How to choose a 529 plan (kid is already a HS freshman!)

So we’re a bit late in investing for college, as we initially chose to save for retirement instead. But now we can do both. Currently have a D22 in college where we are paying out of pocket. She’s at a private university but she got good merit so it’s affordable.

Our home state is CA, but I know you can choose any state’s plan. I also know that CA does not offer any state tax breaks on contributions, but I see that CA’s plan shows up on a couple lists of best 529s regardless. Is there any reason to not choose that plan?

Anything else I am missing?

The main thing I’d think about is how a 529 can only be used for certain costs (tuition, books, room/board up to the COA calculation from the college), while money can be used for anything. So, if you’re not going to get a tax break on the money you put in, and you don’t really have long to rebound from investment downturns, it might be wisest to just save the money in a separate account. Or, perhaps, buy bonds with better returns than a savings account that will mature as the kid hits certain tuition bills.

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I agree at this point you’re needing money to be safe. You can buy up to $20k in ibonds today. 10k per person at 9.62%. Make sure it’s good today. There may be a settlement time. Tomorrow the yield goes down.

9.62 is good for 6 months then it resets to a new rate tomorrow. But lock in today you are good for 6 mos. After 1 year u can sell. If inflation is high this is a winner.

At this point a short term muni bond (not fund but a bond itself) or cd at +2% might be a better use if you cannot afford to lose $. Your timeframe is too short.

Treasurydirect.gov

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Obviously, you first need to worry about tuition for the first two years - and you have gotten good advice on how to secure those funds conservatively. IF you have enough available funds now that you can already invest for year 3 + 4, then you would still have a good number of years to benefit from a possible recovery from the current low (and whatever lowers that might still be ahead short-term).

With a 529 whatever capital gains you earn during that recovery would not be taxable, which might be worth a consideration depending on your precise circumstances.

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Also worth noting that that the tax documentation for a 529 is not without its hassles. If you’re not getting real financial benefit, it’s not worth the aggravation.

Also consider if we go into a recession/market downturn you could end up with less than you started with depending on plan options (happened to us in 2008 and lasted several years but kids were little). Just something to think about

I bond rate dropped as of Nov 1. I think you had to buy them by October 31 to get the 9.62

Yep. I knew OP would have to respond and act quick. May be unfamiliar. Came down about 3 points but they could have locked in.

I was on my brokerage website today. Offering a 1 year CD from Wells Fargo at 4.55. Didn’t look at a multi year but there are ways to make a better than horrible return and keep the money safe if the owner can’t afford to lose any.

They could buy conservative stocks like Verizon, Altria, bank stocks and others but of course that introduces risk.

Hard to tell of this is for the student already in college and they are looking to make a few $$ on their money. Then a cd is great or online money market for a bit less. Or if it’s for another kid later which still a cd or I bond could work. But yep the I bond is no longer unbelievable. Now it’s just good. And in six months I’ll sell and take the 3 month penalty having profited nicely. I started at 7.2.

If it’s for a current student, probably no reason to 529. Just invest for income and cash flow it. 529s have admin fees so likely not worth the hassle this late as @aquapt noted.

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