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Old 05-03-2009, 11:18 AM   #21
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Darryl - I will certainly be long retired when my kid goes to college, so I plan on having a rather low income. Nevertheless its good advice.
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Old 05-03-2009, 11:21 AM   #22
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Originally Posted by LOL! View Post
Sure you can save in 529 plans. We have even done so. But I see no reason to sacrifice my retirement plans just so some college can suck away that money.

That seems to be a different argument - namely that one should only plan for what he can swing without sacrificing retirement plans. I certainly can't disagree with that.
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Old 05-03-2009, 11:35 AM   #23
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Originally Posted by Spanky View Post
Anyway, it's better not to put too much money into a 529 plan. Room & board and non-tuition related expenses are not eligible for disbursement from 529. Any amount taken for non-tuition related expenses will be penalized at 10% and any gain be taxed as income. If a scholarship is received, the amount used for non-tuition purposes taken out from 529 must be less that from the scholarship to avoid the penalty.
Can you verify this?

Here's what my 529 plan says in response to the question "what are qualified expenses?":

"These are expenses incurred for college such as tuition, fees, room, and board. Qualified expenses even include a range of things such as supplies and equipment that the institution requires the student to obtain as a condition of attendance. Net earnings in your 529 account are tax free when used for these expenses at an eligible educational institution."

My take is that basically everything that the colleges include in the estimated cost of attendance is "qualified" except "misc" and travel/transportation (and beer money).

I'd like to know, since these would dramatically impact my method of college savings.

edit: nevermind - I see my question has been answered. I forgot to refresh the thread for a few hrs and got distracted.
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Old 05-03-2009, 11:45 AM   #24
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Sure you can save in 529 plans. We have even done so. But I see no reason to sacrifice my retirement plans just so some college can suck away that money.
This is my general approach. Max out the 401k, IRAs, etc. Then if I have the $4800 each year to take advantage of the 529 tax deduction, I'll do so. If I do it each year, I should have enough for the tuition plus a little more at a State U for 4 yrs for each of my kids.

But if I can't contribute that each year, then it won't matter too much. I'll just fund it out of the portfolio. I also plan to be ER'd before the kids hit college, so I'll just have to make sure I have that money sitting around somewhere if I think I'll need it. But you can always find money for college somewhere.
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Old 12-31-2009, 01:41 PM   #25
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Jbird, I am new to this forum so sorry for the tardy comment but I think I have a helpful strategy for you. I agree with most comments here that you should given your situation, be more concerned with saving for retirement as opposed to using a 529 plan.

However why not do both with one strategy. You are already maxing out your 401(K) and IRA contributions aren't deductible due to high income but why not contribute to nondeductible IRA's? If you don't have any taxable IRA's currently you could convert the nondeductible IRA's each year and not have any tax due on the conversion. If you have any appreciation, only the appreciation would be taxable but that would be minimal if you do the conversion right when the nondeductible contribuion is made. If you do have taxable IRA's, you may still want to consider this but when you convert to Roth IRA the conversion would not be tax free as the conversion would be partly taxable based on the value of all the IRA's. You can currently fund upto $5K in a nondeductible IRA each year for you and your spouse ($6k each if over 50 year old).

This stategy effectively removes the income limitations that currently prevent you from making contibutions to a Roth IRA.

Another idea if you currently have taxable IRA's would be to convert them to your 401(k) if you plan allows it. After doing this this would allow you to convert any future nondeductible IRA's tax free as you would no longer have any taxable IRA's.

I think you know the benefits of the tax-free Roth IRA which are basically the same as a 529 plan. The downside to the Roth is you can't take the earnings out until you are 591/2. However, you can always take out your contributions/conversions tax free which in itself should cover the tuition when you get to that point. If it doesn't the contributions/conversions to a Roth will be a very nice supplement to other college savings.

If you don't end up needing the money for college, the Roth isn't taxed like a 529 and continuies to benefit you and the beneficiary tax-free over your lives.

Sorry for the long reponse.

Happy new Year to all.
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Old 12-31-2009, 02:52 PM   #26
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You have not stated the goal for using the 529... to pay for some of child's education, pay for most of it, or to pay for all of it.

My suggestion is along lines of other posters:

1) fund retirement accounts and HSA's to max
2) the part I did not see was a projection of whether all of above is enough...
2a) consider a taxable account for some investments to supplement retirement accounts
3) make sure house is paid for by time child starts college
4) fund 529 plans

My suggestion is this:
It is better to get the federal tax credits for education (if you qualify) by paying "cash" for some of college the year the costs are incurred than to be restricted with a 529 plan.

By having a taxable investment account and a paid for house, you have flexibility... for example if mortgage is $1500/mo and is paid off when child turns 18, you can use that $1500/mo to fund college education that year, and get some possible tax credits to boot.

You should analyze the savings of the tax credits (hope or lifetime learning) relative to the state tax savings of a 529 plan.
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Old 12-31-2009, 02:55 PM   #27
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Can you verify this?

Here's what my 529 plan says in response to the question "what are qualified expenses?":

"These are expenses incurred for college such as tuition, fees, room, and board. Qualified expenses even include a range of things such as supplies and equipment that the institution requires the student to obtain as a condition of attendance. Net earnings in your 529 account are tax free when used for these expenses at an eligible educational institution."

My take is that basically everything that the colleges include in the estimated cost of attendance is "qualified" except "misc" and travel/transportation (and beer money).

I'd like to know, since these would dramatically impact my method of college savings.

edit: nevermind - I see my question has been answered. I forgot to refresh the thread for a few hrs and got distracted.
The expenses eligble for the federal tax credits, and the expenses eligible from a 529 (I should probably use the term qualified expenses) are not the same list.
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