I have 2 sons and started a 529 account for both this year . They are 0 and 2 years old.
Before I start heavily dumping money into the 529s, I am wondering what the best route would be to save for private school starting at 1st grade.
I live in a state where individuals are typically granted \~7k for private school and the other half is up to the parents/scholarship. I have about 500-700 a month to dump into savings for them (more for the 2 year old)—maybe 1k on a good month.
I fear that it’s too late to invest, and the risk is much higher for a shorter timespan and such an aggressive investment. I’m worried to lose the principal in the five years it will take for my two year old to get to 1st grade.
Would a savings account be better for short term private school. And lightly put money into the 529 until college?
Never invested before… I am a very financially cautious person. Maybe I am overthinking this
Is dumping money into a 529 account that you plan to withdraw from in five years a bad idea?
byu/EveningObjective8339 inpersonalfinance
Posted by EveningObjective8339
4 Comments
Nearly all 529s offer a money market or similar fund option which will protect principal
Really no reason to not shield the interest from taxes and maybe get a state tax break
Does your state offer a tax deduction for the 529 contributions? If so, its worth it, depending on choices you can put it in a money market, bond fund or a less risky option, but 5 years is a while. If your state doesn’t offer an option you like you can open one in any state. My state offers the tax write off no matter what state we invest thru
Don’t just think about the funds you want to pull out in 5 years, worry about the 13 after that. (More if you help your kids with college.) The more time you have that money in the market, the better.
To really answer your question, the only way a 529 backfires is if you massively over invest or decide not to spend that money for education. Even then, you can roll much of it into retirement accounts, and you can still withdraw the rest with penalty.
Open up a 529 and research low-risk (e.g., bonds) or risk-free (e.g., money market) investment options. Gains will be tax free and if you itemize your deductions you could get an immediate tax break. Those same funds in a savings account give no tax advantages.