529 plans. What do you have and why do you like it?

[OceanAnnie]

I'm researching 529 plans. I've looked into it before, but I really need to do something soon. I don't know if I want to go through our bank or Upromise. I'd like to hear about other people's experiences going through the process, things to look for, and to steer away from. What plan did you choose and why?

 

[EthansMom]

529 plans are organized through each state. Some states offer a tax rebate/refund/credit if you are a resident and contribute to their plan. Here in CT, for instance, we get a tax credit for our contributions (up to $10,000 per year). So, we save roughly 5% of every dollar we contribute to the CT plan.

You can contribute to any state's 529 plan, but you won't get the same tax benefits.

If your state doesn't offer any incentive to contribute to their plan (or you aren't happy with their plan options, etc..) than you should look at Utah's 529. It is handled through Vanguard and is regularly touted as having the lowest fees and most options.

You may also want to look at Coverdell IRAs (also called "Education Savings Accounts"). They have lower maximum contribution limits but similar benefits to a 529 (a few different rules about them, but very similar). In addition to 529s, we have Coverdell IRAs for our kids (through Vanguard).

 

[MarkBarbieri]

We live in a state with no income tax (Texas), so we have no tax incentive to choose a particular fund. We chose the Utah funds for the reasons stated by the prior poster (Vanguard, low cost). I've been happy with them.

We opted for a 529 savings plan rather than a pre-paid tuition plan because the return on the latter is terrible if your children don't go to the schoolsin the program.

Coverdell's are a decent substitute, but I don't see any advantage in using them. They are capped at a low annual contribution limit ($2,000/year) and you can't use them if your AGI is over $190,000/year.

My advice is to pick a plan with low cost funds and low management fees. Set up to either fund them directly out of your paycheck or to direct draft your account the day after payday (our approach). The earlier you start, the better off you will be.

Each year, I recalculate how much we think college will cost and how much we plan to cover. Then I estimate how much savings I'll need to reach that target and adjust our savings accordingly.

 

[georgina]

My kids have Fidelity and Vanguard 529's started by their grandparents. I like Vanguard better (I think it held up better under 2008's stock market drop), and am spending down the Fidelity ones first.

For financial aid reasons, I think it is better to have the accounts in your names rather than the children's names. There have been a few changes lately, so be sure to check that out.

 

[Hillbeans]

We have a Franklin Templeton plan through our state (NJ). It lost about 1/3rd of it's value about 2 years ago but now is starting to come back slowly. Our oldest is almost 9 so we still have some time to make up some money. Our hope is to pay for 1/3 of our kids college through our 529, 1/3 through us taking out a loan and maybe the last 1/3 through them working or taking out a small loan themselves.

 

[OceanAnnie]

Thank you for the replies!

I have a lot to learn and to me, it's a complicated venture. I think the pre-paid plan is the only one that locks the tuition rate at the time you open the account. Is that right? That is enticing. I need to look into reciprocity of states some more. I think there is some, I don't know what states participate. I don't know the limitations nor the penalties for either of the pre-paid or 529 plans. I just want to be fully up to speed. Don't want any surprises!

 

[golfgal]

I am not a fan of 529 plans as a whole. We have different and frankly better vehicles for our kids' college savings that do not have the limitations on the use of the funds that a 529 plan has and the same tax favorable growth and access that the 529 plans have. Our state only gives incentives to 529 plans for those making less then $35,000/year so there really isn't any reason to go that route here. Our plans GAINED money last year. Now, if we were eligible for the state match then we would certainly take advantage of that.

The plan we would have used if we went that route would have been the VA plan administered through American Funds because of the breakpoints we can get with our other investments.

 

[OceanAnnie]

I am not a fan of 529 plans as a whole. We have different and frankly better vehicles for our kids' college savings that do not have the limitations on the use of the funds that a 529 plan has and the same tax favorable growth and access that the 529 plans have. Our state only gives incentives to 529 plans for those making less then $35,000/year so there really isn't any reason to go that route here. Our plans GAINED money last year. Now, if we were eligible for the state match then we would certainly take advantage of that.

The plan we would have used if we went that route would have been the VA plan administered through American Funds because of the breakpoints we can get with our other investments.

What plan do you have?

 

[golfgal]

What plan do you have?

I sent you a PM about this.

 

[OceanAnnie]

I sent you a PM about this.

Thanks!