Advice on Saving for Child’s College: 529 College Savings Plan vs Traditional Brokerage Fund? Why?

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529 you only get penalized on what you make not the contributions. I recommend it

helpfullike

Or transfer it to yourself in retirement. Sign up for an “Italian Immersion” class at the local CC. Then go on a tax free vacation. Cough cough... tax free immersion.

All optics guys.

funny

OP - a couple of thoughts

Do you have more than 1 kid? If so, you often (state dependent) can move funds between different dependents. So if kid 1 doesn’t go or use the entire balance, shift it to kid 2 or 3

Do you think you will need the money? If not and your kid(s) don’t use it, change the dependents to your future grandkids

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If your kids don’t go to college, use the 529 money to send your fiancé to massage therapist school.

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For the 529 only get penalized on the investment growth - not your contributions. It can also be used on a lot of school related expenses as others have mentioned, could also be used for private high schools as well I believe. I graduated college with a 529 program and have no debt as a result and its the best gift my parents could have ever given me. I am so so grateful for it. Also there are interesting loop holes if you happen to live in Virginia - that both you and your spouse could contribute to 529 accounts in the child’s name and get double the tax write off.

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All sorts of things to consider. Some people even fund their Roth IRA for their kids’ education.

One downside to a 529 is that withdrawals from it are counted as student non-taxable income and up to 50% of the value of the withdrawal can impeach financial aid

helpful

529 can be used for trade schools, vocational schools and community colleges not just 4 year universities. The beneficiary can also be changed to another family member as well. Dont believe there is any time limit on when the money has to be used so could be handy to have if minds get changed.

helpful

And private elementary schools now

Taxes

@BCG, I’m guessing you lean towards the 529? My fiancé is concerned that our child may not want to go to college. She doesn’t want to be penalized the 10% for withdrawing the funds and not using it towards education

@PwC1, what’s the upside for investing in a Roth IRA vs a Traditional brokerage account for college

One is that you’re not stuck with it only being able to be used for education expenses. With Roth, you can withdraw and use your contributions anytime without any penalty. Some people pull these and use to pay for their school.

If you do 529 and nobody goes to school, you’ll be penalized and taxed when you withdraw

Can it be used for any college or does it have to be used for a college within your state?

It can be used for most any reasonable education expense. In state vs out of state vs private vs public really doesn’t matter

helpful

Not entirely accurate - school eligibility varies on a state by state basis, but you can contribute to plans that are outside your state of residence.

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