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Dual Military Physicians. Do we really need the 529

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  • Dual Military Physicians. Do we really need the 529

    Somewhat unique situation.  My wife and I are both military physicians.  We both owe 7 years (USUHS couple) - ortho and internal med.  We both already elected to transfer our benefits for post-9/11 GI bill and therefore will have two post-9/11 GI bills for our kids to use when the time comes.  We don't plan on having more than 2, and even if we did I think 3 would be the max.  We have no student loans, car loans.  One mortgage that is being paid by a renter with profit.  We max out our ROTH TSP and ROTH IRA's each year, have a taxable Vanguard account and money left over.  My question is do we really even need a 529?  I have already decided no, but haven't committed to an alternative yet.  Currently we just have a large chunk of cash waiting to go in to whatever I decide to do for a "Just in case" college fund (i.e. the difference of what the GI bill covers, etc).  Ideally we could cover difference in cash based on projected income in 18 years...or we could use our Roth IRA's or taxable accounts worst case scenario.

    So, would anyone still recommend a 529 plan?

    If most agree that we do not necessarily need a 529, what would be the recommended place to put money for the kids?

  • #2
    *Need?* Prob not.  Could just get by with taxable.  Change to low-volatility holdings or cash as time horizon nears like the managed 529s do.

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    • #3
      If they really aren't going to need it for college (and sounds like they won't esp as you can easily cash flow incidentals on a 2 MD salary) why not just grow the nest egg?

      I have several people in my circle who are in their 50s/60s with kids in 20s/30s who are giving their kids gift limit gifts each year with the express (and verified) purchase of the kids maxing out retirement accounts. If I were in your scenario that's what I would do, just build your personal wealth and give to your kids when they really need it as they start their lives and careers. Why partition the money off somewhere if you don't need it for a discrete expense?

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      • #4
        There are obviously some tax advantages to the 529 you would forego including growth. Is there any consideration for graduate school? If you are fine with them taking on loans or cash flowing, I wouldn't say you need to. But most on here don't need to either.

        Just one option.
        I don't know enough about post gi bill to say more.

        Good luck! As long as you continue to be good savers, you will have good options to choose from.

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        • #5
          Does your state have offer tax benefits for 529 contributions? If so, that would be the only reason I would recommend and then only up to the max needed to get the benefits. If the bene's are paltry, might just skip.
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6
            Ideally you both have a state of residence without an income tax (or at least no income tax for active duty income).

            If you are a resident of a state that has a credit or deduction for 529 contributions, then you may want to capture that. My wife and I contributed to Virginia's 529 when I was a Virginia resident.

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            • #7
              The GI Bill isn't going to cover everything, especially if they go to a private school.  Additionally, as some have noted, there is grad school to consider.  I'd probably put some additional money in both for additional expenses not covered by the GI Bill, some for the possibility of a private school, and some for the possibility of grad school.  The worst that happens here as a dual income physician household (assuming your savings rate is reasonable) is that they end up passing on excess 529 funds to their kids but don't have to cash flow it as you are doing now.  On another note, why are you doing the Roth TSP and not traditional TSP given your taxable income?

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              • #8
                First world problems!

                1.  Max any deduction/match as others have mentioned.

                2.  Max your own tax advantaged retirement funds

                3.  Consider your chances of kids going private as $18k doesn't get you far beyond state tuition - eg Stanford is a mere $46k and they have a HUGE endowment.   Also consider if you want to fund graduate school or not

                4.  Fund your retirement -- I'd go for Roth TSP since large amount of income and your end retirement will have toward inheritance which Roth has a huge advantage without RMDs and ability to send to kids without issue.

                 

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                • #9
                  We are both Florida residents so no state income tax issue




                  The GI Bill isn’t going to cover everything, especially if they go to a private school.  Additionally, as some have noted, there is grad school to consider.  I’d probably put some additional money in both for additional expenses not covered by the GI Bill, some for the possibility of a private school, and some for the possibility of grad school.  The worst that happens here as a dual income physician household (assuming your savings rate is reasonable) is that they end up passing on excess 529 funds to their kids but don’t have to cash flow it as you are doing now.  On another note, why are you doing the Roth TSP and not traditional TSP given your taxable income?
                  Click to expand...


                  Being dual military our actual taxable income is relatively low (effective tax rate last year was around 13%).  Now that we are both finished with residency that will change a bit, but still not to the extent that a new civilian orthopod would see.  My plan was that we would continue to max as much ROTH money as possible until we move in to the 33% tax bracket

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                  • #10




                    We are both Florida residents so no state income tax issue




                    The GI Bill isn’t going to cover everything, especially if they go to a private school.  Additionally, as some have noted, there is grad school to consider.  I’d probably put some additional money in both for additional expenses not covered by the GI Bill, some for the possibility of a private school, and some for the possibility of grad school.  The worst that happens here as a dual income physician household (assuming your savings rate is reasonable) is that they end up passing on excess 529 funds to their kids but don’t have to cash flow it as you are doing now.  On another note, why are you doing the Roth TSP and not traditional TSP given your taxable income?
                    Click to expand…


                    Being dual military our actual taxable income is relatively low (effective tax rate last year was around 13%).  Now that we are both finished with residency that will change a bit, but still not to the extent that a new civilian orthopod would see.  My plan was that we would continue to max as much ROTH money as possible until we move in to the 33% tax bracket
                    Click to expand...


                    Makes sense.  I chose 28% as our cutoff.  Didn't think my effective rate would ever be greater than that on withdrawal.  Your ability to put money into Pre-tax accounts is limited in the military, so the balance never gets that high with respect to other account types.  But you do have the two pension thing to account for.  Given that, I'd be all stocks.  Your pension is a great safety net.  BTW, if you're staying in for 20, which I assume you are given your commitment, I don't recommend switching to the new retirement plan.

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                    • #11
                      One reason you might consider the 529 plan for your children:  future education.

                      Not necessarily for your children.  What if they eventually have children?  You can establish a new 529 plan for your grandchildren, then roll over the leftover amount to them.  Or you can just change the beneficiary on your account.  The benefit is that there is no tax consequence to this.  IRS Publication 970, Tax Benefits for Education, has more details.

                      From an estate planning perspective, a 529 plan allows you to avoid estate taxes and generation-skipping transfer tax, assuming your annual gifts were below the annual gift exemption ($14,000 for 2017).  Not only that, but a 529 plan allows you to combine 5 years' of gifting, so you can actually contribute $70,000 in one year (or $140,000 for you and your spouse).  Not that you would want to do that, but it can become a powerful estate planning tool.

                      Whether it's right for you at this point is your decision.  However, you might find a place for the 529 plan in terms of planning for future college educations, as well as avoiding estate taxes.

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                      • #12
                        I would keep doing what you are doing and look to contribute to a 529 once you have kids.  My wife and I thought we knew how many we would have until we actually started a family.

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                        • #13
                          Don't forget you can always use 529 plans for extended family members, like a niece or nephew. This is something I see every so often where someone wants to help out a relative in a very specific way. They get a small tax benefit and are sure the money goes toward the education goal.

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                          • #14







                            We are both Florida residents so no state income tax issue




                            The GI Bill isn’t going to cover everything, especially if they go to a private school.  Additionally, as some have noted, there is grad school to consider.  I’d probably put some additional money in both for additional expenses not covered by the GI Bill, some for the possibility of a private school, and some for the possibility of grad school.  The worst that happens here as a dual income physician household (assuming your savings rate is reasonable) is that they end up passing on excess 529 funds to their kids but don’t have to cash flow it as you are doing now.  On another note, why are you doing the Roth TSP and not traditional TSP given your taxable income?
                            Click to expand…


                            Being dual military our actual taxable income is relatively low (effective tax rate last year was around 13%).  Now that we are both finished with residency that will change a bit, but still not to the extent that a new civilian orthopod would see.  My plan was that we would continue to max as much ROTH money as possible until we move in to the 33% tax bracket
                            Click to expand…


                            Makes sense.  I chose 28% as our cutoff.  Didn’t think my effective rate would ever be greater than that on withdrawal.  Your ability to put money into Pre-tax accounts is limited in the military, so the balance never gets that high with respect to other account types.  But you do have the two pension thing to account for.  Given that, I’d be all stocks.  Your pension is a great safety net.  BTW, if you’re staying in for 20, which I assume you are given your commitment, I don’t recommend switching to the new retirement plan.
                            Click to expand...


                            Sorry I was slow to respond to everyone's responses.  Been a bit busy and had notifications turned off.  Oops!

                            I am thinking that only one of us will stay in for 20 years to at least have one pension and healthcare.  Whether or not we both stay in depends on op tempo and deployment schedules for us.  I like the idea of staying (even though financially I should be the one to get out) so I am keeping the High-3 retirement plan.  My wife only has 4 more to pay back and could get out or maybe stay in.  In her case I think we will have her switch to BRS as any money matched in TSP today can be used elsewhere (529, taxable, etc), plus she will also get the continuation bonus at 12 years (~18k).  Worst case scenario is she stays in and one of our pensions is reduced by 20%...at least we were able to capitalize on 5% match now, plus a 18k bonus check compounding early in our careers.

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                            • #15
                              What "Class of.." were you guys were you at USUHS? I believe my year we had 3 or 4 marriages with two USUHS students tying the knot

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