When do you stop adding money to a 529?

[disneysteve]

We have money going to DD's 529 automatically every month. She starts college in September and the first tuition bill is due in August. So the time is nearing when we will take the first withdrawal from the 529. What I'm wondering is if we should stop the automatic investments or continue them. We will not use all of the 529 money in year one. Most likely, we will exhaust that money in year two, so it would seem that continuing to add to it is still reasonable but I'm curious to hear what others think.

[Like2Plan]

disneysteve,
We continued all the way up through the last semester, but our state has a write off for contributions with an unlimited carry forward for amounts that exceed the annual limit. (We also didn't qualify for any of the tax credits. )
By the time DS entered college the 529 was in conservative investments, so we didn't see a lot of earnings. I also misjudged the contribution amount by a little bit. When we cashed out the account, we ended up having to pay taxes on about $3.00 of earnings and a 10% penalty (whoops--.30 rounded down to 0 ) IIRC.

[moneybags]

If you get a state tax break, I would keep contributing until she's done. I contribute up to my maximum state deduction each year and withdraw it the same year. This gives me an automatic 5% return. If you do not get a state tax break, I don't think it should matter, since you should be in a conservative investment at this point in time in your 529.

[disneysteve]

If you do not get a state tax break, I don't think it should matter, since you should be in a conservative investment at this point in time in your 529.

We don't get a tax deduction. I guess having the money go into the 529 just keeps things on auto pilot and keeps that money clearly segregated for college costs. I can't think of any downside to putting it in there. Can anyone else?

[Nika]

If you don't have any tax incentive, why would you give up any control over investing and using the money?

BTW, in 2 semesters I had abroad, one was through American university, and that one was no problem in terms of financial aid and financing. For the other semester abroad, I went directly to the other university (5x cheaper than if you do it via a US organized programme). And those expenses did not meet the guidelines, because, in spite of being one of the top universities in that country it was not on the approved schools list (very few foreign universities are). I did not have any 529 money, but if I did, I would not have been able to use it.

[Like2Plan]

We don't get a tax deduction. I guess having the money go into the 529 just keeps things on auto pilot and keeps that money clearly segregated for college costs. I can't think of any downside to putting it in there. Can anyone else?

1. If you qualify for a tax credit on your federal return, make sure the 529 money is not going to preclude you from taking it.
2. The other downside is if you over contribute and you have to pay a 10% penalty on the earnings- though it doesn't sound like that is going to be a problem.

[disneysteve]

If you don't have any tax incentive, why would you give up any control over investing and using the money?

Either way, the money is going to sit in a conservative investment like a money market so I'm not really losing any control. And either way, the money is going to get used for college expenses, so really no difference there either. It's just a question of where the money gets parked.

[cooliemae]

Perhaps it becomes an issue of fund expense ratio now. If the return isn't high and the expense ratio is, then you're just losing money. So maybe that's something to consider.

[TBH]

I can't think of any downside to putting it in there. Can anyone else?

The only disadvantage I can think of is that it might be easier to withdraw $$ from a savings account rather than a 529. If it were me, I'd probably spend the money in the 529 first, and move the auto deposit to a Capital One account or something so I was continuing to save for future semesters, but had the money in a place where I'd be able to more easily move it into my checking account when it was time to pay the bill.

Out of curiosity, what will you do when you run out of 529 funds? Will your daughter take out loans for the rest, or will you take out loans? You've probably addressed this elsewhere on the forum, but I'm just wondering what your thinking is.

[disneysteve]

The only disadvantage I can think of is that it might be easier to withdraw $$ from a savings account rather than a 529.

That's true but I'm not sure if it is relevant. We're going to be taking money out of the 529 anyway. If I continue to add to the 529, that withdrawal will just be larger. At least I think that's how the numbers will work out. I guess I have to crunch the numbers a little more carefully now that I know the actual tuition amount (at least for year 1) and see where that puts us.

Out of curiosity, what will you do when you run out of 529 funds? Will your daughter take out loans for the rest, or will you take out loans? You've probably addressed this elsewhere on the forum, but I'm just wondering what your thinking is.

Good question. Once the 529 well runs dry, we'll cobble together a few things: the money that was going into the 529 each month, the money that DD is contributing, some other money that we are able to cash flow, and some student loans for whatever gap remains. We also expect that my mother will be giving us some money (she's told us so). We just don't know how much.

[moneybags]

The only disadvantage I can think of is that it might be easier to withdraw $$ from a savings account rather than a 529. If it were me, I'd probably spend the money in the 529 first, and move the auto deposit to a Capital One account or something so I was continuing to save for future semesters, but had the money in a place where I'd be able to more easily move it into my checking account when it was time to pay the bill.

This is especially true when the tuition bill is due January 5th, and you have to withdraw the funds from a 529 in the same year you pay them.

[EastWest]

Hi Steve, sorry for the off-topic post. I found this site after searching for physician surveys. If you don't mind, is there an email I could reach you at to take this off-topic discussion? I am hoping you might be able to share a list of the physician survey organizations you've been successful with.

That's true but I'm not sure if it is relevant. We're going to be taking money out of the 529 anyway. If I continue to add to the 529, that withdrawal will just be larger. At least I think that's how the numbers will work out. I guess I have to crunch the numbers a little more carefully now that I know the actual tuition amount (at least for year 1) and see where that puts us.



Good question. Once the 529 well runs dry, we'll cobble together a few things: the money that was going into the 529 each month, the money that DD is contributing, some other money that we are able to cash flow, and some student loans for whatever gap remains. We also expect that my mother will be giving us some money (she's told us so). We just don't know how much.

[disneysteve]

Hi Steve, sorry for the off-topic post. I found this site after searching for physician surveys. If you don't mind, is there an email I could reach you at to take this off-topic discussion? I am hoping you might be able to share a list of the physician survey organizations you've been successful with.

Send me a private message with you full name and e-mail adress. I need that to do referrals to some of the sites I work with. Last year, I worked for 33 different companies so there are plenty of them out there.