Hi, I'm 40, I live in California (Bay area, HCOL), got married last year, and we are expecting a baby this January, 4 months away.
Total net worth is ~2.8M. Roughly 700K of NW is in pre-tax 401k, Mega backdoor Roth IRA, and Roth IRA. Yearly expenses are 120K (for now).
I want to make investments into 529 account for my kid. Also FYI, Because I'm 40, when my kid is at the age to go to college, I will be ~59, and I can soon start tapping into my tax-advantaged accounts (mentioning this, because this is a factor in considering not contributing excessively in 529.)
I did read a lot about 529, but I'm also getting mixed signals.
1) I'm in CA. No state tax deduction advantage here. CA 529 account choice here is ScholarShare 529. Is there an advantage to instead contribute to Nevada or Utah 529 plans, which are categorized as gold and silver plans by Morningstar in 2023 (https://www.morningstar.com/personal-fi ... plans-2023)? Also asking, because, I know some people in Bay area invest in out-of-state plans, but I don't know their rationale. If investing in Nevada / Utah plans as a CA resident will not give me tax advantage, then why invest in Nevada / Utah plans, is it because of better fund choices?
2) Does investing in in-state or out-of-state 529 plans have different consequences or contributions or contribution limits to in-state state schools, out-of-state state schools, and private schools? E.g. by the time my kid goes to college, I may still be in CA, and the kid may go to college (public / state or private) in MA.
3) Just to make sure, I can use 529 accounts not just for college, but all school years, right? This I assume includes pre-school, K-12, college, and maybe grad school?
4) What is the annual contribution limit? What is the lifetime contribution limit? More importantly, what is the annual withdrawal limit (to use for kid's education)? I read in a couple of places that the annual withdrawal limit is 10k, which will not work for me, if I'm targeting a private school for my kid that year.
5) Public / state school vs. Private school vs. home not in school zone dilemma: School ratings around my house (rent) zone is 4 / 5 / 7 (K-5, 6-8, 9-12), which isn't perfect. We can stay here for a while, and either send the kid the this public school for K-5 (with rating of 4), or private school (which we can cover). But the question is, I also don't want to excessively contribute to 529, if we will send him to public school (same dilemma for higher grades, except college, which we can go either way). Alternatively, we can move to another location in the city I'm in, with higher school ratings, and send the kid to public schools until college, and then college again can go either way (open to private schools for college). Any suggestions here, as a parent? And as a 529 contributor who probably doesn't want to over-contribute to 529 account?
6) 529 investing strategy and preventing overfunding. In various ways, I will be over-contributing to 529, and I don't want it. I did some back-of-the envelope calculations for investments. Since kid's birth:
a) If I invest 500$ / week for 10 years, and then stop for the next 10 years, assuming 10% YOY growth with good funds, that will end up with 1.2M, which may be overfunding (And yes, I know I will have to withdraw some of it along the way).
b) If I invest 250$ / week for 10 years, and then stop for the next 10 years, assuming 10% YOY growth with good funds, that will end up with 600k, which may still be overfunding.
c) I also considered front-loading before kid's school years. If I invest 500$ / week for 5 years, and then stop for the next 15 years, that will end up with 458k, which I know may be low if the kid ends up going to a private college (I hear 75k-100k / year ranges).
Any suggestions here? I know there are many variables, but did anyone front-load? Are there any annual contribution limits that will invalidate some of these investing plans?
Thanks in advance.
Total net worth is ~2.8M. Roughly 700K of NW is in pre-tax 401k, Mega backdoor Roth IRA, and Roth IRA. Yearly expenses are 120K (for now).
I want to make investments into 529 account for my kid. Also FYI, Because I'm 40, when my kid is at the age to go to college, I will be ~59, and I can soon start tapping into my tax-advantaged accounts (mentioning this, because this is a factor in considering not contributing excessively in 529.)
I did read a lot about 529, but I'm also getting mixed signals.
1) I'm in CA. No state tax deduction advantage here. CA 529 account choice here is ScholarShare 529. Is there an advantage to instead contribute to Nevada or Utah 529 plans, which are categorized as gold and silver plans by Morningstar in 2023 (https://www.morningstar.com/personal-fi ... plans-2023)? Also asking, because, I know some people in Bay area invest in out-of-state plans, but I don't know their rationale. If investing in Nevada / Utah plans as a CA resident will not give me tax advantage, then why invest in Nevada / Utah plans, is it because of better fund choices?
2) Does investing in in-state or out-of-state 529 plans have different consequences or contributions or contribution limits to in-state state schools, out-of-state state schools, and private schools? E.g. by the time my kid goes to college, I may still be in CA, and the kid may go to college (public / state or private) in MA.
3) Just to make sure, I can use 529 accounts not just for college, but all school years, right? This I assume includes pre-school, K-12, college, and maybe grad school?
4) What is the annual contribution limit? What is the lifetime contribution limit? More importantly, what is the annual withdrawal limit (to use for kid's education)? I read in a couple of places that the annual withdrawal limit is 10k, which will not work for me, if I'm targeting a private school for my kid that year.
5) Public / state school vs. Private school vs. home not in school zone dilemma: School ratings around my house (rent) zone is 4 / 5 / 7 (K-5, 6-8, 9-12), which isn't perfect. We can stay here for a while, and either send the kid the this public school for K-5 (with rating of 4), or private school (which we can cover). But the question is, I also don't want to excessively contribute to 529, if we will send him to public school (same dilemma for higher grades, except college, which we can go either way). Alternatively, we can move to another location in the city I'm in, with higher school ratings, and send the kid to public schools until college, and then college again can go either way (open to private schools for college). Any suggestions here, as a parent? And as a 529 contributor who probably doesn't want to over-contribute to 529 account?
6) 529 investing strategy and preventing overfunding. In various ways, I will be over-contributing to 529, and I don't want it. I did some back-of-the envelope calculations for investments. Since kid's birth:
a) If I invest 500$ / week for 10 years, and then stop for the next 10 years, assuming 10% YOY growth with good funds, that will end up with 1.2M, which may be overfunding (And yes, I know I will have to withdraw some of it along the way).
b) If I invest 250$ / week for 10 years, and then stop for the next 10 years, assuming 10% YOY growth with good funds, that will end up with 600k, which may still be overfunding.
c) I also considered front-loading before kid's school years. If I invest 500$ / week for 5 years, and then stop for the next 15 years, that will end up with 458k, which I know may be low if the kid ends up going to a private college (I hear 75k-100k / year ranges).
Any suggestions here? I know there are many variables, but did anyone front-load? Are there any annual contribution limits that will invalidate some of these investing plans?
Thanks in advance.
Statistics: Posted by FireToBiz — Mon Sep 02, 2024 11:31 am — Replies 0 — Views 49