Dual Military Physicians. Do we really need the 529

[ghall24]

adventure wrote:

ENT Doc wrote:

The GI Bill isn’t going to cover everything

Click to expand…

Agreed.

How much does the GI Bill provide for:

– rent?

– food?

– gas?

– new phone?

– new computer or 2?

– 4+ years of books?

– tuition?

 

I’m glad the US has the GI bill, but I can’t imagine it covers all that would be needed.

(I googled – it doesn’t.).

 

Ergo: Why would you not use the 529? unless you plan to cashflow the difference, or have the student take on loans.

Click to expand...

You assume that we are not putting any financial responsibility on our kids during college.  They won't even be paying for their own gas??  I don't want to get in to parenting discussion, but the premise of your post says a lot about how you are allocating your fortunate wealth to your children.  I agree that taking on loans is not the best idea, but sometimes necessary.  I am planning to pay for 4 years of undergraduate education to give them a head start towards their own financial success.  What they choose to do beyond that is up to them.  Sure, I will likely have the money to pay for their graduate school or failed semesters at undergrad, but that doesn't mean they will know that, nor will we choose to provide for those things unless we decide it makes sense at that time.  Therefore I do not feel it wise to lock up hundreds of thousands of dollars in a 529 when I already have hundreds of thousands of dollars of benefits to use because my wife and I decided to serve our country instead of taking on financial debt.  Why would I risk having to pay 10% fee plus 25 or 35% income tax on an unused 529 plan when I could invest taxable and pay 15% capital gains or Roth and pay only income tax (25 or 35%) IF I needed it.  I understand I could pass to my grandkids or to any other family member, but I don't see that as a sole justification to invest in a 529 vs. another vehicle...plus you often have to pay a state tax or generation skipping tax when changing a beneficiary like that.

SO just so everyone knows, I do have a 529 for grandparent/family/birthday donations, plus some extra money I have thrown in here and there.  That will grow tax free and I can probably find a use for it for one or two of my kids...but we would be talking about 5 figures at the most.  The premise of the post was regarding funding a 529 with budgeted funds to meet some specific goal.  My only goal to meet is undergrad for my two kids which I already have via two post-9/11 GI bills.  Therefore everything else goes towards retirement or a future hunting cabin.

So the moral of the story is, if your goal is to fund undergrad AND graduate, plus possible money for your grandkids and nieces/nephews...then sure, you need a lot of money in a 529 even if you have post-9/11 benefits.  It is a matter of picking a goal and sticking to it.

 

FYI:  Here are the facts for the Post-9/11 GI bill.

1. 36 months of tuition paid in full with a max amount being the most expensive state school in your state
   
   
   
   • This is 36 months of academia.  Therefore 4 years at a 9-month academic calendar (standard) is covered
   
   
   
   


2. Allowance for housing at an E5 w/ dependents rate (~$1800/month)
   
   
   
   • This is included whether or not you are retired or active when your child is using the benefits
   
   
   • [I just spoke with VA benefits rep on 03NOV2017]
   
   
   
   


3. Annual stipend for books/supplies (up to $1000)

 

[ENT Doc]

This assumes your are eligible for the yellow ribbon program, the school has an agreement with the VA, you get it when applying...and it doesn't account for education beyond the 36 months allotted.  The 529 has pros and cons.  But if I were a betting person I'd wager that children of physicians have a higher tendency to enter degree programs beyond undergrad.  And this is where the 529 has its advantages.  I have little interest in my children taking on debt, or cash flowing something increasing at a 4% CAGR.

[adventure]

ENT Doc wrote:

The GI Bill isn’t going to cover everything

Click to expand...

Agreed.

How much does the GI Bill provide for:

- rent?

- food?

- gas?

- new phone?

- new computer or 2?

- 4+ years of books?

- tuition?

 

I'm glad the US has the GI bill, but I can't imagine it covers all that would be needed.

(I googled - it doesn't.).

 

Ergo: Why would you not use the 529? unless you plan to cashflow the difference, or have the student take on loans.

[Re3iRtH]

Ahh.. nice. Just one year from myself. Although I wasn't one of the duals

[ghall24]

2012

[Re3iRtH]

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

[ghall24]

ENT Doc wrote:

ghall24 wrote:

We are both Florida residents so no state income tax issue

ENT Doc wrote:

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.

[djohnflatfeecfp]

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.

[cgossage]

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.

[fbaum818]

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.

[ENT Doc]

ghall24 wrote:

We are both Florida residents so no state income tax issue

ENT Doc wrote:

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.

[ghall24]

We are both Florida residents so no state income tax issue

ENT Doc wrote:

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

[StarTrekDoc]

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.

 

[ENT Doc]

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?

[Hank]

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.