Picking our 529 plan for JuggerBaby
October 31, 2016
This was one of my annual goals for 2016.
We’ve been setting aside money for JuggerBaby’s care and education since 2014 but I hadn’t committed to a specific savings vehicle outside of our savings account. I wasn’t ready to think about it in the first half of the year because the first half of the year totally sucked but I finally started getting stuff done in the fall, including picking and funding a 529 plan. (That felt GREAT.)
I finally sat down to do some more research after my first halfhearted attempt last fall.
California’s 529 plan, the ScholarShare College Savings Plan, was the logical first place to start.
They allow earnings grow income-tax deferred, and the money is also free from federal income tax when it’s used to pay for qualified higher education expenses, but all the plans do. What they don’t offer are any tax incentives to keep the money in the state, and they hold their funds in TIAA-CREF which I don’t much like, so I went looking elsewhere.
Since any other state’s tax incentives do me no good as a California resident, I just targeted companies that I like: Fidelity and Vanguard.
Nevada’s Trust is administered by the Board of Trustees of the College Savings Plans of Nevada, and the plans themselves are held in the Vanguard 529 College Savings Plan with 3 age-based plans and 19 other choices. I don’t much care about the 19 other choices at this point, the money just needs to go into an aggressive investing mix right now, so the age based plans are what I care about.
Vanguard works with UGift which means that anyone who wants to contribute can just enter the code that I give them and quickly set up a bank transfer without any confidential information changing hands. I don’t want your bank information and you’re not getting JuggerBaby’s SSN, period. That’s non-negotiable.
Sidebar: some thought was given to whether it made sense to hold a plan in our names or in the gifter’s name, based on the concern that when assets are considered for college funding, assets in our or JuggerBaby’s names are counted as primary assets.
Our assets at this point in time wouldn’t disqualify JuggerBaby entirely from receiving grants, but in 17 years? If I’m doing my job, and I will, then our total assets would be sufficient that JB wouldn’t qualify for any need-based aid. If either one of us is gone, we’d have life insurance to supply some of the contributions. And frankly, one of the selling points for people planning to open 529 plans in their names instead of the beneficiaries is that they can change the beneficiary at any time. I’m not banking on JB’s future with assets in someone else’s name. I’m not saying a gifter would take back the money, but as long as that money isn’t in zir or our names, then it’s not really ours, is it?
That brings us back to the technicality that if you want to open a 529 plan in someone’s name, you need their SSN. And with the amount of identity theft and fraud out there, I’m not taking that risk in any way shape or form. JB’s SSN stays with us and whatever financial institution that I enter it into when I’ve vetted them, that’s it. I’m not widening that net of risk.
Ok, back to the program. Fidelity administers New Hampshire, Arizona, Delaware, and Massachussetts’ plans, and also has a good secure way for people to gift to the beneficiary.
PiC and I both have enough assets at both Fidelity and Vanguard to be a little more than your run of the mill investors and so we have some advantages at both, but what it came down to were the fees. Vanguard charges 0.19% on their age-based portfolios. Fidelity charges two sets of fees: a program management fee, plus investment management fees and other expenses in each of the mutual funds. It’s different for each of the four states and is a mess to figure out. But they start at 0.88%.
That’s pretty much no contest!
Vanguard, as ever, is my friend and so I’m moving cash to JuggerBaby’s account there to let it flourish and grow. But I’ll wait until after October to add more money to it, since it’s been a rather rough period in the markets.
Now we just have to get on with raising a kid, making sure ze wants to attend college, and is adequately prepared to make the most of it. I paid my own way through college but the days of being able to do that on your own are probably limited with all the rising costs of school and living.
I don’t want zir to get a free ride through life, far from it, but I don’t want zir to be crippled by the burden of many student loans if it can be avoided. At the same time, it’s possible that ze will have good reason not to want to attend college for one reason or another. If that’s the case, I’d need to consider how we might redirect these funds.
We have a 529 plan which we opened at our credit union when NC had tax benefits. While we have additional money set aside for Little Bit, we haven’t contributed any more to the 529. I would love to move it into a Vanguard plan, but Jon’s weighing the 529 versus a custodial account for the flexibility.
After putting about $50K or so in the 529, I might start funding a custodial account too. I’m hesitant to overfund because there aren’t many people that I would be willing to gift that money to if JuggerBaby doesn’t need it.
We’re using Utah’s 529 plan. It also uses Vanguard. 🙂 It was the first really good 529 option, but now there’s a few more that are also great options.
My parents over-saved for college for my sister and me (though not in education-only funds for the most part– they had some Coverdell but not that much) given our combined brilliance and low income and thus large amounts of grant aid. We both went to college with no debt.
DC1 currently has ~90K in his 529, and DC2 currently has ~30K in hers. We put in $500/mo in each. I assume those funds will go to qualified education expenses at out-of-state universities.
Yay! I remembered you went with a Vanguard plan too, I suppose I just went with Nevada’s because they’re close by geographically. Not that that has any bearing on anything.
I’m tempted to save in not just the 529 plan in case we’re oversaving as well. Ze would, if I’m lucky, inherit my work ethic and also then qualify for grants, and then what would I do with all this money locked up for education?
If you have too much money because you get grants, there’s a way to get that money back without penalty (you still have to pay taxes on the earnings though).
One nice thing about having 2 kids >5 years apart is that we’ll have a good idea what DC1 is going to cost before DC2 is ready, so we can readjust saving at that time if necessary.
We are using Oregon’s 529, but we are transferring to Vanguard next year. We use OR because we get tax deduction, but the fee is higher than Vanguard. We can transfer it out and not pay back the tax deduction so it’s time to do it. I forgot what this is called exactly. I think Utah or Nevada would be fine.
RB40Jr has $50k in his account and it should help tremendously when he goes to college.
Oh that’s right, I forgot that OR does still have state income tax! I was thinking of the no sales tax and wondering why you’d have a deduction 🙂
Are you aiming to save more than $50K?
I had the same question you did on what to do with the funds if child decides not to attend college. I hope he would but there are no guarantees. I was told that I could always transfer the funds to another family member but if I only have one kid, I’m not really interested in funding any other member’s education!
Yeah, I haven’t solved that question to my satisfaction yet. There aren’t any other family members I’d want to fund! My baby cousins are all done with education.