529 or ESA for college savings?

[preschoolmom]

Thoughts? Opinions? Experiences?

We have three kids... And about 9 years

 

[Jeff_G]

Ummm yes and yes as much as you can.

I have both an ESA and 529 for both kids. With the ESA you are limited to $2,000 per kid per year. (Note this amount is an increase from the normal $500, in the future congress may not extend the "tax cut" and this could revert to $500). So I fund a 529 also because 500 or 2000 per year will not be enough to send a kids to college.

Some of the states 529 plans are poor ie have a poor set of investments others rank better. You can use any states 529 plan you don't have to live in that state nor does our child have to goto school in that state.

Both 529 and ESA earn money tax free when used for education. If you end up withdrawing money and not using it for education you pay the tax + 10% on the earnings.

 

[Irin997]

DH and I just opened a 529 and a custodial mutual fund accounts for my DD10, so we've only got 7.5 years to go. We're contributing what we can afford to the 529 monthly and then any monetary gifts she receives will go into the custodial account.

 

[hsmamato2]

personally I prefer a Roth IRA set aside for education this way if we don't need what we've set aside we can use it for other things.....

 

[Jeff_G]

personally I prefer a Roth IRA set aside for education this way if we don't need what we've set aside we can use it for other things.....

One issue with this approach is time horizons, my investments in the kids 529s and ESAs are more conservative then my retirement. I'm going to need the college money sooner then I will need retirement money.

You don't want to be pulling money out of your Roth IRA when you still need it to earn for many years to come.

Ideally fund both the Roth IRA and ESA/529...

 

[ceecee]

personally I prefer a Roth IRA set aside for education this way if we don't need what we've set aside we can use it for other things.....

Depending on your age when your child starts college, a Roth IRA could be good. It means there is no $ in your child's name if they try to get grants and some scholarships also look at need. We have DD's college funds in DH's Roth and my name as well.

 

[amcnj]

Also check the terms for your state's 529. Some plans are free from state income taxes too. And I believe the esa is considered the child's asset so may affect any aid more than a 529 which is considered the parent's asset. The aid formulas expect a higher percentage of any asset the child has to be used for college as compared to assets the parent holds.

 

[mrspaha]

I'm a big fan of Roth IRA's, so I would maximize my contribution (and spouse's) each year, before I did any other investing/saving.