<p>Our 529's in PA with Vanguard grew 9% this year so far(APR). Since this is tax-free it seems that we should transfer the several hundred thousand (up to gift exclusion cutoff)in 4% CD's (taxable) to the 529's and reap the extra for college. We have one in first year college and another coming up in two years. Even a few years of extra interest could mean 12,000 extra per year. How stable are these earnings? Any experience with these out there?
Thanks in advance.</p>
<p>With several hundred thousand dedicated USdollars for college, you are asking us? </p>
<p>I'd do CDs. because if the kids quit school, then you are stuck in a 529 with penalties.</p>
<p>Having a 529 plan doesn't dictate what you invest the money in. For example, in the Ohio 529 plan you can choose CD's as well as stock, bond, blend, or money market funds. Since California doesn't offer any tax incentive to go with California's own 529 plan, I picked the Ohio plan for its low fees and good investment options.</p>
<p>Great advice, Calreader: safer investments in the 529--I had been doing a mix and liked that higher yield naturally. But even at lower, the saved tax helps. I also don't get the state tax incentive, but like Vanguard which PA just switched to.
And to "thisoldman", our "dedicated U.S, dollars" became that by default when we realized the bitter realities (scams/big business) of the costs of college education equalled the inflated reality of the housing bubble. We are trapped especially because we make expensive choices because these are our children and we would do anything for their success. I don't own a house BTW; just a middle class person left with a big bill. And don't have a state school option. May try to have them graduate early with some community college summer classes?
End of rant. Thanks for your advice.</p>
<p>You're paying high fees in the PA 529 plan. Ohio also has Vanguard funds, and here are a few examples of expense ratio comparisons across the two plans: PA money market .70, OH money market .37; PA inflation-protected securities .70, OH inflation-protected securities .36; PA conservative growth (60% bonds, 40% stock) .70, OH conservative growth (65% bonds, 35% stock) .32; PA CD not offered; OH CD no fee.</p>
<p>If I understand correctly, Georgia does not charge expense if you put in savings (3 1/2%).</p>
<p>Also, descendants (your grandchildren, g-grandchildren, etc.) can use "leftover" 529 funds.</p>
<p>Well, I wouldn't overfund a 529. We are funding our oldest's 529 in such a way that it looks like we "love" her more...but she is looking seriously at state flagship U, and then we can roll over her unused funds to our youngest. </p>
<p>Wow, several hundred thousand. I would be cautious about overfunding a 529 and then not needing that money for college expenses. I hope to have $12,000 to fund our 529s per year. I can't imagine the "extra" interest alone being $12,000.</p>
<p>PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS!!!!!!</p>
<p>Ok that out of the way. A 529 is a another shoebox. Rather than focusing on last year's returns... look at expenses of doing one thing over another. What costs are involved? Not just commissions, but ongoing expenses, penalties, liquidity and anything else that pops up.</p>
<p>On paper play the senario game. The cost of doing A over B at a 10% gain, zero gain and a 10% loss. Factor other things that could effect the plan outside of markets. </p>
<p>Then at least you've made an educated guess.</p>
<p>Granny-the "leftovers" are highly unlikely, though would be most welcome.
Sunny Florida--you probably have a few years to save--though relentless saving is what put me out of financial aid reach (another thread).
Opie-But a CD is guaranteed results, is it not? Even a few percentage points of tax saved will amount to something over the next six college years.
Calreader--thanks for that info--maybe time to put it into Ohio's 529 instead.</p>
<p>Another question--does a 529 affect the tuition deduction or Lifetime credit?</p>
<p>Thanks again.</p>
<p>Remember 2001-2004. Especially after 9/11. Security markets lost a lot of $. We did and barely survived the college funding experience. We managed because a portion of the funds was in EE Savings Bonds, at a lifesaving 4%. Fortunately the markets have recovered and we are now overfunded. Fortunately the funds is in DS name and is now his problem on how to spend it with a minimal amount of taxes, not pretty. </p>
<p>If we have another 20-40% drop in the security markets, can your college funding survive until the market recovers? The Housing market is collapsing, and many real estate investors who had planned on using that investment for college, are now experiencing a difficult time. </p>
<p>Weigh all alternatives carefully and fully understand the risks involved.</p>
<p>Thisoldman--well, securities just took their major drop now cd's in Ohio 529are looking tres good. It seems like fully funding is the way to go:I hear many billions are going in now from all over. But I can't help thinking parents are "hiding" their 529s by having grandparents take the parents' money. But I believe CSS profile asks who else has a 529 in the child's name, correct? Do the 529's report names of beneficiaries to all universities?
Anyway, thanks for your info. Sounds like you are finished wit college for your children.</p>
<p>
[quote]
Another question--does a 529 affect the tuition deduction or Lifetime credit?
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</p>
<p>Marie - You cannot use the same expenses to withdraw 529 funds tax free and for Hope or Lifetime tax credits (I think that is what you are asking). Ditto for tuition deductions. "No double benefit allowed". We are weighing that right now - should we withdraw 529 funds or take the tax credit.</p>
<p>But 'qualified expenses' definitions under 529 rules are broader than those for the tax deductions. For instance you can use 529 funds tax/penalty free for room and board but cannot use room and board as a qualified expense for Hope/Lifetime tax credits. </p>
<p>here is the tax publication with the details <a href="http://www.irs.gov/pub/irs-pdf/p970.pdf%5B/url%5D">http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>I agree with swimcatsmom.
We use 520 withdrawals for qualified expenses such as room and board.
That way we can still use the tutition and fees we pay for the Hope/Lifetime credit on our taxes.</p>
<h1>11. Back of envelope calculations, DS's college fund (which is now his money) is now in negative territory after subtracting loans. CD's looking rather better than bluechip securities.</h1>
<p>We looked at college funding as a "retirement planning" however we were newer fast enough to see the change of economic environment. At a certain point you have to change the focus of seeing the big-longterm picture to small-shortterm scenarios. </p>
<p>Even the big boys who deal with money every minute are befuddled on, "How did this happen?"</p>
<p>Swimcatsmon and musicmom (such lovely names)--I had no idea; it doesn't really seem like double dipping when we've already paid tax when we earned the principle. Thanks for the link, and the bad news.
Thisoldman (I bet not) --I don't quite understand the "retirement planning--do you mean college spending pre-empted retirement saving?
BTW, I think the "big boys" are playing dumb: Greenspan, CEO's, moneychangers on Wall Street pocketing large fees for bundling suspect subprimes based on liar's loans . Read Gretchen Morgenstern in the NYT--she's an education.
Good luck to everyone.</p>
<p>^ I am 2.6x older than DS. So old that I've said everything I wanted to say on CC. </p>
<p>Retirement planning vs College Planning. Same concepts but just different time framing. </p>
<p>As for the Big Boys they can take care of themselves, I am more concerned about me, myself, and I.</p>