To Open a 529 College Savings Plan or Not?

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With the end of the tax year drawing nigh, I’m highly debating if I want to open up a 529 college savings plan for my small person for 2017

At a current annual income of over 100k and a 3 person household, I’m always looking to maximize tax savings.

We’ve done well so far; I’ve already maxed out the IRA’s for me and my husband. We’re on track to max out my 401k and our HSA account (as we’ve done every year for at least the last 3 years).  But, I hadn’t been planning on doing the 529 plan.

I inquired about it last year with my accountant (YES, I have an accountant).  Actually, let me back track here, my accountant is a family friend.

In exchange for her “doing” my taxes (which still means me getting everything together and arranging it, and reviewing, since she is not an accountant in my state, so I still try to be aware of things here) I donate some money to a charity she is involved with, and then I get a tax write off.

Actually, I never have gotten the deduction, because even when we had a mortgage the interest was so low due to my very large down payment that I have yet to ever do an itemized deduction.  But, I get an accountant to review things and a charity gets some money, so we all win.

Anyway, she advised that maybe I do not pursue a 529 based on her personal experience.  Reasons given were that the rates of return were minimal when compared to the fees on the accounts in her state (and likely in mine) as we would have to use the state plan, not ANY states plan to get the tax deduction (the rules vary by state).

Also, I’m just not really sold on the notion that everyone needs to go to college (*sticky that as a future blog post).  She advised using something like a Vanguard index fund in your own name and then gifting it to the child in the future or using it to help pay for their college.

Part of the logic on the above being that if it is a 529 plan it is weighted more heavily against being eligible for financial aid than if it is simply another one of the parents assets.

Granted, I am hoping to be in a secure enough financial position that there is simply no way my child would qualify for any needs based financial assistance.  So, for the few small years that my small person has been around I’ve just been sticking excess cash aside in a Betterment subaccount, tagged for a “education” goal and a maturity date of 18 years old.  At this point there is about 20k in it.

I was encouraged by the expansion of uses for the 529 plans to include homeschoolers

That’s what peaked my interest in them.  I was feeling fairly certain that I would go ahead and open one for this reason as we are highly leaning towards homeschooling.  Further research informed me that 529 plans were actually removed from the finally wording when the changes to 529 plans came about last year.

So, I am back to debating it.

The Retireby40 blog had a rundown on the Oregon 529 plan (my state), but I’m still not sure.

At this point in the year setting it up by April 15th will involve moving some money out of taxable accounts to the 529.  I’m still concerned on if you will be able to move the Oregon 529 plan to another (better returning) state and continue to realize that tax benefits over the next few years.

I’m also not sure I f I want to be committing that amount of money for what, if I remember right from my initial research a few weeks ago would only be about a $500 tax savings to myself (I should run those numbers again).

Your thoughts on reasons NOT to contribute to a 529 plan?

Update:

I went ahead and loaded that bad boy up (for 2017… in March of 2018).

Using these articles from Mama Fish Saves I decided it was probably worth it.  My accountant lived in a “red” state on her graph, so the advice I got made more sense after that.

Give them a read if you’re undecided!

I’ve also been able to plug my taxable account intended for my son and 529 Plan account in as part of my retirement planning on my Personal Capital software.  It has you pick the state you plan to school in, private or state schools and helps estimate costs / show if you’re saving enough.  Pretty cool.

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