Started a 529 today

[corn18]

A little late since the DD I am saving for is almost 16, but what a huge change for me. Monthly allotment directly from my paycheck so I don't ever see it. Just $2,000 / year so I can max my Ohio state tax deduction. I have a long term plan to save enough to pay for her college without loans, but this is a nice start.

Since I have checked onto these fora, I have added IRA savings ($11,000 / year), extra mortgage savings ($5,200 / year) and now 529 savings ($2,000 / year). This is on top of my max'd 401k. Progress.

Thanks to all the folks that gave and give advice on here.

Tom

[LivingAlmostLarge]

Awesome job! Better late than never.

[Eagle]

A little late since the DD I am saving for is almost 16, but what a huge change for me. Monthly allotment directly from my paycheck so I don't ever see it. Just $2,000 / year so I can max my Ohio state tax deduction. I have a long term plan to save enough to pay for her college without loans, but this is a nice start.

Since I have checked onto these fora, I have added IRA savings ($11,000 / year), extra mortgage savings ($5,200 / year) and now 529 savings ($2,000 / year). This is on top of my max'd 401k. Progress.

Thanks to all the folks that gave and give advice on here.

Tom

That's awesome Tom! Why'd you decide to go with a 529 instead of a traditional low cost index mutual fund?

Our kids are both under 2. Considering our options.

[snafu]

Tom, sorry to go off topic...did you fix 29 MFs?

[breathemusic]

I'm actually also very curious as to why people choose to go the 529 route instead of other savings/investment strategies. Tom, in your case I could understand it, your kid is old enough that you can clearly see if your child is doing well in school and plans to go to college. But for the people who start those plans when their kids are babies or toddlers, etc. Isn't investing in a 529 somewhat of a risk? You can only use it for educational expenses, right? So what if your child decides that college isn't for them or for whatever reason, your child never gets additional education. You're kind of screwed then, right? Sure you can take the money out, but you get hit with big penalties, yes? Not having kids, I don't really know enough about a 529 to really know what the return on it is, but is it really that good to be worth taking the calculated risk? I always wonder this every time I see posts about 529 plans.

[feh]

I'm actually also very curious as to why people choose to go the 529 route instead of other savings/investment strategies.

Here are just a couple pages discussing pros/cons. Google will lead you to a million others, if you wish.

http://www.petersons.com/college-search/529-plan-pros-cons.aspx

http://online.wsj.com/news/articles/SB10001424127887323469804578525650422641808

[corn18]

That's awesome Tom! Why'd you decide to go with a 529 instead of a traditional low cost index mutual fund?

Our kids are both under 2. Considering our options.

I went 529 just for the state tax break. I can deduct the $2,000 from my income so I get an immediate ROI of 6.5%.

About the other question on the risk of a 529, I agree with that. If I had started one for my oldest daughter, I would be out all that money as she went a different route. She applied, was accepted and I was getting ready to send a check when all heck broke loose and she didn't go to college. In this case, it was good I was a poor saver. My 15 yo is on a better track, but I do not plan to put a bunch of money into her 529. Just the $2,000 / year I can get a tax break for. The rest will go in an investment fund of some type.

Tom

[corn18]

Tom, sorry to go off topic...did you fix 29 MFs?

I don't understand what 29 MF's means.

[MonkeyMama]

I would be concerned that there isn't much benefit to starting a 529 so late. BUT... I gotcha. The state tax break is a good reason.

[Like2Plan]

Tom,

Good job! Does Ohio allow a carry forward into future tax years for contributions that exceed the 2k amount?

[corn18]

Tom,

Good job! Does Ohio allow a carry forward into future tax years for contributions that exceed the 2k amount?

They do.

[Eagle]

I went 529 just for the state tax break. I can deduct the $2,000 from my income so I get an immediate ROI of 6.5%.

About the other question on the risk of a 529, I agree with that. If I had started one for my oldest daughter, I would be out all that money as she went a different route. She applied, was accepted and I was getting ready to send a check when all heck broke loose and she didn't go to college. In this case, it was good I was a poor saver. My 15 yo is on a better track, but I do not plan to put a bunch of money into her 529. Just the $2,000 / year I can get a tax break for. The rest will go in an investment fund of some type.

Tom

Ah I see. I think you confirmed DW and I been discussing as well. We have about $1000 per kid to invest. We've bee holding out due to a recent birth in addresing this. But we plan on taking care of it in the next couple months and opening up an account for the kids.

Will probably stick to the idea of a low cost index fund if that is avaialable.

[feh]

Ah I see. I think you confirmed DW and I been discussing as well. We have about $1000 per kid to invest. We've bee holding out due to a recent birth in addresing this. But we plan on taking care of it in the next couple months and opening up an account for the kids.

Will probably stick to the idea of a low cost index fund if that is avaialable.

Depends on which state's plan you choose. You don't have to choose the state you live in; we didn't.

Utah's is one of the best around; low fees and Vanguard investments (also some DFA, IIRC). One thing to keep in mind - don't let the (potential) state tax deduction wag the dog. If your state's plan has high fees, you may very well come out behind, even with the tax deduction.

[corn18]

Depends on which state's plan you choose. You don't have to choose the state you live in; we didn't.

Utah's is one of the best around; low fees and Vanguard investments (also some DFA, IIRC). One thing to keep in mind - don't let the (potential) state tax deduction wag the dog. If your state's plan has high fees, you may very well come out behind, even with the tax deduction.

Ohio's 529 plan has no annual fee. The underlying funds do have fees and the total ranges from 0.22% to 0.75% aggregate. I am in the low fee fund (capital preservation since I am on a short timeline).

Tom

[autoxer]

I also choose different states plan, because it offered lower expense ratios. I use one sponsored by Nevada and get a PA tax deduction. You'll have to check your own states rules, because they aren't all the same.

But for the people who start those plans when their kids are babies or toddlers, etc. Isn't investing in a 529 somewhat of a risk? You can only use it for educational expenses, right? So what if your child decides that college isn't for them or for whatever reason, your child never gets additional education. You're kind of screwed then, right?

I just started one for my 1 year old daughter. If she doesn't need it, I can always change the beneficiary. I could transfer it to different child, grandchild, my neice, cousin, sister, spouse, or even a parent if they have education expenses. There are other exclusions that could free up the money without the penalty. I see it as a tax deduction not a risk.