I've done my research, and all signs appear to point to saving money in a 529 for college expenses down the road. But I swear it's just performing like garbage...I guess basically like every other savings account these days.

Is there a better option? The baby is 15 months old, we've got it in the aggressive "age appropriate" NC 529 plan but I just feel like there has to be something better. I think in 6 months we've made $4 in interest.

11/11/2012 9:29:24 PM

You do realize that the 529 is tied to the market right? The market erased a ton of its gains recently which would explain why you got a fairly flat return.

Keep putting money in it, keep taking the deduction and it will eventually grow.


In fact 6 months ago Friday the market was at 12815. It closed last week at 12811.

Your return explained.

[Edited on November 11, 2012 at 9:37 PM. Reason : Adg]

11/11/2012 9:34:42 PM

No, I understand that.

I guess my question is are there better options to save that aren't tied to the market. I feel that most economists will shout from the rooftops about all of these market based saving programs and all it takes is one downturn to wipe out everything.

11/11/2012 9:39:46 PM

That's why it's called a risk based investment.

You can't expect that a lower risk investment can have a higher return than a higher risk investment.

Also economists know that the market goes up...and down. Something you should keep in mind. You're not always going to make money.

11/11/2012 9:42:21 PM

I think you have a severe lack of understanding of financial investing in general. If you take some time and learn more about the broader subject, I think your specific understanding of 529s will fall into place.

11/11/2012 10:26:10 PM

[Edited on November 11, 2012 at 10:27 PM. Reason : Dbl post. Not meant to be an insult, just my observation/perception.]

11/11/2012 10:26:10 PM

I know its tax advantaged but I've always thought the 529 was maybe a little too limiting when compared to just investing on your own and being able to use the money in other ways.

but I don't know that much about it to be honest.

11/11/2012 10:41:39 PM

You can pay for college with Roth contributions, but you can't pay for retirement (or anything else) with 529 money.

Maybe I'm missing something big, but I've always thought it would be silly for a couple to use a 529, if they were not already maxing two Roths and maxing 401k's for one or both, if they're eligible.

If so, then have at it. If not, I just don't know why I would want to limit money for education when retirement savings aren't even maxed yet.

And that's not even to mention paying into a 529 while carrying credit card or other bad debt. But I've seen and heard of a lot of that.

[Edited on November 12, 2012 at 3:24 AM. Reason : a]

11/12/2012 3:22:43 AM

^ I think the thing is is that people that are going to use a 529 are people that may not have the ability just yet to max roths or 401ks.

The low amount of money to get started and the low contribution level I think all allow a wider base of the general public to "invest" and try to get a return.

11/12/2012 6:05:14 AM

Quote :

"I guess my question is are there better options to save that aren't tied to the market."

A savings account.

11/12/2012 8:21:58 AM

^ a savings account's rate is still market driven

I think he might be best served with a stack of cash, a glass jar and a hole in the backyard.

11/12/2012 8:39:38 AM

Quote :

"^ I think the thing is is that people that are going to use a 529 are people that may not have the ability just yet to max roths or 401ks."

Most people who use a 529 are not maxing roths or 401k's - certianly. I'm saying it doesn't make sense to me why someone would use a 529 at all unless those are maxed. Money needs to go into the most flexible accounts first, and the least flexible last.

People are building a trap for themselves. They don't contribute enough to Roths/401k's, and then have money trapped in a 529 that they need for other things, all while probably carrying bad debts. The order should be reversed completely.

11/12/2012 3:39:45 PM

I agree you should max out the retirement accounts first. Was just reading this yesterday.

http://gawker.com/5959726/your-parents-took-out-loans-for-your-education-and-now-theyre-broke

Duke also makes a good point about reading up on the broader subject of investing, especially if you are looking for "better options that aren't tied to the market"
I'm still in the process of explaining to my younger sister the concept of a roth IRA and how it can be comprised of multiple funds.

Quote :

"The low amount of money to get started and the low contribution level I think all allow a wider base of the general public to "invest" and try to get a return."

How does this differ from an IRA or 401K?

11/13/2012 12:27:20 PM

Quote :

"Maybe I'm missing something big, but I've always thought it would be silly for a couple to use a 529, if they were not already maxing two Roths and maxing 401k's for one or both, if they're eligible."

You aren't missing anything. Exactly how you should be.

11/13/2012 3:13:56 PM

oh hahahhaa!! Florida has one of these state college savings things. These things are managed about as well as dog shit removal at the new condos built by the highway.

Public universities will be just as expensive as private universities in 17 years with no increase in quality. They will basically be the High Schools of the future. Why do you want to restrict your kids college money to that shit? It's not like you're getting anything back in return for accepting this restriction.

Relative to inflation, your money is losing value. The only upshot is your laughable "investment" would be the first to get bailed out by the government: oh wait, no. the next big recession will after the Republicans have been in power for a while like every other time.

tldr: you're fucked.

11/13/2012 6:10:33 PM

You do know the 529 is not restricted to in-state tuition, right?

11/13/2012 6:57:57 PM

Just ignore jc.

11/14/2012 10:17:41 AM

Quote :

"Maybe I'm missing something big"

Uh, yeah. Something really big perhaps.

Like the fact you don't pay taxes on the money if its used for secondary education in a 529.

So that 20-50% advantage is pretty big unless you know the winning lottery numbers.

11/15/2012 8:56:29 PM

Quote :

"Maybe I'm missing something big, but I've always thought it would be silly for a couple to use a 529, if they were not already maxing two Roths and maxing 401k's for one or both, if they're eligible."

Winner! Plus a 529 acct. makes the student ineligible for grants.

11/15/2012 8:59:22 PM

Not necessarily. For example, if you make less than 50k/year plus a couple other factors, assets such as a 529 aren't counted in FAFSA. If you make more than that, only 6% approx of assets is counted as being available to pay for college. If the 529 was opened by a grandparent, it's not counted in the FAFSA at all. The financial aid officer uses the EFC number generated by FAFSA as well as an EFC determined by the university to decide what to dole out to your kid. The 529 won't disqualify you from receiving Pells or endowment-funded grants, but it may influence the officer's decision to include any in the financial aid package. It's not unusual for a kid with a declared 529 to receive some sort of grant in their package.

Now all that said, universities have become very stingy with handing out grants in recent years due to cuts in Pell and endowment funds. So unless something dramatically changes in 18 years, I wouldn't count on a financial aid package having more than a pittance of a grant included in it. You'll be better off encouraging your kid to apply for every single scholarship they're remotely qualified for if you want free money for college. I have a student this year that has $500-$1000 scholarships but has hoarded so many of them he has his tuition and fees almost entirely covered. I can't remember the exact number he has but it's something crazy like 30+ from organizations you've never heard of.

11/15/2012 9:47:23 PM

Let's say you want to pay for your child's education. Would you rather throw $65,000 into their 529 plan TAX FREE. Or would you rather take the $100k of income and pay 35% taxes on it and then give them the remaining $65k?

It's a no brainer.

TAX FREE. That's the whole point of a 529. Roth IRA is AFTER TAX money. And with a Roth IRA you can only put $5k in it. With a 529 plan you can literally put hundreds of thousands in it if you meet certain criteria. Even if you don't meet those criteria you can dump $65k in it up front and have it start accruing interest/cap gains.

11/16/2012 1:07:24 AM

Are you under the impression that you get a federal income tax break on 529 contributions?

11/16/2012 4:01:45 PM

Yeah Face, you only don't have to pay taxes on earnings, not contributions.

11/16/2012 4:33:34 PM

sorry i misspoke there i dont have kids so my understanding was a bit off.

State tax deductible and the investment grows tax free. That's still a significant difference.

You cant pull earnings out of a roth IRA until 59.5 years old tax free. they will waive the 10% penalty but not the taxes

11/17/2012 2:15:54 PM

You can pull out principal though.

11/17/2012 7:34:05 PM

And pulling out more than your principal for a kid's college is just plain dumb anyway, regardless of tax implications.

11/17/2012 9:25:03 PM

I see face doesn't limit his know-it-all stupidity to sports talk

Quote :

"Plus a 529 acct. makes the student ineligible for grants."

Interesting, I wasn't aware of this

[Edited on November 17, 2012 at 10:32 PM. Reason : Asdf]

11/17/2012 10:31:05 PM

^ That's because it's not true.

11/17/2012 11:22:31 PM

bttt - planning to open one for our daughter in the next few weeks - planning to go with the savings plan and not the prepaid one - as of now planning to go with utah

3/2/2014 6:56:24 PM

Heavy restriction for minimal return. Pass

3/2/2014 7:20:17 PM

Tax free gains sound like a pretty good advantage to me assuming you've already maxed out your 401k and IRA.

3/3/2014 1:58:11 PM

I feel like im doing something wrong. I dont have 2k over 23k plus waiting to collect dust to save a few grand in taxes in 18 years.

3/3/2014 5:24:27 PM

Even just 2K invested aggressively over that timespan should give you about 10K in 18 yrs.

3/3/2014 5:47:58 PM

planning to go with VA right now

the worst case scenario is that we pull it out and take the 10% hit which sucks but seems unlikely due to the very broad range of eligible people it can be used on - if she doesn't use it due to a life decision or use all of it then it's available for her kids / our other future kids / cousins / etc

i'm a bit surprised nobody has one but i did expect it to be on the more rare side

[Edited on March 3, 2014 at 8:11 PM. Reason : .]

3/3/2014 7:42:44 PM

We set one up for my daughter 6 years ago. At the time the NC one was pretty good, but i'm not sure if that's still the case. I think we've been auto-contributing like $100 a month or so.

I should probably re-evaluate whether to continue with the NC one or if VA makes more sense, since we're now VA residents.

3/4/2014 2:31:20 PM

the deduction / credit in VA is very good if you live there - i think it's 4k on state taxes - you can switch plans once per year

3/4/2014 7:26:24 PM

Where do you guys do your 529 through? CFNC?

5/6/2014 1:04:55 PM

We didn't use NC - we went with VA. We started out by putting a lump sum in there and plan to add another lump sum in a year or two. Not planning to contribute on a regular basis at this point.

5/7/2014 10:43:41 AM

I noticed that CFNC uses all Vanguard funds. I'm trying to figure out why I wouldn't just go with Vanguard then.

5/7/2014 10:51:28 AM

the tax benefits

5/7/2014 11:41:27 AM

Okay that's what I thought. CFNC offers tax benefits that the Vanguard 529 doesn't

5/7/2014 1:34:37 PM

Actually looks like all tax benefits are gone

5/7/2014 2:43:57 PM

lol what do you mean all tax benefits are gone - you need to do some more reading

http://en.wikipedia.org/wiki/529_plan

Quote :

"a prime benefit of the 529 plan is that the principal grows tax-deferred and distributions for the beneficiary's college costs are exempt from tax."

5/7/2014 2:51:31 PM

I think NC used to allow pretax contributions, but now doesn't.

Sure you're still not taxed on the growth, but if you end up not using that $$ for school expenses (e.g. your kid gets a scholarship), you have atleast the income taxes to pay on the growth, and probably a 10% penalty.

They can be beneficial, but potential tax free growth for ~18 years is not a slam dunk decision when you consider the restriction of its use.

5/7/2014 3:34:54 PM

^^Sorry I misspoke. I meant to say in regards to state tax deduction

[Edited on May 7, 2014 at 3:38 PM. Reason : ]

5/7/2014 3:37:57 PM