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

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  • #16
    So many unknowns (as articulated above).
    • Choose a model college and project tuition into the future for appropriate # of years at your assumed inflation rate. Really, it’s a guess, but you have to start somewhere.
    • How much, if any, will family pay?
    • Decide what % of the total you want to pay for.
    • Consider funding a % in 529 (75%? 80%) and the rest in a taxable account.
    That will get you started. As @g said, college funding is only a small part of the puzzle. You also need to consider tax benefits in your state. Is there an annual deduction or credit? Can you frontload and spread the credit out over 5 yrs? Etc.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #17
      Here is what we have done. Not exactly what OP proposes, but a data point. Daughters are currently in high school. Utah 529 opened for each when born. Rather than WCI approach of being super aggressive with investments, we chose age-based moderate portfolios for both. I was more concerned with having money available when college begins than maximizing returns. Funded both monthly and occasional lump sum contributions. Stopped funding about 4 years ago and switched to UTMAs which are invested 100% in equities. Given uncertainty of actual education needs for each daughter, did not want to overfund 529s. Each 529 has had a total of about $145k in contributions and are currently valued at about $250k. Clearly have missed out on the incredible returns of the last several years, but comforting knowing they have a solid amount ready for college. The UTMAs are large enough to cover pretty much anything not covered by 529s. As it turns out, one daughter will hopefully complete a 4 years college while other already has designs on medical school. Time will tell.

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      • #18
        What is the reason to frontload instead of fund annually?

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        • #19
          Originally posted by CFEonline View Post
          What is the reason to frontload instead of fund annually?
          Longer period of tax-free growth.
          Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #20
            Originally posted by jfoxcpacfp View Post

            Longer period of tax-free growth.
            At the cost of fewer tax benefits in many states. For instance, I could put $72K into the Utah 529 at birth, or I could put $4K/year in there. If I put $4K/year in there, I get an extra $3600 total off my state taxes over 18 years. Many states offer even better benefits.
            Helping those who wear the white coat get a fair shake on Wall Street since 2011

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            • #21
              Originally posted by The White Coat Investor View Post

              At the cost of fewer tax benefits in many states. For instance, I could put $72K into the Utah 529 at birth, or I could put $4K/year in there. If I put $4K/year in there, I get an extra $3600 total off my state taxes over 18 years. Many states offer even better benefits.
              But if you're getting 6% return on 72k, wouldn't that rapidly make up for the deduction?

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              • #22
                Originally posted by G View Post

                But if you're getting 6% return on 72k, wouldn't that rapidly make up for the deduction?
                Presumably that $72K is invested in a taxable account. The difference between the return in a 529 and the return in a taxable account probably won't make up the deduction.
                Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                • #23
                  Originally posted by The White Coat Investor View Post

                  At the cost of fewer tax benefits in many states. For instance, I could put $72K into the Utah 529 at birth, or I could put $4K/year in there. If I put $4K/year in there, I get an extra $3600 total off my state taxes over 18 years. Many states offer even better benefits.
                  Yes, I mentioned this in my 2nd response. Some states actually allow owners to prepay and take the annual deduction/credit in the future. 5 years is the longest I've seen so far.
                  Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                  • #24
                    Originally posted by jfoxcpacfp View Post

                    Yes, I mentioned this in my 2nd response. Some states actually allow owners to prepay and take the annual deduction/credit in the future. 5 years is the longest I've seen so far.
                    Which states do that? That would be cool.
                    Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                    • #25
                      Originally posted by The White Coat Investor View Post

                      At the cost of fewer tax benefits in many states. For instance, I could put $72K into the Utah 529 at birth, or I could put $4K/year in there. If I put $4K/year in there, I get an extra $3600 total off my state taxes over 18 years. Many states offer even better benefits.
                      Agree - the yearly state tax deduction helps. In our state (PA) we get up to 14k/year deduction per kid for 529s and used the highly-rated Utah plan, and it automatically became more conservative as they closed in on college; our basis was about 1/2 of the end amount.

                      Lastly, depending on which college your kid ends up at, if you've saved enough in your 529s, the college will let you PRE-pay 4 years of tuition (not room/board) to lock in the tuition rate at freshman year. Since some of the expensive schools go up 4-6% a year, and your (then very conservative) 529 plan is mostly in fixed instruments, it makes sense. If your kid drops out or transfers, they refund the unused tuition. We've done this for 2 kids thus far.

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                      • #26
                        Originally posted by The White Coat Investor View Post

                        Which states do that? That would be cool.
                        For Ohio's 529:

                        Are there any special tax benefits for Ohio taxpayers?

                        Yes. If you are an Ohio taxpayer, you are eligible to deduct up to $​4,000 of contributions per beneficiary, per year from your State of Ohio taxable income, with unlimited carryforward. You do not have to be the Account Owner to deduct contributions from your State of Ohio taxable income. The benefit is per contributor or married couple.

                        https://www.collegeadvantage.com/general-faqs

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                        • #27
                          I overfunded my first child’s 529 when it turned out he received a half scholarship. Fortunately, I have a second child to whose education I can direct the excess. But my conclusion is that it is better to underfund the 529, save the expected remainder in a taxable account, and if no extra is needed, there’s no penalty to pay.
                          My Youtube channel: https://www.youtube.com/channel/UCFF...MwBiAAKd5N8qPg

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                          • #28
                            Originally posted by The White Coat Investor View Post

                            Which states do that? That would be cool.
                            Wisconsin, where I live, is one.

                            "Contributions in excess of $3,280 may be carried-forward to be applied in subsequent tax years." http://529.wi.gov/

                            We had an interesting discussion about something related to this and other unique WI 529 laws recently on your excellent forum: https://www.whitecoatinvestor.com/fo...-529-deduction

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                            • #29
                              Originally posted by Antares View Post
                              I overfunded my first child’s 529 when it turned out he received a half scholarship. Fortunately, I have a second child to whose education I can direct the excess. But my conclusion is that it is better to underfund the 529, save the expected remainder in a taxable account, and if no extra is needed, there’s no penalty to pay.
                              You're not gonna save anything for grandkids? That's my back-up plan if they don't use it. Just change the beneficiary to their kids and let it run another 20-30 years.
                              Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                              • #30
                                Maybe, depends on your assumptions. 150k with 7% return over 18yrs yields ~500k. A respectable private college would go for $75K for tuition+board today. Based on the 4% tuition growth of my private alma mater, 18yrs 300k in tuition becomes 600k. 150k today will come up short. Being in the same position ourselves, the bigger question we ask ourselves is whether private tuition is a worthy goal and/or if we should even be locking up so much in a 529.

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