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14 Comments / Post A Comment

bgprincipessa (#699)

Hahaha, what? I mean, not to say it’s a bad idea, because I have no idea. Sounds terrific. But never would have occurred to me. I hope it gets more aggressive for your future possible relative.

Meaghano (#529)

@bgprincipessa Ha, yes it is very random. I forgot to mention the process whereby the idea came to me (reading a semi-embarrassing personal finance book).

honey cowl (#1,510)

Yayyyyyy! You are such an adult! PS my father’s wily and intelligent 529 ways are the reason I went to undergrad debt free. <3 u dad.

Meaghano (#529)

@honey cowl Aww, go dad.

deepomega (#22)

This is a great idea. Just a heads up, because I went thru this: I believe you can only rename the beneficiary to someone in the same generation, or younger, as the original beneficiary. Since this is in your name, you’re fine, but for other Billfoldians – it’s possible to end up with an account you can’t really take advantage of.

Note that your worst case scenario is just paying capital gains on it, like Real Rich Person. You still get the money! Just taxed!

cryptolect (#1,135)

@deepomega I had no idea… My backup plan, in case my infant son turns out not to be the intellectual type, was to use his 529 to go to pastry-making school. Or something. I hadn’t given it a ton of thought.

EA_Mann (#5,000)

@deepomega you pay taxes plus a 10% penalty on any capital gains if it’s not used by the right beneficiary for college. Since the principal is already taxed you can pull that out penalty free

Meaghano (#529)

@deepomega Ohh, so you mean if you put it in, say, your kid’s name, you can’t switch it to yourself or your mom or something? But you could go from self to kid or kid to grandkid? That is so random, but good to know! Also @cryptolect pastry school is an amazing idea.

EA_Mann (#5,000)

Wow I never would have thought of that! I’m sitting here like a sucker waiting for my newborns social security number to come in.

I found the whole ‘every state has one but don’t worry about that you can use whatever’ to be really confusing. My states plan’s benefits weren’t worth the higher fees. Better to just find a company that has a good plan and ignore which state it is attached to.

Meaghano (#529)

@EA_Mann Yeah, my state (NY) has low management fees and works with Vanguard who I use for my IRA so I was glad to stick with them, mostly because like you it was hard for me to wrap my head around the fact that it really doesn’t matter what state you’re in. But logically, some seems better than others and I know there a few standout states (Nevada and Utah are ones that I kept seeing).

muush (#521)

Great article! I should probably open one for myself (planning to go to grad school eventually).

Meaghano (#529)

@muush do it! I feel like saving for yourself is one of the best uses for this. It’s your same money you just get tax incentives and the possibility for growth (unless, you know, the stock market crashes…but you can make sure to set it up so it’s less risky and half in bonds or whatever, in which case you’re only screwed if the government shuts down and when would THAT ever happen? ha).

Tayyab (#5,258)

This is not good, you should not do such kind of stuff in future Guides DNA

The state to state thing is confusing, but there’s a ton of resources out there to find the ‘good’ plans. It turns out that some state governments, and this is going to come as a shock to everyone, just handed this cushy program over to major campaign contributors to manage without thinking about how to make sure the average citizen is well protected.
I got some good advice on this – look at the returns and fees in your state. Look at the tax deduction they offer. In my state, the tax rate for my bracket is roughly 7 percent. 7% of 5000 is $350. Will the performance and fees of another state be greater than the performance and fees of my state PLUS that $350? Thankfully, my state is one of the better plans, so the answer is yes, and we go with our state’s plan. (Generally speaking, if you choose another state’s plan, you don’t get a deduction in your state for contributions, but it’s still tax free when you withdraw.)

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