I am thinking of starting a college fund for my kids 6 and 3 to prepare for the eventuality of them going to Ivy league colleges. Should I go in with a 529 or an Index fund? Part of what I am trying to figure out is if the kids goto college and are partly funded what happens to the rest of the money in the 529 account? Any thoughts?

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We have 529s for both of our kids and targeting to fund about 60% of out of state public school tuition in case there are scholarships that cover part of the cost. Funds you don’t use can go to grad school or you can just name a new beneficiary.

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Thanks guys! Looks like setting it to about 60-70% of the potential college costs ensures that it is not overfunded.

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Something else to consider: you can also use the funds for private high school and (I think) grad school. So, you have options

I hope this doesn’t sound pedantic, I am sincerely trying to help. 529s and index funds are not comparable in the way you positioned them. I assume you meant a regular taxable brokerage account? A 529 is a special type of account with tax advantages. You contribute cash into it, and with the cash in the account, you can then buy many different investments including (depending on the plan) index funds.

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Good on you! I’m also hoping for compound interest to pay our way 😉 Not an expert, but:

Prepaid tuition plans allow you to pay at a specific institution; I don’t see these as super useful

Education savings plans are usable across institutions, see the way to go

Contributions are post-tax. Withdrawals for qualified expenses do not incur fed or state income taxes. Any remaining funds after all expenses are paid can be withdrawn, but will incur fed & state income taxes in addition to a 10% penalty. Alternatively, you could use the remaining money to help with fees for nieces/nephews/grandchildren/etc

You can choose either state-sponsored funds (ie, Illinois sponsors a fund) or private funds (ie, Vanguard or Fidelity, etc). The former may offer state income tax credits for contributions, but often incurs higher administrative fees. The latter offers no tax credits, but often assigns lower administrative fees


https://www.sec.gov/reportspubs/investor-publications/investorpubsintro529htm.html

Yeah, you can get a 529 through Vanguard investing in index funds. It’s an excellent idea because you pay no capital gains on it (15%) and can contribute unlimited $. If you don’t spend the money, you can re-allocate to another dependent. In you never use, you can withdraw it, but lose the tax benefits.

Thank you guys! Good inputs.

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