.

                          your kid could be lazy and you decide not to find college.

                          Not to mention illness, or other health reasons.

                          All together these are low likelihood but possible. You can eliminate some of the guesswork by funding it along the way because you can adjust as you go.

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                          • #14
                            Originally posted by drbisco View Post
                            If you are lucky enough to frontload $150k to a 529 for a newborn (or 1 year old) or have grandparents or other family who contribute, do you think with compounding over 18-21 years, invested reasonably aggressively, do you think that should be enough to cover the costs of college without further contributions after year 5? Obviously depending on what the market does in those first 5 years?
                            I'm really starting to enjoy the 529 discussions. One would hope that 150k into an aggressive age-based vanguard fund would be enough to cover college in 18-21 years. If not, we got some bigger issues.

                            But the 529 is just a small piece of a big financial puzzle, right? What are you going to do if you don't frontload? Take up horse breeding? Increase cocaine consumption? Do you plan on retiring early? With how much money? At what burn rate? etc etc etc

                            I put in as much as I could each year for a few years til I retired my debt, had a good nest egg, and a lovely whisky collection. Then I superfunded. I plan to RE, so I rest assured that undergrad (and more) will be paid for. I plan to superfund any grandkids ASAP.

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                            • #15
                              Originally posted by nephron View Post
                              I think that 150K invested in the market for a newborn should be more then adequate to cover 4 years of tuition. With the cost of some 4 years of private school running about $240K for four years right now, assuming that your rate of return is higher then college inflation, you should have enough by the time that they are 18-22.
                              I'm not sure the return will be higher than inflation of tuition.

                              I'm also not sure why it matters or why OP can't reassess in 5 years and see how market is doing/did and how much college tuition is growing. It's a question that doesn't have to be answered right now.

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