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Just teach the throw a football or throw a mean fastball
Pro
I think I’m envious and that my family was poor and I paid for my own education.
I wasn’t gigging you OP. I’ll definitely help my daughter if I can. I’m sure my dad would’ve done the same if he could.
I opened 529 plans with my state’s plan when my kids were born and set up auto deductions from my checking account every month. Half of any $ they got for christening or earlier birthdays went into those accounts. Now some 17+ years later there is a nice amount in those accounts that has already helped pay for some college costs for my oldest. It’s never too late to start. I recommend maximizing contributions at this point, although you’d have to make sure you invest in somewhat conservative funds with the shorter runway to college.
Fund partial, let them figure out the rest. It will teach them gratitude, perseverance, grit, budgeting, etc.
K2 - It’s wrong and dangerous to let your kids pay for part of their own education? It’s obvious you’ve been on the right side of the tracks all your life.
The advantages of 529s are putting aside money now vs waiting to see if you can pay when they get there (ie “forcing yourself to save now”) and tax free returns. I would think about it from the standpoint of personal discipline as the opportunity to earn significant tax free returns in 5 years is unlikely. The real magic of 529s is when you can start early and build up those returns which are tax free if spent on education. If you are comfortable you can save or otherwise fund their education it has less value at this point.
I don’t think it hurts and depending upon your state you could get some tax advantages.
Agreed, but only if you’re confident they are college bound. Those funds can only be used for education.
Given your current success do you really need to ask? That said, I would weigh the tax benefits of the 529 against tax implications from selling the properties, plus any reduced income prospect of they are rental income properties. Bear in mind depending where they are located, some properties might see outsized gains over the next year to two as people flee cities and populations near areas given the pandemic. We are seeing that around NYC suburbs
EY1, What do you mean? Why football or fastball?
Your kid can get a ride and it’s free
Having 529 will not provide much tax advantage at this point, unless the market skyrockets. Another disadvantage could be some impact on scholarships.
PSE1, What do you mean by disadvantage on getting scholarships?
See FAFSA. There are complicated rules about how assets and income impact eligibility for scholarships, grants, and loans. It also matters whether the 529 is established by you as the parent vs a grandparent.
Focus on in state schools and scholarships. I our state, attending a state school and maintaining a B average covered most of tuition. Don’t be forced into overpaying for college.
Which state?
Check out savingforcollege.com. They have performance Information for the last 1/3/5/10 years.
Max out your Roth IRA every year if you aren’t already. You should be able to use that for education without tax consequences- and if your kids get scholarships, your money is in a better place! I have 529’s for my kids who are 3 years and 5 years out from college but this close, the investments are very safe. I wouldn’t start one if I were you.
At the federal level, it’s easy to think of a 529 as a Roth for educational purposes: no deduction/credits for contributions, no taxes on withdraw of contributions, but a 10% penalty for “gains” (defined as amounts above and beyond contributions) if it is not used for educational purposes.
Note: there are often state tax benefits, which could help if you’re in a high-tax state.
The cost-benefit analysis, then, is how sure are you they’ll exhaust benefits. And, if you’re unsure, will you pay more in federal taxes through other investments (real estate has a lot of deductions; stocks have a LT rate of 15% (dividends too); and bond/interest income is at marginal rate)?
It seems like a good approach is to open an 529 account and take a lower risk approach with the investments (perhaps 50% equities; 30% fixed income; 20% short term?).
Yes why not.
I’d start it. 529s are more flexible than they look on the surface. If only one goes, maybe you can rollover beneficiary somehow.