My husband and I are expecting our first baby this year.
We are 31 and 33 and have 450k in a brokerage, 500k in 401k, 20k in HSA, 100k in cash, 150kish in condo equity.
We plan to spend the next few years maxing out 401ks and contributing to brokerage as much as possible while balancing daycare and increased living expenses. We also plan to reduce our contributions dramatically after the next couple of years so we can finally live.
We do not have a 529 set up and are not sure we want to lock money up in an account we can’t access especially as the institution of college seems to be evolving in real time with technology advancement.
Does anyone here just use their brokerage to fund college for their kids?
529 or just use brokerage?
byu/liveandyoudontlearn inpersonalfinance
Posted by liveandyoudontlearn
11 Comments
You can access the 529 at any time. It’s a 10% tax on **earnings** withdrawn if not used for education.
You can also roll $30K into a Roth IRA.
It’s a pretty big tax savings if used for education (especially if your state offers deductions for contributions). It’s really in your best interest to use one.
Some families split it. Use a 529 for tax benefits but keep most in a brokerage for easy access.
If your savings is that high, your income is likely high, which would suggest dodging state taxes on a contribution and avoiding any capital gains taxes could be a very large benefit.
>institution of college seems to be evolving in real time with technology advancement.
The income gap between those with post-secondary education and those without continues to widen. There is no evidence to suggest this will not continue
You can open a custodial brokerage acct. a UTMA. We have a chunk in a 529 for our daughter and then also a UTMA we throw money in occasional for birthdays and whatnot.
See how much of a state tax deduction is allowed if you open a 529 in your state’s plan. We get 8 grand off state income tax.
We did both 529’s and UTMA’s for the kids – both in college now. We get a state tax break for the 529’s. 529’s have gotten more flexible on how they are used making them more palatable. If I had it to do over again, I don’t think I’d change anything. About 2/3 of their savings was in 529’s and 1/3 in the UTMA’s. They won’t use all of their money for college so they’ll have a nice spring board brokerage account from the UTMA’s when they start life.
The answer is 529. You don’t want to use a 529. Then sacrifice the tax benefits and use a brokerage account.
Parent here with one in college and one almost there. At the very least, do a full 529 contribution in the first year ($18k now) and let compounding do the heavy lifting. Cover any shortfall out of pocket when the time comes. One of the most important things a parent can do, beyond providing love and safety, is ensure the kids don’t take on debt. Don’t believe whatever you’re hearing about future of college – it is nonsense and honestly it is pitched for parents looking for an out on doing the right thing. If anything, 529 opportunities will expand, not contract. They can be switched to different beneficiaries and can also converted to an IRA for the kids after some time. The 529 can also be transferred to an ABLE account if circumstances warrant it.
If you open a 529 in your own state, you get a state deduction on your taxes (you’ll need to check laws in your own state to be sure). And all of those gains are tax free. Whereas the gains in your brokerage account are not.
I have 529s in two states. In both cases, it allows my children to attend state schools in those states at the “in-state” rate. This isn’t true in all states mind you, again – something to check.
And while those funds are “locked” – they aren’t really. You can use them for tuition in any state. You can use them in certain circumstances for private high schools as well. And let’s say your child does not go to college at all, when they do have an income, you can make Roth IRA contributions in their name, up to $35,000 lifetime (again, check with state/federal laws to be sure).
One added benefit of the 529 is limited investment options. It’s a shorter investment horizon than a retirement account so less time to recover from mistakes. for some of us we can benefit from just riding the market with the 529.
Honestly, I just use HYSAs and make monthly deposits into it. Interest will essentially keep up with inflation and I like the idea of being able to use them however, and at whatever intervals/rates, I want to without worrying about taxes or what college may or may not look like for my kiddos.