Oh. Hey.
The earnings are tax-free. Of course, in our case, the earnings are about $3.50 at this point (after years of saving).
Um…could we maybe switch user names? Because the light is starting to dawn over here.
When they made the offer, they told her that the minimum time is 5 years, but it could go longer. She’s covered until she gets done with her dissertation. As she says, “They’d kick me out before they quit paying me.”
Our earnings for two kids are somewhere around $50k - with four and five years to go before high school graduation. Which is a tax savings not to be sneezed at. We’ve probably been at it a little longer :). And a hell of a lot of money went in during 2009, a good time to be buying.
Ours is also age allocated. With four years to go for graduation, I think its pretty heavily allocated to bonds at this time.
Well, thanks to some great planning by my wonderful parents, I didn’t have to take out a dime of student loans. They mostly did it by putting away money all sorts of ways: EE bonds and savings, sure, but mostly lots of stock market investing. Neither the Coverdell nor the 529 in their current forms were available for my parents to use and there were definitely years that my father had to file a tax return for me due to the requirements for unearned income by dependents. I can see the reluctance to give up control of the asset mix, but unless Congress increases the amount allowed for the Coverdell I’m not sure I see a better way for tax-advantaged investing for education.
There is a Canadian equivalent and I did very well by using it for my three kids. The kicker was that if your kid didn’t do any post-secondary education, then you got the principal back, but forfeited the interest and capital gains. The kids who did participate then divided all the gains (as well as getting the principal). Of course, in the nature of things, only those parents who fully expected their kids to go to college participated. Still we did quite well, based on the untaxed gains. This was during the 60s, 70s, and 80s when there were periodic recessions but no collapse as we have now.
I’m pretty sure the common wisdom is that if you’re not saving enough for your own retirement, you shouldn’t divert funds away from that to pay for your kids’ college. Instead, let them take out loans, and then help them pay off the loans if/as you’re able.
As others have said, the beauty of 529 accounts is that you don’t have to pay taxes on the earnings. Depending on how you invest the money inside the 529, that can be a huge benefit or no benefit at all.
It depends. My state’s plan lets you contribute pre-(state?)tax dollars but they only offer one investment option. A non-state plan may offer investment options with higher earning potential.
Since college tuition is mainly a way to siphon off middle-class wealth then the financial aspects of any particular plan don’t matter much. However if your money is invested in something like a 401K you won’t get your expected return if there’s another financial crisis because your money will be needed to give bonuses to the people who created the crisis.
You know, this is closer to the truth than you might realize.
And it depresses me.
I just can’t in good conscious use this plan, as any tax benefit I would receive would no way help my daughter come college time. And for all of you that think it is a wonderful avenue for savings, good for you. I hope you make a great return. I have come around to the Facebook and google thought process here; if the government is trying to make it look too good to be true, there is probably a reason for it. Tax benefits may entice people to invest in something they might not otherwise invest in. When someone is giving you something, its usually for their benefit, not yours. So when Facebook gives you a free account, and google gives you free storage for emails as well as other things, they aren’t exactly doing it for you. they are using your information for their benefit and profit, not yours.
I feel the same way about this plan. If it makes money for you, that’s fine, but its beside the point. The point is to get you to fork over more of your hard earned money to people who are supposedly experts in investing but in reality aren’t. If they were, all mutual funds would make a positive gain each year.
I guess it’s time I sit down with a financial planner to see what kind of tax benefits this would provide, but it will have to be amazing for me to even consider it.
Instead, I might just buy a gold bar, put it in a sock, and hit anyone that gets near me in the head with it when the banks in the country go belly up, and we are using dollar bills as toilet paper. Yes, I’m skeptical of the near term economic outlook for the US and the world.
I’m not sure what you mean by beyond help, unless you are referring to my current feelings and outlook on the economy. If that is your point, then I agree with you.
I have a close relative who works for one of the big Wall Street investment banks. Executive VP is his title, and he lives VERY well. And yet, his children are taking out loans to go to college. Don’t ask me how, I don’t know how they have hidden their money, bonuses, etc. but his basement in his house cost him upwards of 6 figures, and he never has a problem buying what he wants. It galls me that his kids are not only paying for their own education, but theoretically, the money they borrow should be going to someone else, that really deserves the loan. This guy sleeps like a baby.
I have a personal bug up my ass to pay for my children’s education. That was something that was not done for me, and I feel that the one thing I must do for my children is to pay for their education (if they wish) to go to college. If they don’t, I’m sure the money will be transferred to them in a different way, but I don’t know how yet, as I assume they will be going to some sort of post high-school education.
I have over ten years, so I’m thinking of looking into savings bonds as the way to go for a significant part of this. Even though the bonds won’t mature in time, it will be close enough time-line wise to repay ourselves (or the kids) with any loans they take out to pay for school.
If someone connected to my bank called me about an investment opportunity - I think I would run - and I have been an aggressive investor/saver for 30 years.
If I were you, I would start here : Your guide to saving for college and 529 plans | Vanguard
IMHO Vanguard spends comparatively little money on sales and marketing so their customers get better returns instead of higher fees.
I now use them for my retirement - but wish I had used them far earlier.
- A Firm Believer in Low Cost Index Fund Investing (over time, it will beat the fancy advisors)
Handing a kid a blank check for college can be quite dangerous. Many parents end up shoveling out tens of thousands of dollars extra because their kid doesn’t respect or have the perspective to understand what a year of college costs. That’s a waste of money no matter how much you make. Making your kid have some skin in the game by taking out loans can be a real incentive for them to take college seriously, and to get their degree finished on time.
Even though I haven’t made my kids pay for their college yet, I see nothing implicitly wrong with parents, even wealthy parents, who insist on having their kids share the burden.
First of all, if the father makes the kind of dough you think he does, the kids don’t even qualify for subsidized loans. Instead, they qualify for unsubsidized loans that start accumulating interest immediately, the kind where payments are due immediately, not after the kid finishes school. These are in no danger of running out because they are money makers for the bank. It’s a completely different risk level than subsidized loans.
So quit gnashing your teeth that he’s somehow abusing the system and taking something away from “deserving” people. It’s akin to complaining that people who can afford to pay cash for a car should never take out a car loan because they’re using up money meant for people who can’t afford to pay cash. It doesn’t work like that. Person A has no impact on Person B.
Also, I might add that you know nothing about your relative’s motives or finances. Perhaps he’s having his kids take out loans because he is making more investing his money than the interest rate on the loan. For all you know, he’s personally paying off the loans as they come due, but he put them in his kids’ names so that they can develop a good credit history. Or perhaps he intends to pay off the loans AFTER they graduate as an incentive for them to graduate on time.
Even on unsubsidized student loans, payments don’t begin until graduation. I mean, you can pay them off before graduation but if you can do that you probably didn’t need them to begin with.
If you don’t start paying off the interest immediately, it is added to the loan:
Federal Unsubsidized Stafford Loans: These feature a low, fixed interest rate of 6.8% (for loans disbursed after July 1, 2010). These loans are not awarded based on need, and the student is responsible for paying the interest that accrues. The interest may be paid while the student is in school, or it may be capitalized and added to the principal loan amount to be paid later.
In the last 15 years, to pick a few major indexes, the S&P500 is up 42%, NASDAQ is up 84%, MSCI EAFE is up 45%. Granted, those aren’t particularly impressive annualized returns, but they are positive.
What did you invest in that you lost money in over that period?
Missed the edit window, but I want to apologize for my last post, which was unnecessarily accusatory.
My point was that buy-and-hold broad-based indexed investing had a positive rate of return over that period. If you didn’t have one, you should reconsider your investing strategy.
The average return to a given investor is significantly lower than the market’s return due to two main factors:
- Many investors buy managed funds with high fees
- Many investors sell when the market goes down (locking in losses), then buy again when the market goes up (missing out on the biggest gains).
I am not seeing the nefarious plot. States benefit from education funds by increasing the number of skilled workers in their state.
Right, but if you have the money to pay off loans while you’re in school you should be borrowing less instead.
Depends on the loan and your field. Most federal student loans can be put on a plan where they will never take more than 10-15% of your income, and if you work for the government or a non-profit, they are forgiven in 10 years. Add loan repayment benefits (it’s not uncommon for jobs in some field to offer 10k or so a year in repayment benefits) and you’ve got a pretty good deal,
With interest rates for borrowing money at historic lows, you cannot make blanket statements like that. Our investment portfolio is currently beating the pants off mortgage rates, and even 6.9% student loan rates. Why would we take money out of a portfolio that is earning 12-15% per year, when we can borrow the money at 3 to 7%? We can always start paying off the loans more aggressively, but we may not ever be able to borrow money so cheaply.
(P.S. To fund our kids’ colleges, we’re not taking out student loans, but instead we’re using our home equity line of credit, which is currently 3.25%. We exhausted the 529 accounts after 2 years.)