College savings plans

That sounds like a great route. Just means you’re borrowing from the future to pay for college now.

You can get a HELOC with a limit that’s enough for college expenses. Just make sure that the draw period does not end before your kids graduate from college. You can always transfer funds to a savings account before the draw period ending.

529 is good for regular folks. For RE investors, there’s better use of your funds. You can use the fund to buy a rental property, get a Heloc on the appreciation for college. In case you can’t qualify for Heloc, you can let the kids get a loan, selling the house and pay off the loan when they graduate. There’s no interest during the college years, right?

Since we are talking about borrowing, yet another way is for kids to take out student loans on their own and I take care of payment with rental income. Lots of way to skin the cat. That’s why every time I look at special savings vehicle like 529 and came out unimpressed.

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Yes, I borrowed using HELOC for my first kid, entire study, then cash out refinanced combining 1st and HELOC and made it 30-year fixed.

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How many people here used 529? Is it a good experience at all?

I hate all the restrictions and the tax free growth benefit is not that appealing. I did not spend time to study 529, but some financial planners mentioned to me and the answers to my questions are always disappointing, vague and uninteresting. It seems a way for financial planners to start a business connection with potential clients

They also don’t tell you that you’re charged an interest rate for borrowing, so it lowers the returns.

It was my ignorance and did not know 529 plan that I missed the opportunity and struggled hard during the kids college days with eight years zero savings.

This is one of tax savings avenue. Why do you hate? Amazed to hear this even after Planners heads up ! Do you hate saving money or savings tax money? IMO, if someone is not using such plans, other than inability to contribute, it is pure ignorance on their part.

Well, I think using the money as down payment to buy a house, and getting a Heloc of 200k after an appreciation of 300k or more. That would be a better collage savings plan than 529. After the college graduation, your downpayment is still in your home equity and you may have additional appreciation.

Anyone has had a positive experience with 529 already? Did someone buy AAPL in their 529 plan and had a surplus of funds now? :grin:emphasized text

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Every penny tax you save simply adds to your wealth. This is easy work, just needs to carefully plan, painless money. When government provides such an option to promote education, why not take advantage of it?

You are still missing the point or you do not want to look at it !

529 is tax advantage plan.

If you know that you need minimum X amount (say 300k for sure), but you may likely end up more than x amount. If you grow the 300k back working $1000 recurring monthly 529 plan, you stand to gain at least 25%-35% (by virtue of avoiding tax). Remember you avoid both state and IRS.

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BlockquoteWell, I think using the money as down payment to buy a house, and getting a Heloc of 200k after an appreciation of 300k or more. That would be a better collage savings plan than 529. After the college graduation, your downpayment is still in your home equity and you may have additional appreciation.

Anyone has had a positive experience with 529 already? Did someone buy AAPL in their 529 plan and had a surplus of funds now? :grin:emphasized text

Blockquote

My take is that buying a rental property is like betting on one stock. In the 18-20 year horizon for college, will that rental investment appreciate enough to pay for college? Will the “hot” location today be the “hot” location in 18 years when you need the money? Also can we take HELOC on rental and tax deduct? I think the 529 with index approach provides diversification thus reducing risk without proportionately reducing return.

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Exactly, both belongs to investment category. When planning an investment for education purpose,esp $200k to $400k level, better to use 529 approved plan so that we get tax savings.

That is my take.

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Question about the taxes–is the tax rate my rate or my son’s? It was technically a gift to him under the annual gift amount. So it’s his money even if my name is also on the account.

Many asked me about 529 plan recently. Since I have not used, I do not know.

This is one of the best to refer.

Thought can only invest in stipulated (by whoever offer 529) mutual funds in 529?

My first son’s ESA started in 2003 ended in 2015 still got over $60k worth of AAPLs which would be used for 2nd son.

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What’s ESA? Is it tax free from capital gains tax? And does it allow you to invest in individual stocks?

You got it Jil!
It’s just plane ignorance, so simple to understand. Some people just talk for the freedom they have to talk.

As far as I know, 529 plans need to be open at the very age of your kid to have the compounding of the investment work. I’ve seen them working after 15 years if left alone. It is also one of the few programs where the owner of the policy must be on top of the investment.

Wikipedia can tell you more:

With the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), 529 plans gained their current prominence and tax advantages. Qualified distributions from 529 plans for qualified higher education expenses are exempt from federal income tax.

Legislation introduced in the U.S. House of Representatives in 2011 by Congresswoman Lynn Jenkins, (R-KS) and Congressman Ron Kind, (D-WI) that would include 529 plan contributions in the SAVERs tax credit, make permanent the inclusion of computers as a qualified expense, provide for four annual investment direction changes and provide employers with an incentive to contribute to the 529 plans of their employees.[

A final rather unusual advantage of the assets in a 529 plan is that although they can be reclaimed by the donor (subject to income tax and the 10% additional penalty on any gains) the assets are not counted as part of the donor’s gross estate for estate tax purposes. Thus 529 plans can be used as an estate planning tool to move assets outside of one’s estate while still retaining some measure of control if the money is needed in the future. A beneficiary must be designated and the income tax savings are still only obtained if the money is eventually spent for education, though in some cases estate taxes can be reduced without spending the money on education.

In addition, under the College Cost Reduction and Access Act of 2007, 529 college savings plans and prepaid tuition plans are now treated as an asset of the account owner (typically the parent), meaning they have little impact on a student’s eligibility for financial aid.[7]

(Since it’s a RE forum :slight_smile: )

How to Pay a Mortgage with a 529 Plan

A 529 college savings plan pays expenses incurred by your child while he attends school. If you purchase a house for your child during his college years, and you pay the mortgage on this property, your child doesn’t incur this expense. In this case, using tax-free funds from the 529 plan to pay your mortgage can raise red flags and trigger problems with the IRS, but there are a few exceptions. You can purchase a house in your name and charge your child rent while he attends college. Rent is a qualifying tax-free expense under a 529 plan. Thus, you can take tax-free withdrawals from the plan and use these funds to pay your child’s monthly housing expense. If you were to help your child purchase the house in his name, you could also use funds from the 529 plan to pay the mortgage.

Qualifying Room and Board Expense

If you’re using tax-free funds from a 529 plan for your child’s rent or mortgage, there are limits to how much you can withdraw for room and board each year. Each college and university decides a reasonable amount for room and board. For example, if your child’s college or university decides that the qualifying expense for room and board is $10,000 per year, the amount you withdraw from your 529 plan for rent or mortgage cannot exceed this amount.

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So many secrets in the tax code, we partner with an attorney specialized in saving up to 80% taxes on any company having 10+ employees and help us with capital gains deferral.

You just need to approach the right guy.

One thing most people don’t understand is that when they see 529, 401K, 1031, 1035, 7702, and so on, they are talking about the sections in the tax code. But some people don’t know it.

All these sections as 529 have their perks, and their deadly penalties if you don’t apply the right move. Again, approach the right person.

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