I had $1000 in my son's 529 account before he was even born

Financially Humble wrote:

He's a lucky dude, his 529 balance topped $1000 mere days before he was born. He is destined for greatness in this world.

your sarcasm is hard to read

the upside in capital gains savings is lost in flexibility

Nice! That should cover his Geology 101 textbook. Keep savin'!

Congrats. He can buy one semester of textbooks with that.

Financially Humble wrote:

He's a lucky dude,

That's true.

We can't choose our parents.

Those that are born into means are luckier than those that are not.

Where you go in life is helped by where you start.

I've reported you to the IRS.

shadytimes wrote:

I've reported you to the IRS.

Wait, did I break a law or something?

Nice job. he can go out and buy a semester's worth of books with that money if he is lucky.

I don't know if anybody has mentioned this or not yet, but textbooks are expensive. your $1000 may only buy a few books.

Hey guys, I got a great one....

OP, your $1,000 can buy your son a textbook or two!

Get it?

sbx wrote:

I don't know if anybody has mentioned this or not yet, but textbooks are expensive. your $1000 may only buy a few books.

$1000 invested at 12% annually will be worth $7,690 when he is 18.

Dave Ramsey wrote:

sbx wrote:

I don't know if anybody has mentioned this or not yet, but textbooks are expensive. your $1000 may only buy a few books.

$1000 invested at 12% annually will be worth $7,690 when he is 18.

But, $7,690 will only be able to purchase 2-3 textbooks by the time your son turns 18 the way they are outpacing inflation. OP think again, textbooks are expensive.

Great, you're off to a decent start. Now just set up a second fund to pay for his textbooks.

Will textbooks even be a thing in 18 years? I have my doubts. I also have my doubts about whether college will still be the most popular (or best) path to prepare for a professional career in 18 years.

Also, I'm not convinced the tax savings on a 529 are that big of a deal. Let's say you put $1000 per year into a 529 and it earned 7% average over 18 years. You'd have about $36k, $18k would be contributions and $18k would be earnings. If you spread out the withdrawals of the $18k of earnings over 4 years, it's $4500 of taxable earnings each year. Presumably, your child will not have high earnings while they are in college. Let's say they earn $20k per year (which is pretty generous). Then their total earnings would be $24,500 per year while in college.

H&R Block's calculator for a 19 year old that makes $20k wages, $4.5k in LTCG, and has $24.5k in education expenses is they will owe $0 in taxes, and get a $1000 refund because of tax credits. If you eliminate the $4.5k in LTCG, the taxes don't change at all for the student. So, there is no benefit to a 529 over a regular investment account, and you lose a lot of flexibility of how and where that money can be spent.

This obviously changes if you are making massive contributions to a 529, but 529's are not worth it unless they are quite large.

Don’t you need a SSN to set up a 529 account?

Bigfoot wrote:

Don’t you need a SSN to set up a 529 account?

I set it up in my name, and will transfer beneficiaries on the account at a later date to my son.

Bigfoot wrote:

Don’t you need a SSN to set up a 529 account?

Indeed. Can an account be set up for a hypothetical person?

UsedToBeKnowItAll wrote:

...

So, there is no benefit to a 529 over a regular investment account, and you lose a lot of flexibility of how and where that money can be spent.

...

Great, you've convinced me. How do I open up regular investment account for my newborn so he can pay the taxes on it for the next 18 years?

Bigfoot wrote:

Don’t you need a SSN to set up a 529 account?

I think you do, but you can open a 529 for your spouse and then transfer it to the child when they are born. Actually, after googling, it looks like you can even name yourself as a beneficiary and start saving now, and then transfer it to children when they are born.

Financially Humble wrote:

UsedToBeKnowItAll wrote:

...

So, there is no benefit to a 529 over a regular investment account, and you lose a lot of flexibility of how and where that money can be spent.

...

Great, you've convinced me. How do I open up regular investment account for my newborn so he can pay the taxes on it for the next 18 years?

You don't pay taxes until you sell, and then you pay LTCG. So, your newborn wouldn't pay anything on the investments until he sold, which, in the hypothetical case, he would have about $4500 of LTCG per year, and his tax burden on those gains would be zero (following the assumptions I made about his income).

Do you not understand how investing works? I have hundreds of thousands of dollars invested that I pay no tax on each year. I only pay when I sell. Maybe this website would be useful for you?