Educational Savings Accounts

[Dunit35]

Anybody have one for their children? Or a 529 plan?

We opened a regular savings account for our two year old daughter when she was born. We only put in $10/every other week. We are about to do the same for our newborn. It will amount to $4600 or so. It'll pay for one semester or help with a vehicle.

It looks like a better return would be an education plan. More money will go into it when debt is cleared up.

[RunKC]

Correct me if I'm wrong, but isn't that plan only effective if they go to college?

[kepp]

We have 529's for both our kids. It's definitely better than a normal savings account. The difference being that funds from a 529 HAVE to go towards educational expenses. You won't be able to buy a car with it.

[Dunit35]

That's the only downfall with the educational stuff. What do they do with the cash if they don't go to school. It looks like it's a 10% tax penalty if it's not used for school.

[Saul Good]

I've got one for both of my kids. It's a small defined benefit plan from a former employer that I've directed into a 529. I think it puts in around $250 a month. I haven't even looked at it in probably a year or two, but it's probably got around $30k in it by now. My oldest is 8, so it should be enough to get him through college by the time he's 18 and hopefully have enough left over to get our youngest most of the way there. A scholarship still wouldn't hurt, though.

[ChiTown]

That's the only downfall with the educational stuff. What do they do with the cash if they don't go to school. It looks like it's a 10% tax penalty if it's not used for school.

Correct, plus the income tax on the earnings. If your child decides not to go to school, the 529 can be transferred to a Family member or can be used in vocational or trade schools - you can use it as well.

[kepp]

That's the only downfall with the educational stuff. What do they do with the cash if they don't go to school. It looks like it's a 10% tax penalty if it's not used for school.

From https://www.missourimost.org/content/basics_529basics.html

What happens if the beneficiary doesn't want to continue his or her education?
If that's the case, you have a couple of options. You can stay invested in case he or she decides to attend school later (there's no age limit on using the money), you can change the beneficiary to an eligible family member, or you can withdraw the money for other uses. A 10% penalty tax on earnings (as well as federal and state income taxes) will apply if you withdraw the money to pay for nonqualified expenses.

[Dunit35]

Correct, plus the income tax on the earnings. If your child decides not to go to school, the 529 can be transferred to a Family member or can be used in vocational or trade schools - you can use it as well.

I know many successfull non college educated people, my brother being one of them. I also have two sister in laws that couldn't complete high school and both still live at home, in their 20's. One of them refuses to get a job.

I will pay the penalties and keep the money if they don't go to some type college.

[BigBeauford]

I use a 529 plan as well. I believe what you put in is deductible in the state of Kansas for state taxes up to a certain amount, a nice benefit.

[Dunit35]

My oldest has $635 in her account. I have never invested any money so it does worry me that I'll lose the money.

[kepp]

My oldest has $635 in her account. I have never invested any money so it does worry me that I'll lose the money.

It's a long-term investment...you can't react to day-by-day market swings. The funds that we use have a 5 year return of just over 9%. You will lose money on some days, but over the long haul, you'll gain. I think most 529 programs will have age-based/risk-based options.

[Dunit35]

It's a long-term investment...you can't react to day-by-day market swings. The funds that we use have a 5 year return of just over 9%. You will lose money on some days, but over the long haul, you'll gain. I think most 529 programs will have age-based/risk-based options.

How do people get them started? Find a good investment company and go that route?

[kepp]

How do people get them started? Find a good investment company and go that route?

A lot of states "sponsor" 529 programs. I went with Missouri's MOST program. But I'm sure you can open 529 accounts that aren't state sponsored.

https://www.ok4saving.org/

[Amnorix]

If you think/expect your kid(s) will go to college, a 529 plan is hard to beat. Essentially it lets you invest money into an earmarked account which grows tax free and can be withdrawn tax free to pay for qualified expenses.

Some states, including Missouri, allow tax credits/deductions for certain contributions to a 529 Plan.

http://www.savingforcollege.com/articles/how-much-is-your-states-529-plan-tax-deduction-really-worth-733


You do of course have the risk of losing principal, etc., but most 529 plans have options to invest in programs based on the year the kid is anticipated to start college. As the kid gets older, the risk matrix is shifted to reduce the percentage invested in higher risk assets and into lower risk assets.

[Amnorix]

How do people get them started? Find a good investment company and go that route?


Pretty much. Be aware that many 529 plans are "linked" to states, but that you can invest in any state's 529 plan. You don't have to invest in the one in the staet where you live.

[noa]

We have them for our boys, and my in-laws contribute, too. We chose a state plan that had a good reputation.
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[Dunit35]

It looks like Oklahoma has tax incentives for it. I always have to pay state taxes in January. Will that lessen my state tax burden? Do I start one on the Oklahoma website or contact an investment company?

[mikeyis4dcats.]

some states give tax reductions for thewir own plan, but some state plans are much better than others. You can use any plan.

[Demonpenz]

You could get better ror on your money, but if you don't know what you are doing 509 is ok.

[excessive]

I have about $18,000, but my son has a full ride. I can either save it for graduate school or take it out penalty free. I'll have to pay taxes, and that sucks, so I'm debating what to do: "Pay your own damn way to graduate school, you deadbeat freeloader" (actually, he's a great kid and deserves the help) or "Woo who! I've got 12G I wasn't planning on!"

[mikeyis4dcats.]

I have about $18,000, but my son has a full ride. I can either save it for graduate school or take it out penalty free. I'll have to pay taxes, and that sucks, so I'm debating what to do: "Pay your own damn way to graduate school, you deadbeat freeloader" (actually, he's a great kid and deserves the help) or "Woo who! I've got 12G I wasn't planning on!"

Aren't those the same option?

[Rain Man]

Aren't those the same option?

Apparently he's banking on his son not figuring that out.

[Infidel Goat]

I'd personally suggest reading to your kids, helping them with math, and hoping they win a scholarship instead...

[007]

From https://www.missourimost.org/content/basics_529basics.html

What happens if the beneficiary doesn't want to continue his or her education?
If that's the case, you have a couple of options. You can stay invested in case he or she decides to attend school later (there's no age limit on using the money), you can change the beneficiary to an eligible family member, or you can withdraw the money for other uses. A 10% penalty tax on earnings (as well as federal and state income taxes) will apply if you withdraw the money to pay for nonqualified expenses.

Isn't it similar to an IRA that you could pull it out at retirement age without penalties? Seems like I have heard that before.

[DaneMcCloud]

If you think/expect your kid(s) will go to college, a 529 plan is hard to beat. Essentially it lets you invest money into an earmarked account which grows tax free and can be withdrawn tax free to pay for qualified expenses.

Some states, including Missouri, allow tax credits/deductions for certain contributions to a 529 Plan.

http://www.savingforcollege.com/articles/how-much-is-your-states-529-plan-tax-deduction-really-worth-733


You do of course have the risk of losing principal, etc., but most 529 plans have options to invest in programs based on the year the kid is anticipated to start college. As the kid gets older, the risk matrix is shifted to reduce the percentage invested in higher risk assets and into lower risk assets.

I opened a 529 account for my newborn in mid-2008. I put in $15k to start.

By 2013, even after the crash and the market recovery, it was at $12k.

The "Stock Market", IMO, has become a "Market of Stocks". Nothing is guaranteed. Long term investments may or not be there in today's economy.

Buyer beware.

[007]

I opened a 529 account for my newborn in mid-2008. I put in $15k to start.

By 2013, even after the crash and the market recovery, it was at $12k.

The "Stock Market", IMO, has become a "Market of Stocks". Nothing is guaranteed. Long term investments may or not be there in today's economy.

Buyer beware.

I won't even dabble in the market anymore. We only invest in highly stable and extremely conservative funds. We don't make much on them but at least we continue to gain and not lose.

[MahiMike]

We started a 529 plan but stopped it in lieu of Florida Pre Paid. We figured it would take an avg of 15% per year to equal the pre paid plan.

[Dunit35]

We started a 529 plan but stopped it in lieu of Florida Pre Paid. We figured it would take an avg of 15% per year to equal the pre paid plan.

I'm interested in the state tax benefits. This year I had to pay $700 into state. We both work two jobs, and both of us have one job that doesn't take much out due to not making much. We got boned for it at tax time.

[ndws]

I think you also need to take into consideration if you plan on the edu fund to pay for the majority or not. If you have an education fund in place, you severely hamper fafsa opportuties...well, at least if the "parent" is the keeper of the fund. I think a grandparent can open a fund, and then when the question is asked if the student's parents have an education account opened for him/her, then its a loophole and doesnt' nuke your fafsa application.

We have a 2 year old we are reviewing all options with right now as well, and this is something our planner mentioned.

[Dunit35]

I think you also need to take into consideration if you plan on the edu fund to pay for the majority or not. If you have an education fund in place, you severely hamper fafsa opportuties...well, at least if the "parent" is the keeper of the fund. I think a grandparent can open a fund, and then when the question is asked if the student's parents have an education account opened for him/her, then its a loophole and doesnt' nuke your fafsa application.

We have a 2 year old we are reviewing all options with right now as well, and this is something our planner mentioned.

Back in 2005, I was denied college grant money due to my father making too much, which was $50k for that year. They didn't bother to ask about the previous five years when he was barely working.

So, if finances continue the way they are for my wife and I, I expect our girls to get denied grant money also.

[Amnorix]

I opened a 529 account for my newborn in mid-2008. I put in $15k to start.

By 2013, even after the crash and the market recovery, it was at $12k.

The "Stock Market", IMO, has become a "Market of Stocks". Nothing is guaranteed. Long term investments may or not be there in today's economy.

Buyer beware.


Did you do systematic deposit (a/k/a dollar cost averaging)? Sure, if you just throw a wad of money at something like that, then it's all going to depend on the timing of when you put it in, and when you take it out.

If you put in another $100 per month, then your return would likely be much, much better, since you would have kept buying when the market was collapsing.

Finally, you reference "today's economy" as if that's something different from historical performance. Frankly, there are many times in the history of the stock market that it just goes sideways, basically, for years. Does nothing.

Most of the market's gains are done in bursts, that then sustain for a long time. Reaching a new plateau, if you will. But if you miss that burst, then you're often out of luck until the next one.

Dollar cost averaging lets you buy shares when the market sucks, and everyone else is panicking. Then when the burst comes, you reap the reward.

[DaneMcCloud]

Did you do systematic deposit (a/k/a dollar cost averaging)? Sure, if you just throw a wad of money at something like that, then it's all going to depend on the timing of when you put it in, and when you take it out.

If you put in another $100 per month, then your return would likely be much, much better, since you would have kept buying when the market was collapsing.

Finally, you reference "today's economy" as if that's something different from historical performance. Frankly, there are many times in the history of the stock market that it just goes sideways, basically, for years. Does nothing.

Most of the market's gains are done in bursts, that then sustain for a long time. Reaching a new plateau, if you will. But if you miss that burst, then you're often out of luck until the next one.

Dollar cost averaging lets you buy shares when the market sucks, and everyone else is panicking. Then when the burst comes, you reap the reward.
Personally, after losing hundreds of thousands of dollars after the 2008 crash, I'm done. I'll never put money there, again. I'd rather see a 1% yield and have my money, rather than 60% losses while "hoping" it comes back to even.

[Rain Man]

Personally, after losing hundreds of thousands of dollars after the 2008 crash, I'm done. I'll never put money there, again. I'd rather see a 1% yield and have my money, rather than 60% losses while "hoping" it comes back to even.

2008 and 2009 blew chunks, but 2010 through 2014 have been fabulous. It is an unsettling ride sometimes, though.

[MahiMike]

Personally, after losing hundreds of thousands of dollars after the 2008 crash, I'm done. I'll never put money there, again. I'd rather see a 1% yield and have my money, rather than 60% losses while "hoping" it comes back to even.

Agreed. Only thing I trust is real estate and gold. One of the benefits to my recent job change is that I can rollover my 401K into my self-directed IRA and buy more real estate!

[The Franchise]

2008 and 2009 blew chunks, but 2010 through 2014 have been fabulous. It is an unsettling ride sometimes, though.

Yeah....I lost close to $5000 on my deferred comp during that 2008-2009 time frame.

[ChiefGator]

We started a 529 plan but stopped it in lieu of Florida Pre Paid. We figured it would take an avg of 15% per year to equal the pre paid plan.

Yeah, that is a good program. Not sure if other states do it.

Does it still freeze the tuition costs?

[lewdog]

Personally, after losing hundreds of thousands of dollars after the 2008 crash, I'm done. I'll never put money there, again. I'd rather see a 1% yield and have my money, rather than 60% losses while "hoping" it comes back to even.

Yea but you are looking at it wrong. The money you had at your peak portfolio was worth way more than the money you actually put into it. Given decades of compounding interest, it's amazing to actually see what you put in an account and how much it's worth with even 7-8% growth over decades. So while saving in something with little to no growth means you don't lose, you also never would have had the great amount of money the market gained you at your peak portfolio time. Almost in a sense you'd be in the same spot whether you invested and went to the point of the crash and your money's value or whether you only put money into a savings account. But then if you rode out the last bull market, you be back to close to 90%+ of you peak portfolio which contained lots of money that was never really "yours" to begin with.

Hope that isn't confusing......investing is a roller coaster but even with huge swings, long term you still come out way ahead of a savings account in during bear markets. Most people get attached to money that wasn't really there to begin with...interest gains.

[DaneMcCloud]

Yea but you are looking at it wrong. The money you had at your peak portfolio was worth way more than the money you actually put into it.

Unfortunately, this isn't true. I began putting large sums of money into several accounts in 2008. Prior to that, I had been very conservative and had my money in numerous Orange CD's that were paying 4% or more. I was convinced (conned) into investing it in the market and promptly lost 60%.

By 2013, I had only recovered about 20% of that money and pulled it all.

Never again.

[lewdog]

Unfortunately, this isn't true. I began putting large sums of money into several accounts in 2008. Prior to that, I had been very conservative and had my money in numerous Orange CD's that were paying 4% or more. I was convinced (conned) into investing it in the market and promptly lost 60%.

By 2013, I had only recovered about 20% of that money and pulled it all.

Never again.

Oh well if you didn't start investing until 2008 you're right. If it had been from decades earlier you have been playing with house money. :thumb:

Missing the last 5 years wasn't great for you. :D

You also needed to be in more aggressive funds during this bull to have gotten it back. But after losing, most people mentally can't do that.