I’m trying to figure out how widespread the usage of 529s are for paying for college.
Are they a big part of how you plan on paying for college? A little part? No part at all?
I am not sure what you are asking. A lot of parents don’t save at all and plan to “help” with current earnings or taking parent loans. We saved most in 529’s for each kid. At some point, around 60,000, (one kid) we decided we didn’t want the money locked up in Education, in case they didn’t need it or got full rides…
We continued to save, but in a flexible way.
So the breakdown in 529 account: 60,000 + 60,000 And then another 40,000 in another earmarked for education,
The budget that each kid was given was under 25,000 (about the price of our state flagship)
http://money.cnn.com/2015/03/04/pf/college/college-savings-529/
According to this, there are 12 million accounts in 2015. You’d have to compare that to the number of kids ages 0-26 to get a sense of how common they are. And of course some kids have two kinds of 529s- prepaid plans and another account to save for non-tuition qualified expenses.
Completely funding both son’s college education through our 529 plan. Both son’s chose in-state colleges in California. One is at a UC and other at a Cal State. The extra money for the son at the Cal State will be used for his semester abroad. Only contribution from our current savings, is for personal expenses including travel expenses.
It varies a lot. We had about $120K per kid in college savings, and about $80K of that for each kid was in their 529. But you will get as many different answers as there are people.
Funded 529 to cover the full cost of any U.S. college for only child. He chose a military academy.
We didn’t fund a 529 at all for either kiddo. We put our money into retirement. College was funded out of current earnings of one parent. Both parents were full time employed professionals.
100% of our contribution is from a 529. The rest is funded through a merit scholarship.
Funded each kid to fully cover the state flagship through 529. Looks like all three will go to the same LAC and each received a generous merit scholarship to bring the cost down to our flagship. S1 had some left that he used toward a master’s, D1 expects to use her remaining funds for PA school, D2 is a high school senior.
When calculating need, I think they subtract 1/4 of the 529 balance from the total cost of attendance, and then see other student savings, family income, etc to calculate the need. All of the money in 529 is taken by them over 4 years (in private colleges where the annual CoA is greater than the 1/4 of 529 balance )
For the FAFSA, a 529 is treated as parent asset. After the asset protection allowance, 5.6% of the remaining asset i, is added into the family EFC. Colleges and universities that use the CSS Profile can do whatever they feel like when they design their own aid plans.
We did not have a 529, as we had only one kid and didn’t know what the post-high school plan would end up being.
Funding two 529s to have enough for the UC system. Additional funds if either goes to a private will come out of other savings and/or current income.
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I don't have kids that are high school or college age yet, but they are part way there (still in preschool years). I decided to set aside some money in 529s to pay for college. I'm planning on having the parents (me and my wife) pay 75% of the cost and the remaining 25% my kids will be on the hook for, through scholarships, summer jobs, or potentially loans if they don't want to work or get scholarships.
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Back when each kid was born, I invested a sum of money that was equal to about 45% of the total 4 year cost of college for 4 random in state colleges near the state that I live in. I have not contributed to it since. Today the 529 for my oldest kid is worth about 75% of the current 4 year cost and the 529 for my youngest is worth about 55% of the current 4 year cost. They investments have done well because the stock marked has risen handsomely as we came out of the 2007 recession while the cost of college has been relatively flat in my neck of the woods.
They still have around 15 years to go, and if my investments go up at the historical average (8%) and the cost of college rises as historical average, I think there will be enough to pay for 75% of each child’s college education. I might have to move some money from dd #1 to dd #2’s account but the 529 rules allow for transfers relatively easily.
My goal is to not drop another penny into the accounts in the next 15 years and be able to pay for our parent share.
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I don’t think this is true…at least nit for FAFSA purposes. For FAFSA purposes, a 529 is considered a parent asset and is assessed at 5.6% or so of its value towards the annual EFC.
Of course, Profile schools could have a very different way of calculating the 529’assessment…but this probably varies by school.
We have a 529 for both girls. Don’t know yet how big of a part it will play in paying for college, though.
529s are tricky. Had one for each kiddo. Both would have been woefully inadequate if we’d have had to pay our EFC (which is about what our in-state publics cost). However, thanks to “following the money” when the they selected colleges, oldest child’s fund, when combined with contributions from current income, was adequate to get her through with one small loan, and younger child will have money leftover in hers.
While having some money that can’t be touched (without penalty, anyway) for anything but education is a nice cushion for a kid, having huge sums locking into education only accounts may not be the way to go for every family. Large scholarships or other awards may make having the money in a more flexible vehicle a real advantage.
Clarification. It is my understanding that when a child receives enough scholarship funding for college so that there will be money left over in the 529, that money can be retrieved without penalty. But to do this you need documentation of the annual cost of tuition and scholarship funding. And if you anticipate there being quite a lot left over that wouldn’t be used by another child or for graduate school, you need to claim it annually in order to avoid penalties. That, at least, is what we were told by the administrators of the 529 we hold for our son (an only child). So it can still be a wise strategy to fund a 529 even if your child ends up receiving large scholarships or other awards, you just have to understand the rules about when to draw out the money.
You don’t pay a penalty if the child receives a scholarship, but you do have to pay income tax on the growth over the years. If a guy invested in a regular taxable account they’d only pay 15% long term capital gains. So there still is a “penalty” of 10% - 15% (depending on the marginal tax rate of the account holder) if the money is withdrawn for non-qualified purposes.
You might be able to skirt around this by transferring the balance to the student and then having the student withdraw the money and “gift” it back to the parent. That is slightly more complex and might impact gift tax laws depending on the dollar amount that is being considered.