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

You can set up a custodial account. The minor is charged taxes on the earnings for custodial accounts. My understanding, although I'm not a tax expert or a lawyer, is that you can gift up to $14k, to your child per year, and then he/she can put that money in the custodial account. The only downside to a custodial account is that the child controls the money usually when they turn 18 or 21. So, hopefully they don't blow the money. 529, you retain control, I think forever.

I still think the 529 is a better route. When you file FAFSA, a custodial account is counted as a student asset, which has greater effect on the financial aid you qualify for. The 529 is counted as a parent asset, with a max of 5.64 percent counting toward aid eligibility. My 529 contributions are deductible on my state tax return, and I don't have to file a separate tax return for my child like I would with a custodial account.

Financially Humble wrote:

I still think the 529 is a better route. When you file FAFSA, a custodial account is counted as a student asset, which has greater effect on the financial aid you qualify for. The 529 is counted as a parent asset, with a max of 5.64 percent counting toward aid eligibility. My 529 contributions are deductible on my state tax return, and I don't have to file a separate tax return for my child like I would with a custodial account.

That's all true, and I apologize for thinking your first response was sarcastic and responding the way I did.

The 529 in my state is not deductible, and that's a considerable differentiator.

Thanks for bringing up FAFSA. I hadn't considered it all yet.

My major concern with the 529 is the lack of flexibility. I'm not sure what will happen in the next 18 years, but we have seen a strong push from the left to make college free. It's hard to predict what that will look like, but if I have $100k in a 529, and college is essentially free, what am I going to do with it? Pay the 10% penalty and cash it out? Will part of the hypothetical legislation get rid of the 10% penalty? It's a big unknown, but I would personally put the odds at about 50/50 that college expenses will be a non-factor in 18 years.

sbeefyk2 wrote:

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

Not 18 years from now.

All good points. I agree that having too much in a 529 is a risk, subject to 10% penalty. I guess I could just hang onto it for a future grandchild? After 40+ years of growth I would hope that the 529 would have more than enough :)

Honestly, we're probably splitting hairs on a taxable vs 529. You can play the scenarios 100 different ways, but we're both in a good spot in attempting to plan for the future with a strategy.

Kudos to you, thanks for the alternate thinking on this, I didn't consider a custodial account. I may still do a custodial account someday to teach my kid about mutual funds.

Dummy.....college will be free by then

Bob Schul Country wrote:

Dummy.....college will be free by then

The Massachusetts Institute of Technology, where my son will attend in 2039, will never be free.

Not from America question for dummies - what happens if the kid doesn't go to college, can they still use the 529 to "learn" about life, like how much hookers and boozers is required, or business reasons like move to Colorado and open a pot shop?

OP, one good way to save money is to rent the textbooks.

Not from America wrote:

Not from America question for dummies - what happens if the kid doesn't go to college, can they still use the 529 to "learn" about life, like how much hookers and boozers is required, or business reasons like move to Colorado and open a pot shop?

Yes, but you would have to pay taxes + 10% penalty on the money.

he won't even buy a pair of VP %10 with that

Financially Humble wrote:

All good points. I agree that having too much in a 529 is a risk, subject to 10% penalty. I guess I could just hang onto it for a future grandchild? After 40+ years of growth I would hope that the 529 would have more than enough :)

Honestly, we're probably splitting hairs on a taxable vs 529. You can play the scenarios 100 different ways, but we're both in a good spot in attempting to plan for the future with a strategy.

Kudos to you, thanks for the alternate thinking on this, I didn't consider a custodial account. I may still do a custodial account someday to teach my kid about mutual funds.

Surely there is a mechanism to avoid the 10% penalty in unusual circumstances such as death, kid does not attend college, etc.

Also, worth noting that money can be used for HS if you attend a private school.

I have a 529 set up for my son and I'm contributing $250/mo now. He is almost 2 and there is only $5300 in there. I have no idea if this is enough? Should I contribute more?

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.

No you didn't. You need a SSN for the beneficiary to open a 529

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.

Get him 4 pair of Vaporfly in children’s sizes if they make them, get him training as soon as possible. Perhaps he can break 15 minutes before 10 years or you’ll get lucky and they get pulled of the shelves and banned. Then save them, they will be worth a fortune but what do I know I just saved a bunch of money by switching to Geico

how much to contribute? wrote:

I have a 529 set up for my son and I'm contributing $250/mo now. He is almost 2 and there is only $5300 in there. I have no idea if this is enough? Should I contribute more?

Figure out how much college will cost once he turns 18 then calculate how much monthly to contribute . Otherwise, ask a financial advisor—-they should be able to help. I would plan on saving for your kid to go to a state school vs out of state..

Life tip.

Never, ever tell people how much money you make, save or have.

Doing so makes you a target.

This will go a long way to helping with the ever dreaded textbook acquisition. Good work.

Also, the guy that is averaging 12% returns. Good luck!

Incorrect