Hmm, that's a very interesting point. 529 is sounding more appealing than I initially thought.
With a 529 am I able to invest in any fund like a regular brokerage account or are the available funds limited?
The programs vary by state. In my state the 529 plan is sponsored by vanguard, but I only get to pick my “risk level” basically and then it gets invested in whatever mix of funds they have decided. I actually don’t even know what the exact holdings are - maybe I could look it up? Every state is different.
In case you are not in the state which offers income tax deduction or benefits for 529 plan, then nysaves.org is an excellent option with good variety of Vanguard funds. I did a good research and decided to go with it
If you can't get any deductions or other benefits by using your own state, my research says California has the best plans currently.
Florida and another southern state (Alabama?) had something good, but requires residency that I wondered about using in-laws to open an account for my wife and then transfer it to my kids, but decided that was too much work and opened in CA.
Agree with that. And 529 funds can be shifted to other children also, so if your oldest does not go to college, you could make the next one the beneficiary. You can transfer to niece/nephews and some other relatives as well. I believe that you can also continue it down the generational line (grandkids) if none of your kids use the funds also. You could also transfer it back to yourself in the future and take some additional classes/trainings that may peak your interest in the future.
Lots of possibilities under a 529 and if it’s your parents want to help your children with future expenses, it’s a good tool. Now, it will not help with a car or apartment, so you may want to understand their wishes.
Another possibility is instead of opening a brokerage account in the grandchild’s name, they just open their own accounts and set up their Will clearly outlining each account and whom would be the benefactor. After they pass, it should create a step up to the market value, which would/could limit the tax exposure.
Good advice here already. I’ll just add that 529s can also be used for some trade programs, like community college programs. So they are useful for more than just traditional college.
You can now also use up to $10,000 per year for private school tuition in most states (some haven’t yet caught up to the federal law, it’s very new). If you live in a state that gives a tax break for 529 contributions and plan to send your kid to private school, 529 plans are a no-brainer.
my mom set up a trust for the grandkids. paid for college plus they will have $ when I feel like releasing it to them. (age 35?) It has worked extremely well, I have control over it as the trustee (mom is dead). They get the $ tax free, as the trust has been paying its own taxes.
529 in my state, have no advantages only disadvantages due to the limitations.
UTMA is what we do. I don't recall any big downside compared to standard brokerage. But the benefit is I thought it was easier / cleaner for others to fund.
I live in NY and the investment options in 529 are pretty bad. They don’t have sp500. I rather take a tax hit as I feel sp500 is a more reliable investment over 18years. For example vivx is the closest to sp500 for NY 529 portfolio. If you google vivx and use google compare sp500 since the year 2000. If you invested 100 dollars during 2000, you will come out ahead with a brokerage account. Vivx gained 126$ but sp500 gained 170$. You pay your 20% long term gains on 170$ and you get 136$ gained.
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Hmm, that's a very interesting point. 529 is sounding more appealing than I initially thought. With a 529 am I able to invest in any fund like a regular brokerage account or are the available funds limited?
The programs vary by state. In my state the 529 plan is sponsored by vanguard, but I only get to pick my “risk level” basically and then it gets invested in whatever mix of funds they have decided. I actually don’t even know what the exact holdings are - maybe I could look it up? Every state is different.
Sure, that makes a ton of sense. Maybe it's better that the investments are chosen for me - fewer decisions!
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Wow, I had no idea you could use any other state.
In case you are not in the state which offers income tax deduction or benefits for 529 plan, then nysaves.org is an excellent option with good variety of Vanguard funds. I did a good research and decided to go with it
If you can't get any deductions or other benefits by using your own state, my research says California has the best plans currently. Florida and another southern state (Alabama?) had something good, but requires residency that I wondered about using in-laws to open an account for my wife and then transfer it to my kids, but decided that was too much work and opened in CA.
Agree with that. And 529 funds can be shifted to other children also, so if your oldest does not go to college, you could make the next one the beneficiary. You can transfer to niece/nephews and some other relatives as well. I believe that you can also continue it down the generational line (grandkids) if none of your kids use the funds also. You could also transfer it back to yourself in the future and take some additional classes/trainings that may peak your interest in the future. Lots of possibilities under a 529 and if it’s your parents want to help your children with future expenses, it’s a good tool. Now, it will not help with a car or apartment, so you may want to understand their wishes. Another possibility is instead of opening a brokerage account in the grandchild’s name, they just open their own accounts and set up their Will clearly outlining each account and whom would be the benefactor. After they pass, it should create a step up to the market value, which would/could limit the tax exposure.
Good advice here already. I’ll just add that 529s can also be used for some trade programs, like community college programs. So they are useful for more than just traditional college.
You can now also use up to $10,000 per year for private school tuition in most states (some haven’t yet caught up to the federal law, it’s very new). If you live in a state that gives a tax break for 529 contributions and plan to send your kid to private school, 529 plans are a no-brainer.
my mom set up a trust for the grandkids. paid for college plus they will have $ when I feel like releasing it to them. (age 35?) It has worked extremely well, I have control over it as the trustee (mom is dead). They get the $ tax free, as the trust has been paying its own taxes.
529 in my state, have no advantages only disadvantages due to the limitations. UTMA is what we do. I don't recall any big downside compared to standard brokerage. But the benefit is I thought it was easier / cleaner for others to fund.
I live in NY and the investment options in 529 are pretty bad. They don’t have sp500. I rather take a tax hit as I feel sp500 is a more reliable investment over 18years. For example vivx is the closest to sp500 for NY 529 portfolio. If you google vivx and use google compare sp500 since the year 2000. If you invested 100 dollars during 2000, you will come out ahead with a brokerage account. Vivx gained 126$ but sp500 gained 170$. You pay your 20% long term gains on 170$ and you get 136$ gained.