Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
529 vs Roth
Old 05-28-2019, 12:10 PM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 6,341
529 vs Roth

We have My529 accounts and Roth accounts. Beneficiaries are at a minimum of 7 years from starting college. State 529 offers some tax credit but generally, costs are higher than My529. I do get frustrated by My529 investment return reports for each account. Fidelity/Vanguard.. etc they are not.

I am considering bulking up Roths through conversions and allocating some of that to contributing to grandchildren's college expenses. One advantage is that our Roths would not go on to their FASAs so would not mitigate against scholarships or financial aid. Our contributions to 529s would come out of our taxed income in any case.

Thoughts?
__________________

__________________
Duck bjorn.
Brat is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-28-2019, 12:20 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 23,432
I would prefer Roth. Not a fan of the shackles of 529s.

I decided against 529s for our kids and it worked out well.... we used taxable account equity funds for college savings.

DD got a decent merit scholarship (essentially a ~20% discount) and she attended during my peak earning years so we were able to fund her college expenses from cash flow. DS decided not to go so I'm glad that we didn't have a lot of money tied up in 529s... the money for his college is still sitting there in hopes that he will someday.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is online now   Reply With Quote
Old 05-28-2019, 12:58 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Jul 2002
Posts: 1,259
Some thoughts:

If you bulked up your Roth and then withdrew the money to fund a grandkids education, would that not be considered a gift possibly subject to gift tax reporting?

When referring to my529, are you referring to the Utah sponsored 529 plan? Which is predominantly Vanguard funds? There must be about 80 different 529 plans in existence.

Will you be eligible for penalty-free Roth distributions at the time that you would be wishing to help the grandkids with college expenses?

Having both options available to you may be a wise move. I currently have two sons in college and saved only about half the projected college costs within 529s. There were too many unknowns to plan any further, such as would they go to college? Private or state school? Merit scholarships?

Elder son chose state school, lives at home, will largely deplete his 529 by time of graduation. Younger son has some merit scholarship monies but lives on campus, smaller (less expensive) state school, but will also largely deplete his 529 unless he accepts the ROTC tuition scholarship (and service oblication) in which case I've slightly over-funded his 529.

Backup plans if I was short (not likely) is to use some inherited education eligible EE savings bonds and of course Roth IRAs.

Dealing with this as a 70 year old retired at 50!
RE2Boys is offline   Reply With Quote
Old 05-28-2019, 01:26 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,073
Quote:
Originally Posted by RE2Boys View Post
Some thoughts:

If you bulked up your Roth and then withdrew the money to fund a grandkids education, would that not be considered a gift possibly subject to gift tax reporting?
College payments for children are not considered gifts in terms of estate tax rules. There are specific rules, e.g. the check must be made directly to the institution and must be for tuition. See "Gift Tax Education Exclusion for Tuition".
copyright1997reloaded is offline   Reply With Quote
Old 05-28-2019, 01:29 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,073
Even better (perhaps):

In addition to Roth accounts in your name not being counted towards FASFA (as long as they are not in distribution status), Roth accounts in your child student's name are not counted.
copyright1997reloaded is offline   Reply With Quote
Old 05-28-2019, 01:30 PM   #6
Recycles dryer sheets
 
Join Date: May 2007
Posts: 434
I have our 529's in Oregon College Savings Plan. They just switched to Vanguard target funds.
homestead is online now   Reply With Quote
Old 05-28-2019, 01:31 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 6,341
DH is in his early 80s, I am just a couple years behind.

Yes, the Utah 529 is now My529.

After reading through the comments above one option would be to pay for the grandchild's living cost directly, even charging textbooks to my credit card specifically for that purpose. The money never goes to the grandchild. Who is to judge that I don't have 20-somethings as vacation roommates near a university or have a burning desire to relive advanced calculus (actually I do but am happy to wait until a grandchild is ready to sell the text back)?

The Oregon College Savings plan is still slightly more expensive than the My529 Vanguard funds equivalent. That said I may transfer $ to that plan for the state tax credit as their college years approach.
__________________
Duck bjorn.
Brat is offline   Reply With Quote
Old 05-28-2019, 01:33 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Jul 2002
Posts: 1,259
Quote:
Originally Posted by copyright1997reloaded View Post
College payments for children are not considered gifts in terms of estate tax rules. There are specific rules, e.g. the check must be made directly to the institution and must be for tuition. See "Gift Tax Education Exclusion for Tuition".
Thanks, good to know. Appears to only cover tuition and mandatory fees.....not room & board costs. And covers grandkids.
RE2Boys is offline   Reply With Quote
Old 05-28-2019, 05:24 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,073
Quote:
Originally Posted by RE2Boys View Post
Thanks, good to know. Appears to only cover tuition and mandatory fees.....not room & board costs. And covers grandkids.
It covers anybody. For instance, you could pay my child's upcoming tuition.
copyright1997reloaded is offline   Reply With Quote
Old 05-29-2019, 07:49 AM   #10
Thinks s/he gets paid by the post
jIMOh's Avatar
 
Join Date: Apr 2007
Location: west bloomfield MI
Posts: 2,204
Will the kids qualify for any of the tax credits for education on their 1090?
Will the 529 change that math?
My experience is if the tax credits are in play, the math favors the tax credits for education over the tax deduction for the 529 contribution.
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
jIMOh is offline   Reply With Quote
Old 05-29-2019, 10:54 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 6,341
In Oregon there is a tax credit for contributions to their 529 programs, transfers from other 529s and new money are treated the same. Once a grandchild is a JS Junior - four years away - I may transfer their account into the Oregon College Savings program for the state tax credit.
__________________
Duck bjorn.
Brat is offline   Reply With Quote
Old 05-29-2019, 11:10 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 10,805
Despite the fact it's an Illinois program, I'm very satisfied with the Illinois 529b program. Contributions are deductible on my state income tax saving me 4.95% immediately. Earnings are withdrawn tax free as long as they are used for a broad range of qualified expenses. The selection of funds is excellent featuring low ER index funds by Vanguard and others.

We also use ESA's, although our current income level prohibits us from contributing any further to them.

These funds are for the grandkids post secondary educational needs which we intend to fully cover as long as their parents continue to fully fund their own 401k's and participate in other retirement focused investment programs.
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Old 05-29-2019, 12:15 PM   #13
Recycles dryer sheets
 
Join Date: May 2007
Posts: 434
Quote:
Originally Posted by Brat View Post
In Oregon there is a tax credit for contributions to their 529 programs, transfers from other 529s and new money are treated the same. Once a grandchild is a JS Junior - four years away - I may transfer their account into the Oregon College Savings program for the state tax credit.
Yeah we save a few hundred a year on OR taxes by putting the maximum into 529's. There are other Vanguard funds in there to choose from too but we use the target funds for simplicity.
__________________

homestead is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Brokerage or Roth / kids 529 or Roth columbus FIRE and Money 7 02-20-2017 03:05 PM
Pay down the mortgage (fund 529 later) or Fund 529 now? Math problem. bo_knows FIRE and Money 1 05-16-2012 04:24 PM
Foreign College and 529 Plans mark500 Life after FIRE 6 08-10-2006 02:21 PM
Using a 529 Plan for real estate investment Outby7 FIRE and Money 5 02-19-2006 07:50 AM
529 or Mortgage retirement? getoutearly FIRE and Money 12 02-09-2006 05:45 PM

» Quick Links

 
All times are GMT -6. The time now is 01:15 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.
×